Overview of Business Results
NTT Group accelerated its self-transformation as a “Value Partner” and worked to place the entire NTT Group towards a profit growth track based on the medium-term management strategy
“Towards the Next Stage 2.0” formulated and announced in May 2015.
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Status of Initiatives to Expand Global Business and Increase Overseas Profit
Generation
NTT Group seeks to establish and expand its global cloud service as a cornerstone of its business
operations, and strengthened its efforts to accelerate overseas profit generation through the following initiatives.
In order
to enhance NTT Group’s global provision of security services, NTT Group established NTT Security Corporation for the integration of NTT Group’s specialized security technologies and service platforms.
NTT Group promoted cross-selling through collaboration among group companies through its global network, cloud migration, and IT
outsourcing projects and received orders from customers in a range of industries from various global regions, including Public Transport Victoria in Australia, as well as the finance, manufacturing, and shipping industries.
While streamlining and optimizing its services and operations in NTT Group’s global cloud business, in procurement, NTT Group has
promoted the unified specifications of procured goods and narrowing down of models to cut procurement costs, working to reform its business structure to strengthen the competitiveness of the entire NTT Group.
Status of Initiatives to Improve Efficiency and Enhance Profitability of Domestic Network Businesses
NTT Group worked to enhance profitability by creating high value-added services as well as optimizing capital investments and reducing
costs for its domestic network businesses.
Through its efforts with the “Hikari Collaboration Model” and
“+d” to promote collaboration among various businesses, NTT Group worked to create high value-added services.
In
addition to simplifying and streamlining networks, NTT Group worked to increase the efficiency of capital investment by increasing the usage of existing facilities and reducing procurement costs.
NTT Group continued to work to reduce costs by controlling marketing costs through the development of the “Hikari Collaboration
Model” and by increasing business efficiency.
In addition, in order to support the above initiatives, NTT Group worked
to increase the transparency of information regarding group management, further standardize the group’s accounting principles, and bolster cash management including overseas subsidiaries. Furthermore, through project teams formed in FY2015, NTT
Group reviewed initiatives aimed at cost reduction and generating profits.
Status of Initiatives to Expand B2B2X
Business
The Japanese government has been developing and implementing a variety of policies centered on the Olympic
and Paralympic Games Tokyo 2020 and the Japanese government’s “Vitalization of Local Economies” initiatives. NTT Group plans to make use of these opportunities to accelerate migration to the B2B2X model and, together with businesses
in other fields and local governments, strengthen measures aimed at creating services that will become the standard of the next generation.
In the sports business, NTT Group developed its B2B2X business through collaborations with the J. League and the U.K.-based Perform Group. As a test case, at NACK5 Stadium Omiya, the home stadium of the
J. League soccer club Omiya Ardija, NTT Group implemented the creation of smart stadiums, working to create a new way to enjoy the match through fans’ smartphones and to stimulate the local communities by mutually referring customers to
nearby businesses.
NTT Group also began to roll out smart stadiums in J. League stadiums nationwide, establishing Wi-Fi access in Yurtec Stadium Sendai as the first project. Additionally, NTT Group launched a new sports content
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distribution service including video from J. League matches. NTT Group made the “DAZN for docomo” service provided to smartphone users, and provided the “DAZN for docomo” and
“DAZN” services for IP TV users through “Hikari-TV.”
NTT Group
promoted collaboration in the entertainment field including traditional arts such as joint testing with SHOCHIKU Co., Ltd. on a collaboration between NTT Group’s cutting-edge audiovisual recognition technology and kabuki.
In addition to NTT Group’s agreement with FANUC CORPORATION, which involves collaborative projects in the area of making factories
smarter by utilizing edge computing technology and application distribution technology, NTT Group promoted collaborations in a range of industrial fields, including initiatives to make agriculture smarter by monitoring crop-raising conditions
through sensor information, aerial drone photography, and image analysis.
In July 2016, the “Sapporo City ICT
Utilization Platform Study Panel” was established with the goal of utilizing Sapporo City’s ICT to resolve regional social issues using NTT Group’s ICT technology in fields starting with tourism and sports, and including traffic and
snow control, health, and childcare. NTT Group promoted the utilization of ICT in the tourism field in Sapporo City by collecting and analyzing big data (the flow of people and purchasing data centered on tourists) from Sapporo City and regional
commercial facilities. Additionally, to establish Sapporo’s brand as a tourism and sports city, at the 2017 Sapporo Asian Winter Games held in February 2017, NTT Group proposed a new way to watch sports using cutting-edge ICT, working to
invigorate sports tourism.
