NTT Group Operations and Segment Overview * Figures represent NTT’s equity interest, whether direct or indirect, in each of its subsidiaries as of March 31, 2017. NTT and its principal subsidiaries listed above are all incorporated in Japan, with the exception of Dimension Data, which is incorporated in the United Kingdom. NTT Group is the largest provider of fixed and mobile voice related services, IP/packet communications services, telecommunications equipment, system integration and other telecommunications-related services in Japan and operates one of the largest telephone networks in the world. NTT Group consists of NTT (as the holding company), its 944 subsidiaries and its 118 affiliated companies (as of March 31, 2017). The principal business segments of NTT Group are its regional communications business, long distance and international communications business, mobile communications business, and data communications business. NTT Group also has an other business segment. Details of each principal business segment and the consolidated subsidiaries within each principal business segment are described below. NTT Group’s five business segments are described under Note 18 to the Consolidated Financial Statements. The principal services in the regional communications business segment are intra-prefectural communications services and related ancillary services. NTT’s consolidated subsidiaries in the regional communications business segment are NTT East, NTT West, and 49 other companies. The principal services in the long distance and international communications business segment are domestic inter-prefectural communications services, services related to the international communications business, services related to the solutions business and related services. NTT’s consolidated subsidiaries in the long distance and international communications business segment are NTT COMMUNICATIONS, Dimension Data Holdings plc, NTT Security Corporation, NTT America, Inc., NTT EUROPE LTD., Lux e-shelter 1 S.a.r.l., Arkadin International SAS, RagingWire Data Centers, Inc., Virtela Technology Services Incorporated, NETMAGIC SOLUTIONS PRIVATE LIMITED, GYRON INTERNET LIMITED, NTT Plala Inc., Spectrum Holdings Inc., and 368 other companies. The principal services in the mobile communications business segment are mobile phone services and related services. NTT’s consolidated subsidiaries in the mobile communications business segment are NTT DOCOMO(*1) and 117 other companies. (*1) NTT DOCOMO was incorporated in Japan as a joint-stock company in 1991. As of March 31, 2017, NTT’s ownership interest in NTT DOCOMO was 66.66% (including shares owned indirectly). The principal services in the data communications business segment are network system services and system integration services. The consolidated subsidiaries in the data communications business segment are NTT DATA(*1), NTT DATA, Inc., NTT DATA Services, LLC, EVERIS PARTICIPACIONES, S.L.U., NTT Data International L.L.C., and 296 other companies. (*1) NTT DATA was incorporated in Japan as a joint-stock company in 1988. As of March 31, 2017, NTT’s ownership interest in NTT DATA was 54.21% (including shares owned indirectly). 17 Table of Contents The other business segment includes NTT’s operations, and its real estate, finance, construction and power, systems development and development of advanced technologies businesses. NTT’s consolidated subsidiaries in the other business segment are NTT Urban Development, NTT FINANCE, NTT FACILITIES, NTT COMWARE CORPORATION, NTT ADVANCED TECHNOLOGY CORPORATION, and 88 other companies. Main Services NTT Group provides fixed-line broadband and fixed-line telephone services through NTT East and NTT West, and is the largest provider of such services in Japan. As of March 31, 2017, the number of combined NTT East and NTT West broadband service subscriptions for Hikari Access services and for ADSL services was 20,053 thousand subscriptions and 919 thousand subscriptions, respectively. Aggregate subscriber line subscriptions, which is the sum of fixed-line telephone service subscriptions and ISDN service subscriptions, totaled 21,336 thousand subscriptions. In addition, NTT Group provides internet service provider (“ISP”) services through NTT Communications and others. As of March 31, 2017, the number of ISP service subscriptions was 11,231 thousand subscriptions. NTT Group provides mobile broadband and mobile voice communications services through NTT DOCOMO. This service is provided through two networks, LTE and W-CDMA. As of March 31, 2017, NTT DOCOMO had 74,880 thousand subscribers and was the largest provider of mobile phone services in Japan. NTT Group provides data communications services through NTT DATA. NTT DATA is the leading provider of data communications systems and information systems using computer networks as a platform in Japan. NTT DATA primarily engages in strategic planning, designing, installing and operating data communications systems and computer network-based information systems, and providing IT services. In addition, through its subsidiaries, NTT Group provides financial services, including issuing leases and credit cards, real estate services, including building rentals and apartment sales, systems development services, and construction-related services, including the design, construction and maintenance of buildings. NTT’s Agent for U.S. Federal Securities Law Purposes NTT’s agent for U.S. federal securities law purposes is NTT America, Inc., located at 757 Third Avenue, 14th Floor, New York, NY 10017. NTT is located at 5-1, Otemachi 1-chome, Chiyoda-ku, Tokyo 100-8116, Japan (Phone number: +81-3-6838-5481). NTT’s Internet website address is http://www.ntt.co.jp/index_e.html. The information on NTT’s website is not incorporated by reference into this document. This annual report will be placed on NTT’s Internet website concurrently with its filing with the United States Securities and Exchange Commission (the “SEC”). History (1) Background On August 1, 1952, pursuant to the Nippon Telegraph and Telephone Public Corporation Act (Act No. 250 of July 31, 1952), NTT Public was incorporated, with its capital stock wholly owned by the Government. On April 1, 1985, pursuant to the Nippon Telegraph and Telephone Corporation Act (Act No. 85 of December 25, 1984), NTT was established, with its capital stock wholly owned by the Government. When NTT was established, it succeeded to all the rights and obligations of NTT Public. 18 Table of Contents (2) History April 1985 NTT was incorporated as a limited liability, joint-stock company. February 1987 NTT’s Shares were listed on the Tokyo Stock Exchange (the “TSE”) and other stock exchanges in Japan. July 1988 NTT’s DATA Communications Division was transferred to NTT DATA System Service Corporation. April 1992 Implemented organizational reform corresponding to the long distance and regional communications service divisions through a review of, and commitment to, a divisional system. July 1992 Business operations relating to car phones, mobile phones, maritime telephones, aircraft passenger telephones and radio paging were transferred to NTT Mobile Communications Network, Inc. December 1992 NTT’s electricity, construction and building management operations were transferred to NTT FACILITIES. September 1994 NTT ADSs were listed on the New York Stock Exchange (the “NYSE”). October 1994 NTT’s Shares were listed on the London Stock Exchange. April 1995 NTT DATA System Service Corporation was listed on the TSE. September 1997 NTT transferred its software headquarters business to NTT COMMUNICATIONWARE CORPORATION. August 1998 NTT DATA System Service Corporation changed its business name to NTT DATA CORPORATION. October 1998 NTT Mobile Communications Network, Inc. was listed on the TSE. July 1999 Implemented a group reorganization by which NTT became a holding company. Operation of NTT’s intra-prefectural communications services was transferred to its two wholly owned subsidiaries, NTT East and NTT West, and inter-prefectural communications services were transferred to NTT COMMUNICATIONS CORPORATION, also a wholly owned subsidiary of NTT. April 2000 NTT Mobile Communications Network, Inc. changed its business name to NTT DOCOMO, INC. November 2000 NTT COMMUNICATIONWARE CORPORATION changed its business name to NTT COMWARE CORPORATION. March 2002 NTT DOCOMO, INC. was listed on the London Stock Exchange and the NYSE. November 2004 NTT URBAN DEVELOPMENT CORPORATION was listed on the TSE. January 2009 NTT implemented a 100-for-1 common stock split. July 2015 NTT implemented a 2-for-1 common stock split. April 2017 NTT voluntarily delisted its ADSs from the NYSE. Reorganization On July 1, 1999, certain of NTT’s business activities were transferred to NTT’s wholly owned subsidiaries NTT East, NTT West and NTT Communications. Under the Act to Amend the Nippon Telegraph and Telephone Corporation Act promulgated in June 1997, NTT is required to hold 100% of the share capital of NTT East and NTT West. NTT East provides regional telecommunications and related services in the Hokkaido, Tohoku, Kanto and Shin-etsu regions of Japan. NTT West provides regional telecommunications and related services in the Tokai, Hokuriku, Kansai, Chugoku, Shikoku and Kyushu regions of Japan. NTT Communications provides domestic inter-prefectural telecommunications, data transmission services such as IP-VPN (Virtual private network) and OCN, and other network and ancillary services throughout Japan. NTT Communications also offers international telecommunications services and intra-city telecommunications services. 19 Table of Contents After the transfer of certain business activities in 1999, NTT began to operate primarily as a holding company. The principal sources of NTT’s revenues consist of the following three categories: • dividends from its subsidiaries; • payments for providing management services through contracts with its subsidiaries; and • payments for its fundamental research and development activities through contracts with each of its subsidiaries that benefit from NTT’s research and development activities. NTT is directly responsible for formulating and promoting the overall strategy of NTT Group, setting financial targets for NTT Group and conducting fundamental research and development for NTT Group. The presidents of NTT East, NTT West, NTT Communications, NTT DOCOMO, NTT DATA and NTT meet from time to time to discuss the strategy of NTT Group. Generally, each of the companies within NTT Group operates autonomously. However, each company must discuss with, or report to, NTT certain fundamental business decisions relating to that company, including amendments to its articles of incorporation, mergers and consolidations, assignments and transfers of businesses, election and removal of directors and corporate auditors, appropriation of profits, increases in share capital, investments, including international investments, loans and guarantees, and the establishment of business operation plans. See “Item 4—Information on the Company—Regulations—NTT Act” regarding recent developments concerning NTT Group’s managerial structure. Voluntary Delisting from the NYSE In light of changes in the Japanese stock market environment that have taken place since NTT initially listed its ADSs on the NYSE, NTT decided to voluntarily delist its ADSs from the NYSE, effective April 3, 2017, as NTT determined that the necessity to remain listed on the NYSE had decreased while the costs associated with being an NYSE-listed company had increased. Following NTT’s delisting from the NYSE, NTT’s ADSs have traded on the U.S. over-the-counter market. NTT’s Shares are currently only listed on the Tokyo Stock Exchange. Business Operations of Subsidiaries NTT Group has undertaken several initiatives to improve its management efficiency and promote cost savings. These include the transfer from NTT to its subsidiaries of certain functions, including telecommunications software and systems development, facility management and maintenance, equipment sales and directory assistance. In addition, NTT Group has begun making these services available not only to NTT Group companies but also to third parties, thereby creating new revenue sources. NTT