Note: NTT, NTT East, NTT West, NTT Communications, and NTT DOCOMO are Gold Partners (Telecommunications Services) for the Olympic and Paralympic Games Tokyo 2020.
Status of Initiatives for Sustained Improvement in Corporate Value
While working to minimize medium- to long-term business risks by appropriately responding to social and environmental issues at NTT Group,
NTT Group is promoting initiatives toward sustained improvement in corporate value by making effective contributions to the resolution of social and environmental issues through NTT Group’s business activities. Taking into account the UN’s
“Sustainable Development Goals: SDGs,” NTT Group has been engaged in various activities including modifying the “NTT Group CSR Charter” in May 2016 and affirming NTT Group’s agreement with the SDGs in September 2016.
Status of Initiatives for Cybersecurity
While promoting cutting-edge R&D and moving forward with the development of the latest R&D results, NTT Group promoted a
group-wide initiative through the “Group CISO Committee.” Furthermore, through the newly established NTT Security Corporation, NTT Group has created a system to provide cutting-edge security technology to NTT Group’s customers.
Additionally, in terms of the nationwide issue of developing IT security engineers, NTT Group promoted human resource development within NTT Group and participated in the study panel for inter-industry human resources development, contributing to
security personnel development on a national level.
Status of Initiatives to Ensure Diverse Personnel Can Demonstrate
their Talents
Recognizing diversity management as a key part of NTT Group’s management strategy, NTT Group has
striven to ensure diverse personnel can demonstrate their talents. For example, in terms of sexual minorities such as LGBT persons, in addition to receiving the highest level “GOLD” evaluation in the “PRIDE Index,” which
evaluates companies’ approaches to sexual minorities such as LGBT persons, NTT Group promoted initiatives such as clarifying that the systems including leave for marriage also apply to same-sex partners.
Furthermore, in
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terms of NTT Group’s “Work Style Reform,” NTT Group is actively promoting the usage of the teleworking and flextime systems, regardless of rank or position, to create an easier
working environment for all of NTT Group’s employees.
Status of Initiatives for the Environment
In September 2016, NTT Group announced the “NTT Group Environmental Statement” and “The Eco Strategy
2030,” pledging to contribute to lowering the environmental burden on society while contributing to adapting to climate change and preserving the ecosystem by providing ICT services and cutting-edge technology. While continuing to promote
energy saving and cost cutting by introducing cutting-edge electrical power units, NTT Group is also contributing to energy saving in society through sales of these units.
In addition to the above, NTT Group has taken group-wide initiatives to ensure the high stability and reliability of NTT Group’s networks. While quickly and efficiently recovering networks following
the 2016 Kumamoto Earthquake, NTT Group also provided support to those affected by the disaster by installing a temporary free Wi-Fi hotspot in the evacuation center.
Business Outlook
Business Development Pursuant to the Medium-Term Management Strategy
In line with its Medium-Term Management Strategy “Towards the Next Stage 2.0,” NTT Group will continue to work to reform its
business structure and increase its capital efficiency through stock repurchases, aiming to grow its EPS (earnings per share) to 400 yen or more by the fiscal year ending March 31, 2018.
Initiatives to Expand Global Business and Increase Overseas Profit Generation
To realize solid sales growth in its overseas business, NTT Group will work to further enhance its global business promotion system as
well as its services and products. Furthermore, by expanding its global accounts and promoting up-selling and cross-selling, NTT Group will work to enhance its sales and marketing. Additionally, NTT Group will
continue to work to reform its business structure by maximizing cost efficiency and strengthening group governance and risk management.
Initiatives to Improve Efficiency and Enhanced Profitability of Domestic Network Business
In the highly competitive domestic fixed-line communications market and mobile communications market, NTT Group will continue to make efforts toward profit generation through increased efficiency in
capital investment and cost reductions.
Specifically, in relation to the increased efficiency in capital investment, NTT
Group will work to make networks simplified and streamlined, to utilize the results of research and development including software control technology, to further increase the usage efficiency of existing facilities, and to unify specifications of
procured goods and narrow down models in order to cut procurement costs. Additionally, NTT Group will work to make its IT systems more efficient through the use of the latest technology, including virtualization as well as shared platforms.
With regard to cost reductions, NTT Group is continually enhancing initiatives to improve work processes by further
standardizing and systematizing work. NTT Group will boost the competitiveness of its products and services through cost reductions, improve its user service and enhance returns to its customers, while simultaneously working to establish simple,
efficient business operations based on its transition to the B2B2X model and other initiatives.