expects its subsidiaries, as independent companies, to take greater responsibility for the profits or losses of their operations and to have a stronger incentive to boost revenues and cut costs as compared to when they were divisions of NTT. As of March 31, 2017, NTT had 1,062 subsidiaries and affiliated companies. The major changes to each NTT Group company’s business operation structure are as described below. Reorganization of Business Operations Structures of NTT East and NTT West In May 2002, NTT transferred an aggregate of approximately 100,000 NTT East and NTT West employees to approximately 100 regional outsourcing companies with specializations in three fields: facilities and equipment, sales and marketing, and administration and accounting. In July 2005, NTT East consolidated the three fields of its regional outsourcing companies into prefectural units, and outsourced branch corporate marketing operations to these new companies as well. 20 Table of Contents In July 2014, NTT East revised its business management structure in response to the changing market and business environments in order to further enhance operational efficiency and promote service provision by working even more closely with local communities. Specifically, in order to further promote the efficiency of its 17 branch offices in each prefecture of the NTT East area, NTT East merged its branch offices into six business divisions and consolidated operations for efficiency where possible. To promote service provision in even closer conjunction with the local communities, NTT East established 29 branch offices as internal units within these business divisions, which divide the larger markets, namely the greater Tokyo metropolitan area (Tokyo, Kanagawa, Chiba and Saitama) and Hokkaido. In connection with these developments, NTT East reorganized its 17 regional subsidiaries in each prefecture of the NTT East area and NTT East Solutions Corporation, which had overseen corporate sales in the Tokyo area, into four companies. In addition, in order to further increase business efficiency and to promote greater consistency in, and improvement of, service levels, front office operations (including 116 call centers) that had previously been outsourced to multiple companies were re-established as NTT EAST JAPAN SERVICE CORPORATION to operate in a centralized manner. In July 2006, NTT West modified the organization of its headquarters and reinforced its prefectural branch functions. In conjunction with these developments, NTT West also consolidated its facilities and equipment, sales and marketing, and administration and accounting subsidiaries. Furthermore, in April 2008, NTT West established six new companies, including NTT West-Home Techno Corporation, which commenced operations in July 2008. In July 2012, in order to promote and expand strategic growth businesses and to further expand its business areas, NTT West consolidated the NTT West-Home Techno companies into the newly formed NTT Home Techno Corporation. In addition, in October 2013, NTT Business Solutions Corporation was established through the merger and name change of eight regional subsidiaries and six IT-MATE companies in response to the need for stronger sales capabilities in business markets including small- to medium-sized businesses, whose need for ICT use is expected to grow in the future. Services other than information and communications systems proposals, construction, and support for business users have been transferred from eight regional subsidiaries to NTT MARKETING ACT CORPORATION, NTT FIELDTECHNO (name changed from NTT HOMETECHNO), NTT NEOMEIT CORPORATION, and NTT BUSINESS ASSOCIE WEST Co., Ltd. Reorganization of Business Operations Structure of NTT Communications In the fiscal year ended March 31, 2007, NTT Group conducted a review of its corporate businesses and upper layer businesses. Specifically, with respect to its corporate businesses, NTT Group also revised its customer accounts system. Since that time, NTT East and NTT West have been responsible for customers who require more locally oriented service, while NTT Communications has been responsible for other customers such as central government agencies, city banks, and trading companies. Further, with respect to upper layer businesses, companies that operate portal websites and provide Internet access services and video distribution services for television became subsidiaries of NTT Communications. In May 2012, NTT Communications established NTT COM Marketing to consolidate NTT Group’s resources under a single company, with the goal of strengthening sales to small- and medium-sized businesses. NTT COM Marketing began operations in August 2012. NTT COM Marketing succeeded the sales business of NTT Com CHEO, including its marketing support operations, through an absorption-type company split. Further, NTT Com Technology Corporation and NTT Com Solution & Engineering Corporation have worked to further strengthen the competitiveness of their solutions businesses and engineering businesses, and in conjunction with reviews of their respective business objectives and goals, changed their respective names to NTT Com Solutions Corporation and NTT Com Engineering Corporation in January 2015. 21 Table of Contents Reorganization of Business Operations Structure of NTT DOCOMO In July 2008, NTT DOCOMO reorganized its group structure to merge its eight regional subsidiaries, including NTT DoCoMo Hokkaido, Inc., into NTT DOCOMO. Furthermore, in July 2014, NTT DOCOMO reorganized 25 business service subsidiaries nationwide into 12 companies, including DOCOMO CS Co. Ltd., in order to be able to make further improvements to the services it provides at the community level. Reorganization of Business Operations Structure of NTT DATA Since January 2012, NTT DATA has conducted its business operations largely through NTT DATA, Inc. in the U.S., NTT DATA EMEA Ltd. in Europe, the Middle East and Africa, NTT DATA (CHINA) INVESTMENT Co., LTD. in China, and NTT DATA Asia Pacific Pte. Ltd. in the Asia-Pacific region, in response to the accelerating global business needs of its customers, with the goals of both building a global-scale structure that provides an operational system supported by rapid service, and of strengthening the NTT DATA brand abroad. Further, in April 2012, NTT DATA changed its corporate logo to a globally uniform design and initiated business development under the new brand logo. Furthermore, NTT DATA’s acquisition of EVERIS PARTICIPACIONES, S.L.U. (“everis Group”) in January 2014, which has operations in Spain and major countries in Latin America, has enabled NTT to provide comprehensive IT services to customers in these regions. Effective January 7, 2015, NTT DATA designated NTT DATA (CHINA) INVESTMENT Co., LTD. as its primary Chinese subsidiary and integrated and reorganized NTT DATA (CHINA) Co., LTD. and NTT DATA (CHINA) Information Technology Co., LTD. In July 2015, with a view to being able to respond to changes in the business environment in the medium- and long-term and to further promote business cooperation, NTT DATA revised its operating structure from a company system to a divisional system. In March 2016, NTT DATA agreed to acquire the Dell Services Division (consisting of Dell Systems Corporation, Dell Technology & Solutions Limited and Dell Services Pte. Ltd., and Dell Group’s IT services-related assets mainly in North America) from Dell Inc. After completing the acquisition of over 99.9% (asset value base) of Dell Services by March 6, 2017, beginning in April 2017, NTT DATA launched a new operating structure under which the Dell Services Division was consolidated with NTT DATA’s existing North American entity, NTT DATA, Inc., to begin operating as NTT DATA Services. Implementation of Billing and Collection Operations for Communications Services and Other Charges by NTT Finance Starting in July 2012, NTT Finance commenced billing and collection operations with respect to communications services and other charges. The staff involved in billing and collection at NTT East, NTT West, NTT Communications and NTT DOCOMO were brought into NTT Finance as a team of specialists to carry out these operations. As a result, NTT Group was able to meet customer demand with respect to the ability to make one-stop payments, in response to the current environment in which individuals and households use multiple communications services, such as fixed-line telephones, mobile phones, broadband and ISP services. While each NTT Group company has heretofore taken initiatives to improve efficiency with respect to billing and collection operations for communications services, NTT Group is continually seeking further improvements in quality and efficiency. Principal Business Activities NTT Group’s businesses are segmented according to its five primary lines of business: regional communications business, long distance and international communications business, mobile communications business, data communications business, and other business. See Note 18 to the Consolidated Financial Statements attached hereto. 22 Table of Contents The business results for each principal business segment for the fiscal year ended March 31, 2017 are as follows: Regional Communications Business Segment In the regional communications business segment, NTT Group worked to develop its B2B2X business through the Hikari Collaboration Model, the wholesale provision of fiber-optic access infrastructure services to various service providers. [1] Details of Main Initiatives With regard to the Hikari Collaboration Model, the number of service providers providing wholesale service was approximately 550 companies at the end of the fiscal year ended March 31, 2017, as NTT Group further expanded collaborative projects with not only business operators in the communications industry, energy industry, real estate industry, and security industry, but also business operators in diverse industries including the housing industry and media industry in the fiscal year ended March 31, 2017. Furthermore, in the housing industry, new use cases were born, including providing total lifestyle support after home purchases, which includes a combination of this model and HEMS service and lifestyle-related services. As a result of these initiatives, the number of fiber-optic access service subscriptions using this model was 8.74 million. With the development of the Hikari Collaboration Model, NTT Group worked to continually reduce marketing costs. Furthermore, by simplifying and streamlining networks and further increasing the usage of existing facilities, NTT Group worked to make capital investment more efficient. As companies and local governments are proactively promoting the use of Wi-Fi as a powerful information service tool, in various regions, NTT Group continually worked to improve convenience for the increasing number of visitors to Japan by expanding the coverage area of Wi-Fi, resulting in the number of Wi-Fi area owners reaching 557. [2] Number of Subscriptions for Major Services • FLET’S Hikari: 20.05 million subscriptions (an increase of 0.79 million subscriptions from the previous fiscal year) (Included in the above) Hikari Collaboration Model: 8.74 million subscriptions (an increase of 4.05 million subscriptions from the previous fiscal year) • Hikari Denwa: 17.76 million channels (an increase of 0.38 million channels from the previous fiscal year) • FLET’S TV: 1.52 million subscriptions (an increase of 0.09 million subscriptions from the previous fiscal year) Note: The figures for “FLET’S Hikari,” “Hikari Denwa” and “FLET’S TV” include the number of subscriptions for wholesale services provided to service providers through the use of the Hikari Collaboration Model by NTT East and NTT West. Long Distance and International Communications Business Segment In the Long Distance and International Communications Business Segment, in addition to enhancing its provision of seamless ICT solutions combining network and security, etc., NTT Group worked to enhance its service provision in growth areas such as cloud services and IT outsourcing. [1] Details of Main Initiatives To provide an ICT solution based on a more highly reliable international network to its enterprise clients, in October 2016 NTT Group began operations of the “Asia Pacific Gateway,” NTT Group’s high-bandwidth 23 Table of Contents optical submarine cable network. Additionally, to respond to demand for cloud services and data centers in various global regions, in the continually growing market of America, in addition to launching service at its Virginia Ashburn 2 (VA2) Data Center, NTT Group began construction on its Virginia Ashburn 3 (VA3) Data Center, designed to achieve strong security and high-level energy savings, thus proactively expanding its cloud platform by working to provide different variations of data centers. As a result of these initiatives, NTT Group’s data centers were ranked as top class in the world in terms of both total floor area and potential server installation floor area according to a report by U.S. TeleGeography (published in November 2016). NTT Group received an IT outsourcing order from major U.K. insurance provider ReAssure UK Services Limited, and began providing infrastructure services including introduction of cloud services for the company’s servers and security oversight services. [2] Number of Subscriptions for Major Services • Number of customers for Cloud Services: 9,000 customers (an increase of 700 customers from the previous fiscal year) • Hikari TV: 3.02 million subscriptions (a decrease of 0.03 million subscriptions from the previous fiscal year) Mobile Communications Business Segment In the Mobile Communications Business Segment, NTT Group has worked toward the promotion of sales of the billing plan, “Kake-hodai & Pake-aeru,” and “docomo Hikari,” promoting collaboration with various business partners and providing new value-added services to enhance profitability in the smart life area. [1] Details of Main Initiatives In addition to continuing to promote the sales of its “Kake-hodai & Pake-aeru,” as a billing plan tailored to suit a customer’s stage of life that offers more affordable rates to long-term users, in November 2016 NTT Group began offering its “docomo Child Raising Support Program” and other initiatives, working to enhance returns to its customers. As a result, the number of subscriptions to “Kake-hodai & Pake-aeru” reached 37.07 million. By utilizing the Hikari Collaboration Model from the Regional Communications Business Segment, NTT Group promoted the sales of the “docomo Hikari Pack,” which bundles fiber-optic access infrastructure services, internet access service, and mobile service. As a result, the number of subscriptions to “docomo Hikari” reached 3.40 million. In order to strengthen profitability in the Smart Life area, NTT Group pursued the “+d” initiative, which was aimed at creating new added value through collaboration with various business partners, and expanded its content, finance, and settlement services. Specifically, NTT Group collaborated with Perform Group to begin providing the sports streaming service “DAZN for docomo,” and worked to expand the number of member stores for its “d POINTs” loyalty point program. Data Communications Business Segment In the Data Communications Business Segment, NTT Group responded to the acceleration of its customers’ expansion in the global market and the diversification and increased sophistication of their needs by working to expand its business in the global market and to expand and reliably provide a range of IT services, such as system integration, that are responsive to the changes in the market. 24 Table of Contents [1] Details of Main Initiatives To increase its presence through the acquisition of a North America-focused operating base and to enhance cloud services and BPO services, NTT Group acquired the businesses of the Dell Services Division, which has been highly regarded by customers for providing digital solutions and BPO services tailored to the healthcare industry. To create new finance-related services through open innovation, together with venture firms and regional banks, NTT Group established the “BeSTA FinTech Lab,” working to provide new services utilizing FinTech including the implementation of practical testing of information distribution services with location data. Aiming for the expanded use of global geospatial information, creation of new markets, and the stimulation of related industries, in April 2016 NTT Group began to offer the world’s highest-resolution “AW 3D® Global High-resolution 3D Map” developed with the Remote Sensing Technology Center of Japan (RESTEC) to all global land spaces. Other Business Segment In the Other Business Segment, NTT Group mainly provided services related to the real estate business, finance business, construction and electric power business, and system development business. Real Estate Business NTT Group pursued its office and retail operations centered on office buildings and commercial facilities and its residential operations principally through the “Wellith” brand. Furthermore, NTT Group utilized its know-how developed in these operations to pursue global and hotels & resorts businesses. Finance Business NTT Group provided financial services such as leasing, installation payment, and other finance areas concentrating on information-related equipment, billing and collection services for telecommunication service bills, and credit card transaction settlement services. Construction and Electric Power Business By combining and utilizing its technology in ICT, energy, and construction to the fullest extent, NTT Group designed and built large-scale solar power generation systems and data centers. System Development Business To provide optimized, high-quality ICT services, NTT Group worked to develop network operation systems and application services. Global Businesses There is a transformation underway in the international information and communications market “towards the next stage.” Due to the development of the Internet, people are increasingly able to obtain an enormous variety of information over the Internet as well as use applications available over the Internet. Due to the introduction of, among other things, big data, IoT (Internet of Things), virtualization and HTML5, NTT anticipates that the convergence between real-world businesses and Internet-based services will lead to higher value-added services. Against the backdrop of surging growth in cloud computing, NTT expects that developed nations, where revolutionary new services that address sophisticated needs have been developed, will continue to be important markets. Going forward, however, these services will spread to emerging countries, too, which should lead to further growth of the ICT market. 25 Table of Contents NTT Group’s main efforts in the past few years relating to its global business operations have focused on its goal of expanding its global business operations for corporate customers. In October 2010, NTT acquired its subsidiary Dimension Data, based in the Republic of South Africa, which offers development, operation and maintenance of on-site IT infrastructure for corporate customers, such as network equipment, servers and other devices. This acquisition has increased the competitiveness of both companies by integrating NTT’s strength in providing managed network services and data centers with Dimension Data’s strength in the development, operation and maintenance of IT infrastructure. NTT and Dimension Data are working to thereby increase their competitiveness and strengthen the structures through which they provide comprehensive ICT services. In addition, in October 2012, NTT acquired Centerstance, Inc., a U.S.-based consulting company that specializes in the analysis of important corporate business processes and cloud migration of existing systems, and provides integration services with Salesforce.com; Centerstance, Inc.’s stock was later transferred to NTT DATA in May 2015. In April 2013, NTT established NTT Innovation Institute, Inc. (“NTT I3”) as a new R&D center in North America. NTT Group is strengthening the development of its Global Cloud services by promoting the development of services tailored to the North American market through research and development relating to cloud services, next-generation networks and other areas. Additionally, in June 2016, NTT established NTT Security Corporation, a specialized security company that offers services based on the advanced analytics technologies, threat intelligence and security experts of NTT Com Security, Solutionary, Dimension Data, NTT Innovation Institute and NTT Communications. NTT Security started its business operations in August 2016, and provides advanced managed security services (MSS) and professional specialized security services that support the entire security life-cycle, through NTT operating companies worldwide. NTT Group, as its customers’ continued “Value Partner” of choice, is able to develop on a global scale and promote simple and secure Global Cloud services that encompass applications, networks, and cloud platforms as the cornerstone of its business, in order to provide support for the business model innovations of its corporate customers. NTT Group takes advantage of its ability to provide group-wide full-stack services revolving around cloud services by virtue of collaboration between its individual companies, and its ability to consistently land orders for large cloud projects is one example of its record for success. As a result of these initiatives, overseas sales reached $16.90 billion in the fiscal year ended March 31, 2017. Going forward, in order to continue to generate greater profits from its international business, NTT Group will also continue to work to achieve stable growth in sales by strengthening its services, products, sales processes and marketing. NTT Group will also aim to promote cost efficiency by reducing procurement costs and streamlining and optimizing its services and operations. Other principal global investments of each material NTT Group company during the last three fiscal years include the following: (i) NTT Communications NTT Communications is advancing its provision of seamless global business operations to offer the type of seamless ICT solutions to which a telecommunications carrier is best suited to add value. With customers migrating their ICT environments to the cloud and/or data centers, NTT Communications operates its services as a package, including network services, voice and similar applications and security, with globally consistent quality. Arkadin International SAS In January 2014, NTT Communications acquired France-based Arkadin International SAS, the world’s third-largest specialized provider of conferencing services, which provides collaboration services involving 26 Table of Contents teleconference, Web conference and video conference services to 37,000 customers in 32 countries worldwide. NTT Communications plans to expand and improve the features of its communications services by incorporating Arkadin’s service infrastructure into its own. NTT Communications will also leverage Arkadin’s global customer base and its service capabilities to offer new total communications services, centered on conferencing solutions, for companies that are expanding their operations globally. Virtela Technology Services Incorporated In January 2014, NTT Communications acquired Virtela Technology Services Incorporated, a U.S.