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Initiatives to Expand B2B2X Business
NTT Group is supporting the communications services field as a Gold Partner (Telecommunications Services) for the Olympic and Paralympic
Games Tokyo 2020, and NTT Group sees the initiative to bring about Society 5.0 (the creation of a new smart society that helps to resolve social issues), which is being promoted through public-private partnerships, as a great opportunity to utilize
its collective strength and organically use its national-scale fixed-line and mobile broadband networks, as well as its technology and know-how in the information systems field.
In particular, by expanding its collaborations with businesses in other fields and local governments, NTT Group will accelerate the
transition to the B2B2X model and work to create new value and emotions aimed at resolving social issues. Through the above efforts, NTT Group will create services that will be inherited as the standard of the next generation and connect to
sustained growth in its domestic business.
Promotion of Fundamental Research & Development
NTT Group will develop the core technologies required for the achievement of its Medium-Term Management Strategy, including cloud,
security, AI, and IoT in order to contribute to the acceleration of profit creation. NTT Group will also develop technology to reduce equipment cost by segmentalizing functions of network equipment and to reduce the time required for network
building, maintenance, and operations. Simultaneously, through the promotion of collaboration with other companies toward the creation of new value, NTT Group will consistently transform output of R&D into new businesses and proactively expand
both in Japan and abroad.
Initiatives for Sustained Improvement in Corporate Value
In accordance with the guidelines set out in “NTT Group CSR Charter,” NTT Group will help resolve the many social and
environmental issues that exist both in and outside of Japan and promote collective initiatives toward improved corporate value and the sustainable development of society.
Initiatives for Cybersecurity
To continue to counter increasingly
diverse and large-scale cyberattacks on international events, governments, and companies, while promoting the introduction of the latest R&D results, NTT Group will enhance its initiative to develop security personnel with high-level skills.
Initiatives to Ensure Diverse Personnel Can Demonstrate their Talents
NTT Group respects and utilizes personnel with diverse values and individuality, creating a work environment that ensures diverse
personnel can demonstrate their talents, irrespective of gender, age, race, nationality, disability status, sexual orientation, or gender identity, advancing initiatives to deepen understanding of work-life management among all of its employees, and
promoting its “Work Style Reform.”
Initiatives for the Environment
In accordance with the “NTT Group Environmental Statement,” NTT Group is promoting initiatives to contribute to lowering the
environmental burden and adapting to climate change through the services and technologies provided by the Group companies such as its ICT services, as well as to preserve ecosystems in cooperation with all of its stakeholders including its business
partners and local communities. Furthermore, NTT Group is continually working to improve energy efficiency and resource circulation throughout its business activities.
In addition to the above initiatives, to secure high levels of stability and reliability for its network, NTT Group will work to provide even safer and more secure services through the accumulation of
everyday network operational knowhow and implementation of disaster drills based on its collaborative frameworks with external agencies.
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Results of Operations
The fiscal year ended March 31, 2017 compared with the fiscal year ended March 31, 2016
Operating Results
Year Ended March 31,
2016 2017 Change Percent Change
(in billions of yen)
Operating revenues: 11,541.0 11,391.0 (150.0 ) (1.3 )%
Fixed voice related services 1,330.0 1,233.9 (96.1 ) (7.2 )%
Mobile voice related services 837.8 865.3 27.5 3.3 %
IP/Packet communications services 3,757.8 3,809.0 51.1 1.4 %
Sales of telecommunications equipment 953.0 806.5 (146.5 ) (15.4 )%
System integration 3,063.5 3,041.6 (21.9 ) (0.7 )%
Other 1,598.8 1,634.8 35.9 2.2 %
Operating expenses 10,192.8 9,851.2 (341.6 ) (3.4 )%
Operating income 1,348.1 1,539.8 191.6 14.2 %
Other income (expenses) (18.9 ) (12.0 ) 6.9 36.4 %
Income before income taxes and equity in earnings (losses) of affiliated companies 1,329.3 1,527.8 198.5 14.9 %
Income tax expense (benefit) 354.8 468.4 113.5 32.0 %
Equity in earnings (losses) of affiliated companies 5.8 (0.0 ) (5.8 ) —
Net income 980.2 1,059.4 79.2 8.1 %
Less—net income attributable to noncontrolling interests 242.5 259.2 16.8 6.9 %
Net income attributable to NTT 737.7 800.1 62.4 8.5 %
Operating Revenues
NTT Group’s operating revenues are divided into six service categories, comprising fixed voice related services, mobile voice related services, IP/packet communications services, sales of
telecommunications equipment, system integration and other.