-based provider of network services and cloud-based managed network services in 196 countries and regions, with strengths in the areas of managed services and virtualization technologies. NTT Communications aims to take the lead position in the global market by combining NTT Communications’ service quality with Virtela’s innovative and efficient management know-how. RagingWire Data Centers, Inc. In January 2014, NTT Communications acquired RagingWire Data Centers, Inc., a U.S. data center operator. This acquisition significantly expands the high-quality data center server room floor space that the NTT Communications group is able to provide in the U.S., and enables NTT Communications to respond to customers’ increased demand for cloud and data center services. NTT Communications also plans to deploy RagingWire’s management know-how in its other data centers, in order to take advantage of RagingWire’s numerous technology patents in efficient data center design and operations. Lux e-shelter 1 S.a.r.l. In June 2015, NTT Communications completed the acquisition of German data center business Lux e-shelter 1 S.a.r.l. (“e-shelter”). Through this acquisition, NTT Communications Group greatly expanded the total area of its high-quality continental European data center server room space and enhanced its capability to respond to the strong demand for global seamless cloud data center services in Europe and elsewhere. Through new collaboration between e-shelter and NTT Communications Group companies, e-shelter will be able to expand its coverage to Asia, North America and elsewhere, and will also be able to provide even broader support for the global development needs of customers by using networks and cloud bases provided by NTT Communications. Furthermore, it will be possible to rapidly expand e-shelter’s business to increase its competitiveness within continental Europe. PT. NTT Indonesia Nexcenter In October 2015, NTT Communications completed its acquisition of PT. Cyber CSF, a data center service provider in Indonesia. In conjunction with the acquisition, PT Cyber CSF was renamed to “PT. NTT Indonesia Nexcenter.” The acquisition has enabled NTT Communications to acquire a high-quality data center located in the heart of Jakarta. By providing seamless ICT solutions that combine this data center with NTT Communications’ global network, security services and cloud services, PT. NTT Indonesia Nexcenter will support the promotion and development of business within Indonesia as well as the business development of companies abroad. (ii) Dimension Data Dimension Data offers services tailored to the characteristics of countries and clients worldwide, and is working both to maintain and optimize the strengths of these traditional core services and at the same time further expand its presence and increase its revenues in growth areas such as cloud services, IT outsourcing and security. Dimension Data’s investment strategy is to grow its revenues and the size of its business and expand its geographic reach. It is focused on scaling in large, established markets, increasing its market share in the existing geographies in which it operates and expanding into new countries and areas. 27 Table of Contents Nexus IS, Inc. In April 2014, Dimension Data acquired 100% of Nexus IS, Inc. Founded in 2004 and headquartered in Valencia, California, Nexus is a privately-owned provider of advanced IT solutions serving enterprises, mid-sized business and public sector clients, with industry specializations in education, retail, hospitality and healthcare. The acquisition of Nexus expands Dimension Data’s operations in the US by 40%, and significantly increases the company’s presence in the West, Southwest and Southeast regions of the country. As a result, clients have access to a deeper network of experts and a broader portfolio of solutions. Nexus has 19 offices in California, Nevada, Colorado, Arizona, Utah, Washington, Texas, Georgia, Florida, and North Carolina. The acquisition of Nexus is a strategic step in enhancing the Group’s geographic coverage and depth of skills and capabilities to support its clients. Oakton Limited In November 2014, Dimension Data Australia announced the successful acquisition of technology and consulting services company Oakton Limited (“Oakton”). The acquisition of Oakton aligns with Dimension Data’s strategy to address the challenges that clients face as they transform to harness the opportunities of becoming digital enterprises. Oakton’s top-end consulting capability, combined with Dimension Data’s expertise across ICT infrastructure integration, cloud, and outsourcing services, enables Dimension Data to create, deliver and manage end-to-end business solutions for our clients. The acquisition will expand Dimension Data’s presence in Australia by over 60%, and significantly broaden the skills and capabilities. Dimension Data and Oakton have a complementary value proposition and footprint. (iii) NTT DOCOMO NTT DOCOMO makes investments in and collaborates with overseas mobile service providers and other overseas business operators, with the long-term aim of strengthening its global competitiveness. NTT DOCOMO aims to strengthen its collaborations with mobile phone service providers by creating new business synergies, such as by launching services for foreign visitors to Japan and developing new services overseas that fully utilize the results of NTT DOCOMO’s domestic corporate collaboration initiatives in Japan, among other initiatives. Further, in recent years, NTT DOCOMO has worked to collaborate with various overseas business entities to provide a variety of services based on the construction of a global cloud platform. DOCOMO PACIFIC, INC. In May 2013, NTT DOCOMO acquired MCV Guam Holding Corp., the largest cable television and Internet service provider in Guam and the Commonwealth of the Northern Mariana Islands. This acquisition was intended to strengthen DOCOMO PACIFIC, INC.’s operational base by improving its market competitiveness. In January 2016, MCV Guam Holding Corp. merged with DOCOMO PACIFIC, INC. DOCOMO PACIFIC (SAIPAN), INC. In March 2016, MCV Guam CNMI Holding Corp., which had previously been a subsidiary of MCV Guam Holding Corp., changed its name to DOCOMO PACIFIC (SAIPAN), INC., as a subsidiary of DOCOMO PACIFIC, INC. DOCOMO PACIFIC (SAIPAN), INC. conducts business operations in Guam and the Northern Mariana Islands. DOCOMO Digital Limited In August 2009, NTT DOCOMO established DOCOMO Digital GmbH in Germany as an entity to manage European subsidiary companies involved in the operation of content sales and carrier settlement platform 28 Table of Contents businesses. Subsequently, in December 2016, DOCOMO Digital GmbH merged with DOCOMO Digital Limited, which had been established in England in January 2016, and the merged company’s headquarters were moved to London. (iv) NTT DATA With the objective of improving its presence in all regions of the world and to cultivate global synergies, NTT DATA is strengthening its competitiveness in major countries, gathering the strengths and resources of each group company, and promoting business collaboration to strengthen the entire group. NTT DATA Enterprise Services, Inc. In December 2013, NTT DATA acquired Optimal Solutions Integration, Inc. (“Optimal”), a leading North American SAP service provider. Optimal provides a broad range of services—from SAP-related strategic planning to consulting, evaluation, implementation, customization and maintenance services—and has large numbers of customers in many industries including consumer, retail, wholesale and distribution, mining, the public sector and manufacturing. This acquisition reinforces NTT DATA’s ability to offer SAP-related products in the North American market, such as SAP HANA, mobile, and analytics, helping it to meet the needs of its customers. NTT DATA intends to expand and improve its SAP-related system development framework, including its business system in India, and will bolster NTT DATA’s ability to handle large-scale projects. In March 2014, Optimal Solutions Integration, Inc. changed its name to NTT DATA Enterprise Services, Inc. EVERIS PARTICIPACIONES, S.L.U. In January 2014, NTT DATA acquired EVERIS PARTICIPACIONES, S.L.U. (“everis Group”). everis Group provides a broad range of IT services, such as consulting, system integration and outsourcing, to customers including major banks, major insurance companies, major telecommunications carriers, government agencies, utilities, and major global manufacturers, mainly in Spain and six Latin American countries. This acquisition brings everis Group’s sizeable and stable customer base, sophisticated consulting capabilities, and talented personnel, who are knowledgeable in providing a variety of services such as system integration and outsourcing, into the NTT DATA group, providing NTT DATA with business platforms in Spain and Latin America and enabling it to provide comprehensive IT services, including consulting and outsourcing, to customers in these regions. Moreover, NTT DATA aims to further improve its price competitiveness and service quality by taking advantage of everis Group’s near-shore and offshore locations. NTT DATA Consulting, Inc. In July 2015, NTT DATA acquired Carlisle & Gallagher Consulting Group, Inc., a U.S. provider of financial IT consulting services. As a result of this acquisition, by combining NTT DATA’s wide range of services and technology with Carlisle & Gallagher Consulting Group, Inc.’s specialized financial consulting expertise, it will become even more possible than before to develop services in areas that require industry-specific expertise, such as the banking and asset management and deployment sectors. The acquisition will also contribute to the growth of Carlisle & Gallagher Consulting Group, Inc.’s existing customers, by utilizing NTT DATA’s global delivery network to provide them with even higher value-added and cost-reduced services. In April 2016, Carlisle & Gallagher Consulting Group, Inc. changed its name to NTT DATA Consulting, Inc. iPay88 Sdn. Bhd In September 2015, NTT DATA acquired iPay88 Sdn. Bhd (“iPay88”), which holds the largest market share in Malaysia’s PC- and mobile-based e-commerce online payment business. As a result of this acquisition, NTT 29 Table of Contents DATA aims to establish a foothold in the growing Asia-Pacific e-commerce online payment business market and to provide a variety of cutting-edge and highly competitive electronic payment services that combine NTT DATA’s solutions and know-how in the payment field, acquired through CAFIS®, with iPay88’s strong customer base and reputed online payment service and payment solution systems for merchants and financial institutions. NTT DATA’s objective is to thereby further expand its payment business throughout the entire Asia-Pacific region, including Malaysia. Dell Services In March 2016, NTT DATA agreed to acquire the Dell Services Division (consisting of Dell Systems Corporation, Dell Technology & Solutions Limited and Dell Services Pte. Ltd., and Dell Group’s IT services-related assets mainly in North America) from Dell Inc. After completing the acquisition of over 99.9% (asset value base) of Dell Services by March 6, 2017, beginning in April 2017, NTT DATA launched a new operating structure under which the Dell Services Division was consolidated with NTT DATA’s existing North American entity, NTT DATA, Inc., to begin operating as NTT DATA Services. NTT DATA Services has a strong business base with its major clients, including health insurance companies and medical institutions, companies in manufacturing industries and service industries, financial institutions and the United States federal government. NTT DATA Services has been highly regarded by customers for providing digital solutions and BPO services tailored to healthcare insurance companies and medical institutions. Through the acquisition of this Division, NTT Group aims to expand its business in the relevant industries of North America, and at the same time also strengthen its services that utilize its cutting-edge technology and BPO services. Competition The implementation of the Telecommunications Business Act (Act No. 86 of 1984) in April 1985 first introduced competition into the telecommunications service industry in Japan. As a result of subsequent deregulation, NTT Group faces competition in all of its business segments, including its fixed-line regional communications business, long distance and international communications business, mobile communications business and data communications business. The growing popularity of smartphones and tablets and the increasing speed of wireless broadband services, including LTE, are quickly re-centering the market’s focus onto mobile platforms. The telecommunications service market structure is also undergoing major changes, such as the market entry of a variety of business operators, including non-telecommunications operators, and intensifying global competition as a result of the widespread use of services provided by OTT operators. In addition, competition with existing carriers over charges and services has continued to intensify the competitive environment. Growth in the fixed-line communications market in Japan is slowing due to the ongoing shift toward mobile communications. In addition to intensifying competition in broadband service facilities and services with respect to broadband services, there has been an increase in competition between the various services made possible by faster mobile connections. The downward trend in NTT Group’s revenues from fixed voice communications services continues as its telephone subscriptions and INS-Net subscriptions decline, due in large part to the increasing penetration of mobile telephones and applications, and continuing diversification in communication methods. The environment surrounding the Japanese mobile communications market has undergone dramatic change due to the rapid proliferation of smartphones and tablet devices and developments related to the government’s competition policy (such as the adjustment of discounts contingent on device purchases as a result of the implementation of the Guidelines for Optimization of Purchase Subsidies for Smartphone Terminals, and the 30 Table of Contents promotion of the entry of Mobile Virtual Network Operators (MVNOs) into the market as a result of the amendment of the Guidelines regarding the application of the Telecommunications Business Act and the Radio Act to MVNO) and other factors. There are presently three MNOs (mobile network operators) in the market: NTT DOCOMO, the KDDI Group and the SoftBank Group. As of March 31, 2017, NTT DOCOMO had a market share of 46.0%, whereas the KDDI Group and the SoftBank Group had market shares of 29.8% and 24.2%, respectively. NTT Group believes that with the rising mobile phone market penetration rate, the Japanese mobile communications market has largely matured, and as a result the competitive environment for acquiring new customers and further improving services remains difficult. The growth rates for NTT DOCOMO’s mobile phone subscriptions for the fiscal years ended March 31, 2015, 2016 and 2017 were 5.5%, 6.6% and 5.5%, respectively. While growth in new subscriptions for conventional voice usage is expected to be limited going forward in view of the rising market penetration rate and Japan’s decreasing population, recently, increased demand for a second tablet device, expanding sales of embedded communication modules due to substantial demand in the corporate customer market, and other factors are contributing to the increase in new subscriptions. The information and communications market is undergoing rapid structural changes. In addition to the existing business model under which NTT East and NTT West provide fiber-optic access services directly to end users, NTT East and NTT West offer the “Hikari Collaboration Model,” under which NTT East and NTT West provide fiber-optic access services to various service providers, allowing such service providers to combine their services with fiber optic access services and provide new services to their customers. In addition, NTT DOCOMO offers the “docomo Hikari Pack,” a customer-friendly rate package that provides a discount by combining the fiber-optic broadband service “docomo Hikari,” which utilizes the “Hikari Collaboration Model,” with smartphones or mobile phones. Going forward, there may be further acceleration in the expansion of integrated fixed-line and mobile phone services. NTT Group expects the solutions business to be a major area of growth in the information services market. For similar reasons, hardware vendors and others are now shifting their focus to this business. Furthermore, information service companies from India that continue to grow rapidly as well as other existing major information service companies are actively entering the global market, resulting in intensifying global competition. Specifically, in the cloud services market, in addition to system integrators and communications carriers, various types of businesses are entering the market, such as participants who were not originally IT service providers and cloud service businesses. For risks associated with continued competition, see “Item 3—Key Information—Risk Factors—Risks associated with the business environment and NTT Group’s corresponding business strategies—NTT Group’s revenues may suffer from changes in market structure and increased competition.” Regulations The Ministry of Internal Affairs and Communications (the “MIC”) is the main regulatory body in Japan responsible for the information and telecommunications industry. The Telecommunications Business Act gives the Minister the authority to regulate telecommunications companies. The Telecommunications Business Act came into effect in 1985 at the same time that NTT was incorporated as a private company and significant changes in the legislative and regulatory framework for telecommunications in Japan opened the Japanese information and telecommunications services industry to competition. Since then, the Government has taken various measures to promote competition in the Japanese telecommunications market. As a result, NTT Group faces increasing competition in many of its business sectors from new companies that have entered or are about to enter the market. NTT and certain of its subsidiaries are subject to regulations that affect their business under the NTT Act, the Radio Act (Act No. 131 of 1950), and the Telecommunications Business Act. A summary of these regulations is provided below. References in parentheses are to the applicable article of the law described, unless otherwise noted. 31 Table of Contents Telecommunications Business Act Business Commencement/Termination Regulations promulgated under the Telecommunications Business Act require start-up businesses that intend to provide telecommunications services to register with the Minister (Article 9). However, where the scale of the telecommunications circuit facilities which are to be installed and the scope of the area covered thereby do not exceed certain thresholds or fall within a certain category of radio facilities, only a notice to the Minister is required (Article 16). The Telecommunications Business Act also requires telecommunications companies to update their registration in the event that they conduct a merger, stock acquisition or other similar transaction (Article 12(2)). In addition, regulations promulgated under the Telecommunications Business Act require businesses in the telecommunications sector to notify the Minister as well as their service subscribers if they suspend or discontinue their telecommunications business (Article 18). Setting of Subscriber Rates and Other Terms of Service Regulations promulgated under the Telecommunications Business Act require businesses in the telecommunications sector to notify the Minister of the terms of the basic telecommunications services they provide (Article 19). Specifically, one ordinance of the Ministry of Internal Affairs and Communications (the “MIC Ordinance”) requires basic telecommunications services to be provided across Japan because they are regarded as essential to the lives of people in Japan. These are known as “universal services.” These services include telephone subscriber lines (base rates) or optical IP telephones equivalent to telephone subscriber lines, Type 1 Public Telephones (public telephones installed pursuant to the MIC standards) and emergency numbers (110, 118, 119). In addition, the Telecommunications Business Act includes regulations relating to consumer protection, including provisions on pre-contract accountability (Article 26), document delivery obligations (Article 26(2)), systems for the termination of initial contracts (Article 26(3)), obligations to handle complaints and inquiries (Article 27), prohibitions on misstatements or on excessive solicitation (Article 27(2)), and measures applicable to business agents, such as trustees (Article 27(3)), among other provisions. Interconnection Regulations promulgated under the Telecommunications Business Act require businesses in the telecommunications sector to respond to the requests of other telecommunications carriers regarding the connection of telecommunications circuit facilities (Article 32). Universal Service Fund (“USF”) The USF is a system under which telecommunications carriers cover the costs and expenses necessary to provide universal services. In order to ensure the provision of universal services, the Minister designates a support organization to provide funds to cover a portion of such costs and expenses (Article 107). Grants are made to eligible telecommunications carriers (Article 108) that provide universal services, including in unprofitable regions. In connection with this system, each telecommunications carrier is obligated to make the appropriate amount of payments to cover the costs and expenses requested by the support organization (Article 110). This funding requirement is referred to as the universal service fund system. The designated support organization began providing services in 2006 in response to the MIC Ordinance being amended in April 2006 to determine the services applicable to the USF and to set the calculation method of grants and contributions. Under the NTT Act, NTT East and NTT West became responsible for providing universal services and were designated as eligible telecommunications carriers by the Minister. In the fiscal year ended March 31, 2017, the aggregate amount of compensation to NTT East and NTT West in connection with the USF was ¥6.8 billion, and in the fiscal year ending March 31, 2018, the aggregate amount of compensation to NTT East and NTT West is expected to be ¥6.9 billion. 32 Table of Contents Regulations Imposed Only on NTT East and NTT West Rates and Other Terms of Service Regulations promulgated under the Telecommunications Business Act require NTT East and NTT West to notify the Minister of the terms and conditions of their rate warranty agreements for designated telecommunications services (Article 20). These regulations also require that rates and other terms of service for designated telecommunications services provided by Category I designated telecommunications facilities be established and submitted to the Minister. The Telecommunications Business Act also provides for the regulation of rates for specified telecommunications services (Article 21) and for price cap regulations. The regulations promulgated under the Telecommunications Business Act require that the Minister be notified whenever the service rates of a business are at or below the standard price index specified by the Minister, and approval of the Minister is required when a business proposes to increase rates above the standard price index. • “Category I designated telecommunications facilities” comprise fixed terminal transmission line facilities installed by a telecommunications carrier where the facilities that have been installed by such carrier in a prefecture represent one-half or more of the total number of such facilities in the prefecture, and other ancillary facilities installed together with these facilities whose connection with other telecommunications carriers is essential for improving convenience to subscribers, and for the comprehensive and reasonable development of telecommunications services (designated by the Minister). The main telecommunications facilities of NTT East and NTT West have been designated as Category I designated telecommunications facilities. • “Designated telecommunications services” are services that are provided by a telecommunications business using a Category I designated telecommunications facility established by such telecommunications business, and that have been designated as services for which “it is particularly necessary to protect the interests of customers by ensuring that the rates and other terms of service are fair and appropriate.” The determination of what constitutes a designated telecommunications service is based on a consideration of various factors, including whether alternative services are being adequately provided by other telecommunications carriers. Specifically, this refers to telephone subscriber line services, INS-Net, public telephones, dedicated services, FLET’S Hikari, Hikari Denwa and other services, but excludes services providing supplementary functions that have minimal beneficial impact on subscribers. • “Specified telecommunications services” are designated telecommunications services or services specified in the MIC Ordinance as having a significant beneficial impact on subscribers. Specifically, this refers to telephone subscriber services, INS-Net and public telephone services provided by NTT East and NTT West. • “Standard price index” refers to an index published by the Minister that shows the standard charges for each type of designated telecommunications service taking into consideration the appropriate costs and commodity prices to support efficient management. • “Price cap regulation” is a system that sets maximum limits on rates. As the actual charge indexes for NTT East and NTT West are below the level of the standard charge index applicable to the one-year period beginning on October 1, 2016, no price adjustments pursuant to the price cap regulation have been made. Interconnection Regulations promulgated under the Telecommunications Business Act require NTT East and NTT West to obtain approval of all interconnection agreements from the Minister as holders of Category I designated telecommunications facilities (Article 33). The Minister’s approval is subject, among other things, to the condition that the interconnection rates be fair and proper according to the method stipulated in the MIC 33 Table of Contents Ordinance for computing proper costs under efficient management. NTT East’s and NTT West’s respective interconnection agreements establish their interconnection rates and conditions for interconnection. • Telephone Line Interconnection Charges In May 1998, in a joint status report on deregulation and competition policy issued by the governments of Japan and the United States, the Government stated its intention to introduce a Long-Run Incremental Cost (“LRIC”) Methodology. In May 2000, the Telecommunications Business Act was amended to include the introduction of an LRIC Methodology, which has since then brought about decreases in interconnection charges. As communication traffic declined significantly, in order to avoid an increase in communication rates through the increase of interconnection charges, it was decided that Non-Traffic Sensitive (“NTS”) costs (costs which do not vary according to the volume of communication traffic) would be removed from interconnection rate costs and be recovered instead through base rates (October 2004 report of the Telecommunications Council). In addition, with respect to a portion of NTS costs, when the USF was reviewed from the standpoint of restricting cost increases for users, it was decided that the cost burden resulting from narrowing the scope of USF subsidies would not be borne only by NTT East and NTT West, but would also be recovered in a fair and equitable manner from other carriers, and that a portion of NTS costs would therefore be reintroduced as interconnection rate costs. The Telecommunications Council of 2013 determined, as a result of a review, that it would continue to apply the LRIC Methodology for interconnection charges for the period from the fiscal year ending March 31, 2017 until the fiscal year ending March 31, 2019. • Optical Fiber Line Interconnection Charges NTT East and NTT West are obligated to lease their optical fiber to other carriers at regulated rates (referred to as “optical fiber interconnection charges”) because the optical fiber owned by NTT East and NTT West qualifies as Category I designated telecommunications facilities under the Telecommunications Business Act. In order to maintain low barriers to entry by other carriers through the lowering of interconnection charges, NTT East and NTT West have employed a future cost method that designates the four-year period from the start of the fiscal year ended March 31, 2017 to the end of the fiscal year ending March 31, 2020 as the computation period in order to calculate subscriber optical fiber interconnection charges. For these interconnection charges, NTT Group has introduced a cost difference adjustment system under which adjustments are made by adding the difference between the actual revenue from interconnection charges and the actual cost of interconnection charges for the following year and future years, which NTT believes will eliminate the risk of unrecoverable amounts. The Information and Communications Council and Postal Services Council conducted an evaluation of the issue of setting per-unit interconnection charges for optical bifurcated lines in the passive optical network (Gigabit Ethernet-Passive Optical Network, or “GE-PON”) and determined that there remained issues that needed to be resolved (March 2012 report by the Information and Communications Council and Postal Services Council). To date, the Information and Communications Council has not set per-unit interconnection charges for optical bifurcated lines. Regulations promulgated under the Telecommunications Business Act require NTT East and NTT West to notify the Minister of (i) plans related to the functions of Category I designated telecommunications facilities, including any changes or additions to such functions (Article 36), (ii) any agreement to share Category I designated telecommunications facilities with other telecommunications carriers (Article 37), and, (iii) in the event that any wholesale telecommunications provision business utilizing Category I designated telecommunications facilities is started, modified, or terminated, NTT East and NTT West are required to notify the Minister of such start, modification, or termination, as well as the type of wholesale service, the fee applicable to certain wholesale businesses that meet certain conditions, and other information (Article 38(2)). Further, there are regulations governing the organization and publication of information furnished to or obtained by the Minister (Article 39(2)). 34 Table of Contents Prohibited Activities NTT East and NTT West, as dominant businesses in the fixed voice and IP/packet communications markets, are prohibited from using interconnection information for other than its intended purposes and from giving unfair preferential treatment to any particular telecommunications carrier (Article 30). Officers of NTT East and NTT West are also prohibited from holding concurrent officer positions at NTT Communications, which was designated by the Minister as a specified relevant carrier (Article 31). NTT East and NTT West are required to carry out necessary and proper monitoring of the subsidiaries to which they outsource services to ensure that such subsidiaries do not participate in prohibited activities, and are also obligated to appropriately manage information relating to interconnection services and to establish an appropriate system to monitor the implementation status of interconnection services (Article 31). Accordingly, NTT Group’s ability to provide services exclusively in collaboration with telecommunications carriers within NTT Group is limited by these regulations. NTT intends to provide services in response to market needs while ensuring that all requirements for fair competition, including the regulations with respect to prohibited activities, are satisfied. However, these regulations may, for example, impede the timely provision of new services by NTT Group or have other adverse effects. Regulations Imposed on NTT DOCOMO Interconnection Regulations promulgated under the Telecommunications Business Act require NTT DOCOMO to submit to the Minister for approval any interconnection agreements relating to connection with Category II designated telecommunications facilities (Article 34). NTT DOCOMO’s main telecommunications facilities for mobile phones were designated by the Minister as Category II designated telecommunications facilities requiring a reliable connection with other telecommunications businesses. NTT DOCOMO is required to establish its interconnection rates and terms of interconnection in its interconnection agreements and to submit them to the Minister. The standard for designation as Category II designated telecommunications facilities was revised in 2012 from facilities with a greater than 25% market share to facilities with a greater than 10% market share. As a result, in addition to the two companies other than NTT DOCOMO with a greater than 25% market share (KDDI Corporation and Okinawa Cellular Telephone Company), Softbank Mobile Corporation also became subject to the regulations for Category II designated communications facilities. In the event that any wholesale telecommunications provision business utilizing Category II designated telecommunications facilities is started, modified, or terminated, regulations promulgated under the Telecommunications Business Act require NTT DOCOMO to notify the Minister of such start, modification, or termination, as well as the type of wholesale service, the fee applicable to certain wholesale businesses that meet certain conditions, and other information (Article 38(2)). Further, there are regulations governing the organization and publication of information furnished to or obtained by the Minister (Article 39(2)). Regulations related to Category II designated telecommunications facilities are applicable to all telecommunications companies who install Category II designated telecommunications equipment, including but not limited to NTT DOCOMO. Prohibited Activities NTT DOCOMO, as a dominant business in the mobile communications market, is prohibited from using interconnection information for other than its intended purposes and from giving unfair preferential treatment to other NTT Group companies as designated by the Minister (Article 30). “Category II designated telecommunications facilities” consist of (a) transmission line facilities connected to mobile phones installed by telecommunications businesses which (i) are installed by the same telecommunications businesses, and 35 Table of Contents (ii) represent ten percent or more of the total number of transmission line facilities in the entire service area, and (b) telecommunications facilities which were installed specifically to provide such telecommunications services for reliable connection with other telecommunications businesses designated by the Minister. Future Developments In December 2014, the Telecommunications Council issued a report on the “State of Information and Communication Policies for the 2020s.” In light of the report, and in order to promote a fair, competitive environment in the telecommunications business and protect telecommunications service users, the partial amendment to the Telecommunications Business Act enabling the provision of wholesale fiber optics services by NTT East and NTT West and allowing subscribers an option to terminate contracts during an agreed period of time at the beginning of a contractual period became effective starting from May 2016. Further, the amendment requires the government to assess the status of the implementation of the amendment after three years, and if deemed necessary, to determine what further measures should be taken on the basis of its assessment. The potential impact on NTT Group has not yet been determined at this time. NTT Act The Supplementary Provisions of the Act to Amend the Nippon Telegraph and Telephone Company Act were promulgated in June 1997 and came into effect in July 1999. As a result, the Nippon Telegraph and Telephone Company Act was re-titled the “Act on Nippon Telegraph and Telephone Corporation, etc.” and NTT was reorganized as a holding company. This Act has been revised by the Act to Amend the Telecommunications Business Act, which was promulgated in June 2001 and took effect in November 2001, and by other subsequent amendments. Purpose The NTT Act requires NTT to own all of the shares issued by NTT East and NTT West, to ensure appropriate and reliable provision of telecommunications services by these companies, and to engage in research activities relating to telecommunications technologies that form the foundation for telecommunications in Japan. The NTT Act also requires NTT East and NTT West to manage regional telecommunications businesses as joint-stock companies. Business Activities The NTT Act requires NTT to engage in the following business activities: (i) subscribing for and holding the shares issued by NTT East and NTT West and exercising rights as a shareholder of such shares; (ii) providing necessary advice, assistance and other related support to NTT East and NTT West; (iii) engaging in research activities relating to telecommunications technologies that form the foundation for telecommunications; and (iv) engaging in business activities incidental to the business activities set forth in (i), (ii) and (iii) above. In addition to these business activities, the NTT Act provides that NTT may engage in actions necessary to complete such business activities after notifying the Minister. The NTT Act requires that NTT East and NTT West engage in regional telecommunications business activities (activities conducted by establishing telecommunications facilities without using the facilities of other telecommunications business carriers) in prefectures in the following regions: • for NTT East: Hokkaido Prefecture, Aomori Prefecture, Iwate Prefecture, Miyagi Prefecture, Akita Prefecture, Yamagata Prefecture, Fukushima Prefecture, Ibaraki Prefecture, Tochigi Prefecture, Gunma Prefecture, Saitama Prefecture, Chiba Prefecture, Tokyo, Kanagawa Prefecture, Niigata Prefecture, Yamanashi Prefecture and Nagano Prefecture; and • for NTT West: Kyoto Prefecture, Osaka Prefecture and all other prefectures not listed above. 36 Table of Contents The NTT Act also requires NTT East and NTT West to engage in business activities incidental to those set forth above. Upon notification to the Minister, the NTT Act permits NTT East and NTT West to engage in business activities necessary to achieve their respective purposes and in regional telecommunications business activities in any region or prefecture not otherwise designated. In addition, upon notification to the Minister, NTT East and NTT West may engage in telecommunications businesses and other business activities utilizing their equipment, technology or employees, to the extent that there is no interference with the smooth implementation of their regional telecommunications business activities and the maintenance of fair competition in regional telecommunications business activities. Responsibilities Pursuant to the NTT Act and the regulations promulgated thereunder, the management of NTT, NTT East and NTT West are required to give consideration to each company’s contribution to securing the appropriate, fair, and reliable provision of telephone services throughout Japan that are indispensable to civil life, and to the innovative and advanced development of telecommunications in Japan through the promotion of research relating to telecommunications technologies and the dissemination of the results thereof. The NTT Act also requires that each company promote public welfare, in view of the important role that telecommunications services play in contributing to societal and economic development. Other Matters Matters Requiring the Approval of the Minister The NTT Act requires that the Minister approve the following actions of NTT, NTT East or NTT West, as applicable: • Issuing new shares or bonds with share acquisition rights (Articles 4 and 5). Under the NTT Act, NTT may issue new shares upon notification to the Minister, and may continue to do so until the number of issued shares reaches a certain threshold specified in the applicable ministerial ordinance of the MIC, even if approval is not obtained (Supplementary Provisions, Article 14). • Adopting resolutions on the appointment or dismissal of corporate directors or corporate auditors of NTT (Article 10). Under the NTT Act, non-Japanese citizens cannot be appointed as corporate directors or corporate auditors of NTT, NTT East or NTT West. • Adopting resolutions to change the respective articles of incorporation of NTT, NTT East or NTT West, to merge or dissolve each company, or to appropriate any surplus (Article 11). • Changing the business operation plans of NTT, NTT East or NTT West (Article 12). • Transferring or mortgaging any significant telecommunications facilities of NTT East or NTT West (Article 14). In addition to the foregoing, the NTT Act imposes several additional duties on NTT, NTT East and NTT West, including: (i) a duty to submit balance sheets, profit and loss accounts and business reports to the Minister (Article 13); (ii) a duty to abide by orders issued by the Minister (Article 16); and (iii) a duty to comply with requests to submit reports on business activities (Article 17). Radio Act Under the Radio Act, any establishment of a radio station requires a license from the Minister (Article 4) and changes to the purpose of the radio station, intended audience and topics of communication require approval from the Minister (Article 17). 37 Table of Contents Mobile communications businesses are required to have a license from the MIC to use radio frequency spectrum. Spectrum band allocations are governed by the Radio Act and related statutes and regulations. Matters Relating to NTT’s Shares Restrictions on the Ratio of Foreign Ownership of the Voting Rights of NTT’s Shares If the ratio of foreign ownership of voting rights to the total voting rights of NTT’s Shares would equal or exceed one-third, NTT is prohibited from recording the names and addresses of such foreign owners on its shareholder registry and registering such foreign ownership. For purposes of calculating the ratio of foreign ownership, voting rights owned by the following are considered to be voting rights under foreign ownership: (1) any person who is not of Japanese nationality; (2) any foreign government or any of its representatives; (3) any foreign juridical person or association; or (4) subject to the applicable ministerial ordinance of the MIC, any juridical person or association 10% or more of the voting rights of which are directly owned by entities listed in clauses (1) through (3) above. NTT’s Articles of Incorporation provide that NTT may distribute dividends to its shareholders or registered pledgees of shares entered or recorded on the register of shareholders and shareholders or pledgees of shares for whom all or part of their shares were not entered or recorded in the register of shareholders pursuant to Article 6 of the NTT Act. Government Ownership and Sales of NTT Shares The NTT Act requires the Government, at all times, to own one-third or more of the total number of issued Shares of NTT. The NTT Act sets forth special provisions regarding the method for calculating the total number of issued Shares of NTT for this purpose (NTT Act, Supplementary Provisions, Article 13), including: (i) if Shares are issued through new Share issuances or the exercise of stock acquisition rights, or in exchange for the acquisition of shares subject to call or put options, the increase in the number of Shares as a result thereof (“Shares Not to be Included in Calculation”) will not be included in the total number of issued Shares; and (ii) if there is a stock split or combination of Shares after the increase in Shares described in clause (i), the number obtained by multiplying the ratio of the stock split or the combination of Shares (if there is a stock split or combination of Shares in two or more stages, the ratio is equal to the product of the ratios for all stages) with the Shares Not to be Included in Calculation would not be included in the total number of issued Shares. As of March 31, 2017, the total number of issued Shares of NTT was 2,096,394,470, of which the Government owned 679,123,568 Shares or 32.39% of the issued Shares (33.70% of outstanding Shares excluding treasury stock). In December 2000, NTT issued 300,000 new Shares (equal to 60 million Shares after a 100-for-1 stock split in 2009 and a 2-for-1 stock split in 2015) in a public offering. These Shares are not included in the total number of issued Shares when calculating the percentage of Government-owned Shares. The total number of Government-owned Shares includes Shares which are unregistered because of a failure in the transfer of title, and such Shares are therefore not actually owned by the Government. These Shares are nominally owned by the Government but are excluded from the total number of Shares owned by the Government when calculating the percentage of Government-owned Shares. If these conditions are taken into account, the percentage of Government-owned Shares is 33.33%. NTT Group’s transactions with Government divisions and agencies are arm’s-length transactions, with the relevant division or agency acting as an individual customer. In its capacity as a shareholder, the Government is entitled to exercise voting rights at NTT general shareholders meetings, and as the largest shareholder, theoretically has the power to have a material impact on a large majority of shareholder meeting resolutions. However, the Government historically has not exercised this authority and has not been directly involved in NTT’s management. 38 Table of Contents Government Dispositions of NTT Shares The NTT Act requires that any disposition of the Government’s NTT’s Shares must be within the limits determined by the Diet in the relevant annual budget (NTT Act, Article 7). Background of Sales and Sale Policy NTT was established with 15.6 million issued Shares; of the 10.4 million Shares that the Government was allowed to sell (the numbers of Shares held less the 5.2 million Shares representing the one-third of issued Shares that the Government was obligated to hold), the Government sold 5.4 million Shares from 1986 to 1988. In addition, on December 17, 1990, the Ministry of Finance promulgated a sale policy under which, with respect to the 5.0 million Shares that remained unsold at that point: (a) 2.5 million Shares would systematically be sold at an approximate rate of 500,000 Shares per year; (b) if in later years the market environment allowed it, such sales would be carried out earlier than scheduled; and (c) sales of the remaining 2.5 million Shares would be frozen for a period of time. (However, for the fiscal year ended March 31, 1998, no sales were actually carried out, due to the market environment and other factors.) For the fiscal year ended March 31, 1999, the Government sold one million Shares in December 1998. For the fiscal year ended March 31, 2000, the Government designated one million Shares as the maximum number of Shares that it would sell; of these, NTT repurchased 48,000 Shares as treasury stock, and the Government sold the remaining 952,000 Shares in November 1999. The above sale policy announced in December 1990 has expired. For the fiscal year ended March 31, 2001, the Government sold one million Shares in November 2000. For the fiscal year ended March 31, 2003, the Government designated one million Shares as the maximum number of Shares that it would sell; of these, NTT repurchased 91,800 Shares as treasury stock on October 8, 2002. For the fiscal year ended March 31, 2004, the Government designated one million Shares as the maximum number of Shares that it would sell; of these, NTT repurchased 85,157 Shares as treasury stock on October 15, 2003. For the fiscal year ended March 31, 2005, the Government designated one million Shares as the maximum number of Shares that it would sell; of these, NTT repurchased 800,000 Shares as treasury stock on November 26, 2004. For the fiscal year ended March 31, 2006, the Government designated 1,123,043 Shares as the maximum number of Shares that it would sell; NTT repurchased all 1,123,043 Shares as treasury stock on September 6, 2005. For the fiscal year ended March 31, 2012, the Government designated 99,334,255 Shares as the maximum number of Shares that it would sell; of these, NTT repurchased 57,513,600 Shares as treasury stock on July 5, 2011 and an additional 41,820,600 Shares as treasury stock on February 8, 2012. For the fiscal year ended March 31, 2014, the Government designated 62,166,721 Shares as the maximum number of Shares that it would sell; of these, NTT repurchased 26,010,000 Shares as treasury stock on March 7, 2014. For the fiscal year ended March 31, 2015, the Government designated 36,156,721 Shares as the maximum number of Shares that it would sell; of these, NTT repurchased 35,088,600 Shares as treasury stock on November 14, 2014 and an additional 1,068,100 Shares as treasury stock on November 28, 2014. 39 Table of Contents For the fiscal year ended March 31, 2017, the Government designated 59,000,043 Shares as the maximum number of Shares that it would sell; of these, NTT repurchased 59,000,000 Shares as treasury stock on June 14, 2016. Capital Investments NTT Group’s capital investments for the fiscal years ended March 31, 2015, 2016 and 2017 are shown in the table below: Year ended March 31, 2015 2016 2017 (in millions of yen) Regional communications business ¥ 666,164 ¥ 622,131 ¥ 583,358 Long distance and international communications business 198,112 227,564 244,859 Mobile communications business 661,765 595,264 597,078 Data communications business 140,900 134,030 158,140 Other business 150,582 108,217 116,592 Total ¥ 1,817,523 ¥ 1,687,206 ¥ 1,700,027 NTT Group used the capital investment amounts shown above, determined on an accrual basis, to acquire tangibles and intangibles. The table below presents the difference between the amount of capital investments shown above and the amount presented on the consolidated statements of cash flows under “Payments for property, plant and equipment” and “Payments for intangibles.” Year ended March 31, 2015 2016 2017 (in millions of yen) Payments for property, plant and equipment ¥ 1,444,917 ¥ 1,265,622 ¥ 1,301,697 Payments for intangibles 358,209 371,924 400,110 Total 1,803,126 1,637,546 1,701,807 Difference in capital investment amounts ¥ (14,397 ) ¥ (49,660 ) ¥ 1,780 Capital investment for each principal business segment in the fiscal year ended March 31, 2017 was as follows: In the regional communications business segment, NTT Group’s emphasis has been on improving customer service and reducing costs, while responding to customer demand for fiber-optic service and making capital investments with the aim of providing high-quality, stable universal services for fixed-line telephone services and other services. NTT Group also worked to increase the efficiency of capital investments by increasing the usage of existing facilities. In the long distance and international communications business segment, NTT Group made capital investments aimed at domestic and international data center- and cloud network-related growth, among other things. In the mobile communications business segment, NTT Group promoted the focused expansion of “PREMIUM 4G” in high-traffic areas in urban districts in order to deliver a network that provides “even better amenities” for its customers. In addition, in order to even further expand its service area, NTT Group developed LTE base stations nationwide. NTT Group also sought to strengthen its management foundation by streamlining capital investments, reducing procurement costs and other expenses, and further increasing efficiency in the construction of telecommunication facilities. In addition, with the objective of improving efficiency in operational costs in the future, NTT Group proactively introduced high-performance equipment to enable the consolidation of its facilities and increases in their capacity. 40 Table of Contents In the data communications business segment, NTT Group made capital investments primarily in the financial sector. NTT Group records its physical plant assets as follows: As of March 31, 2017 Telecom Facilities Land Buildings Other Total (in millions of yen) Regional communications business ¥ 3,306,588 ¥ 423,317 ¥ 819,284 ¥ 320,933 ¥ 4,870,122 Long distance and international communications business 214,865 67,789 275,608 941,473 1,499,735 Mobile communications business 1,641,874 198,178 307,443 1,242,172 3,389,667 Data communications business 89,506 63,782 109,000 865,497 1,128,685 Other business — 539,619 467,299 289,480 1,296,398 Total ¥ 5,252,833 ¥ 1,292,685 ¥ 1,979,534 ¥ 3,659,555 ¥ 12,184,607 NTT Group forecasts ¥1,700.0 billion in capital investments for the fiscal year ending March 31, 2018, the same amount as compared to the previous fiscal year, as a result of its plans to continue improving the efficiency of capital investments for the regional communications business segment and the mobile communications business segment, while also increasing capital investments for facilities related to the data communications business, among others. The following is a breakdown of expected investments by principal business segment: Year ending March 31, 2018 (in millions of yen) Total ¥ 1,700,000 Principal business segments: Regional communications business ¥ 555,000 Long distance and international communications business 249,000 Mobile communications business 570,000 Data communications business 192,000 Notes: (1) The above figures do not include consumption tax. (2) NTT Group plans to procure the required funds from cash on hand, the issuance of corporate bonds and long-term debt. Property, Plants and Equipment The properties of NTT Group are used to provide nationwide telecommunications services in Japan and are generally in good operating condition. As of March 31, 2017, the total balance sheet amount of NTT Group’s fixed assets was ¥ 37,005.6 billion. The breakdown of these fixed assets is 29.8% telecommunications equipment (primarily central office equipment including switching installations); 43.4% telecommunications service lines; 16.6% building and structures; 5.5% machinery, vehicles and tools (vehicles, office equipment, fixtures, etc.); 3.5% land; and 1.1% construction in progress. NTT Group networks are continually being updated, and NTT Group believes that its networks are appropriate for its present operations. NTT Group will increase capital investments for data center and cloud network-related growth and for growth in other areas, while continuing to make efficient domestic capital investments. 41 Table of Contents Procurement As part of its strategy to strengthen its corporate competitiveness and to meet the demands of today’s rapidly developing information and communications sector, NTT Group is making an effort to increase management efficiency and provide superior services to its customers. To realize this goal, NTT Group provides fair and competitive opportunities to a wide range of both domestic and foreign suppliers, and seeks economically rational procurement of competitive products and services that meet its business needs. To continue to fulfill its social responsibility goals, NTT Group is taking steps to avoid the use of conflict minerals, to comply with the disclosure requirements of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding such use and also to promote product procurement that reflects the consideration of environmental, human rights and other issues. Research and Development NTT Group pursued a range of R&D pursuant to its Medium-Term Management Strategy “Towards the Next Stage 2.0.” NTT Group established the “corevo®” brand, a collective term for NTT Group’s AI technology, and promoted collaboration with partners in various industries. Furthermore, in order to commercialize the results of development, NTT Group developed business plans tailored to market trends based on its Comprehensive Commercialization System and worked to promote development for practical use. Initiatives to Expand B2B2X Business In the area of edge computing technology, which accomplishes the real-time and wide-ranging processing of data in the IoT age, NTT Group agreed to collaborations with FANUC CORPORATION to further the optimization of the manufacturing field, and with TOYOTA MOTOR CORPORATION to further technological development and technological evaluation in the field of connected cars. In partnership with Mitsubishi Heavy Industries, Ltd., NTT Group developed a prototype for a control system that automatically detects and defends against cyberattacks on industrial equipment including public infrastructure. Utilizing the “angle-free object search technology (corevo®),” which can recognize and search for objects photographed from any angle with a high level of precision, NTT Group implemented joint testing with Seven & i Holdings Co., Ltd. to search for and provide information on products in convenience stores, and with Tokyo Metro Co., Ltd. within subway stations to provide current location data with photos taken of station map signs and to provide limited-time offers through photos taken of advertising posters. Aiming to increase manufacturing facility operating rate and product quality, NTT Group provided Hitachi Zosen Corporation with “abnormal sound detection technology (corevo®),” which objectively visualizes and analyzes the characteristics of both operating sounds and malfunctions of manufacturing facility devices. NTT Group implemented joint practical testing among six group companies to further the realization of services using a device coordination technology (corevo®) centered on communication robots. Research and Development to Improve Efficiency and Enhance Profitability of Domestic Network Businesses NTT Group developed an “operation-collaboration function,” which facilitates cost reductions by service providers through the use of the Hikari Collaboration Model by cataloging the services of telecommunications operators and service providers, including competitors, and consolidating the management of multiple services from the point they are ordered through the start of service and maintenance. 42 Table of Contents NTT Group developed software which makes high-quality and low-cost network services possible by using general-purpose products utilized in data centers and other facilities. NTT Group developed “malfunction source estimation technology (corevo®)” which largely reduces the time required to investigate the cause of a network malfunction by autonomously extracting the causal relationship between the network malfunction and the alarm sent from the device. Research and Development that Enable Highly Immersive New Experiences NTT Group developed a training system for professional baseball players using “athlete first-person vision synthesis technology,” which enables players to experience simulations of pitches with a high degree of realism, and carried out practical testing with RAKUTEN BASEBALL, INC. (Tohoku Rakuten Golden Eagles). NTT Group developed “MaPieceTM” technology, which allows even those without specialized knowledge to easily collect accessibility information on steps and stairs required to provide directions to wheelchair users, as well as 2.5D map representation technology that realizes simple relief map display that is easy to understand even for foreign visitors to Japan. Utilizing “Kirari!®” technology, which provides ultra-high presence “as if you were there” experiences, NTT Group implemented practical testing of its overseas real-time broadcasting technology to broadcast video from a studio in Japan to the 2017 SXSW (South by Southwest) in Austin, Texas as well as broadcasting the “KABUKI LION SHI-SHI-O: The Adventures of the Mythical Lion show” performed in Las Vegas, Nevada by SHOCHIKU Co., Ltd. to Japan. In order to be able to provide entirely new services that touch the senses and emotions of humans and create new awe-inspiring experiences in public spaces moving forward into 2020, NTT Group began joint research with the international media art research institute Ars Electronica Futurelab. NTT Group conducted practical testing of digital signage which simultaneously delivers information at the time of disaster and provides information based on the language and location of foreign tourists to ensure that urban functions are comfortable and safe. Promoting Cutting-edge Research NTT Group developed a “Quantum Neural Network” calculator based on an entirely new principle of using light to quickly solve problems which are difficult for traditional computers, such as searching for chemical compounds in drug development. NTT Group was the first in the world to solve the macroscopic realism problem of whether the quantum mechanical behavior of a single electron appears in the everyday macroscopic world. To discover how the brains of superior athletes regulate their mental state and control their bodily movements to deliver top-level performance, NTT Group launched the “Sports Brain Science Project” to elucidate the brain’s information processing in order to “Train the Brain to Win,” and started R&D.