Operating revenues in the fiscal year ended March 31, 2017
decreased 1.3% from the previous fiscal year to ¥11,391.0 billion. This decrease was due to such factors as exchange rate fluctuations due to the appreciation of the yen, despite the increase in revenues from mobile communications services
in the mobile communications business segment and continued expansion due to NTT Group’s overseas business.
Operating
revenues for each service category for the fiscal year ended March 31, 2017 are summarized as follows:
Fixed Voice
Related Services
NTT Group’s fixed voice related services include a portion of the services it provides in the
regional communications business segment and long distance and international communications business segment, such as telephone subscriber lines, INS-Net, conventional leased circuits and high speed digital.
Fixed voice related revenues for the fiscal year ended March 31, 2017 decreased 7.2% from the previous fiscal year to
¥1,233.9 billion, accounting for 10.8% of total operating revenues. This was due to a continued decline in the number of subscriptions for telephone subscriber lines and INS-Net caused by the
increased popularization of mobile phones and optical IP telephones, and an increase in free or low-priced communications services offered by OTT operators (content distribution services utilizing other
companies’ communications infrastructure, allowing a service provider to distribute services without owning its own communications infrastructure).
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Mobile Voice Related Services
Mobile voice related services include a portion of the services NTT Group provides in the mobile communications business segment, such as
LTE (Xi).
Mobile voice related revenues for the fiscal year ended March 31, 2017 increased 3.3% from the previous fiscal
year to ¥865.3 billion, accounting for 7.6% of total operating revenues. This was due to, among other things, growth in Voice ARPU.
IP/Packet Communications Services
NTT Group’s IP/packet
communications services include a portion of the services it provides in the regional communications business segment, such as FLET’S Hikari, a portion of the services it provides in the long distance and international communications business
segment, such as Arcstar Universal One, IP-VPN, and OCN, as well as a portion of the services it provides in the mobile communications business segment, such as LTE (Xi) packet communications services.
In the fiscal year ended March 31, 2017, revenues from IP/packet communications services increased 1.4% from the
previous fiscal year to ¥3,809.0 billion, accounting for 33.4% of total operating revenues. This increase was due to, among other things, the increased use of packets under the “Kake-hodai & Pake-aeru” billing plan and an
increase in the number of subscriptions to docomo Hikari in the mobile communications business segment, despite a decrease in revenues due to the progress of transfers to the Hikari Collaboration Model in the regional communications business
segment.
Sales of Telecommunications Equipment
This category includes a portion of the services NTT Group provides in the regional communications business segment and the mobile
communications business segment.
In the fiscal year ended March 31, 2017, revenues from telecommunications equipment
sales decreased 15.4% from the previous fiscal year to ¥806.5 billion, accounting for 7.1% of total operating revenues. This decrease was primarily due to a decrease in the number of wholesale sales of handsets, such as smartphones, in the
mobile communications business segment.
System Integration
NTT Group’s system integration services include its data communications business segment and a portion of the services it provides in
the long distance and international communications business segment and the regional communications business segment.
In the
fiscal year ended March 31, 2017, revenues from system integration decreased 0.7% from the previous fiscal year to ¥3,041.6 billion, accounting for 26.7% of total operating revenues. This decrease was due to factors such as the impact
of exchange rate fluctuations on overseas business, despite growth in both domestic and overseas business.
Other
Other services principally comprise building maintenance, real estate rentals, systems development, leasing activities and
the Smart Life area in the mobile communications business segment.
In the fiscal year ended March 31, 2017, revenues
from other services increased 2.2% from the previous fiscal year to ¥1,634.8 billion, accounting for 14.4% of total operating revenues. This increase was due mainly to an increase in revenues associated with operations in the Smart Life
area in the mobile communications business segment.
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Operating Expenses
Operating expenses in the fiscal year ended March 31, 2017 decreased 3.4% from the previous fiscal year to ¥9,851.2 billion.
The reasons for the decrease are discussed below. Personnel expenses and expenses for purchase of goods and services and other expenses, described below, are included in cost of services, cost of equipment sold, cost of system integration, and
selling, general and administrative expenses in the consolidated statements of income.
Personnel Expenses
Personnel expenses in the fiscal year ended March 31, 2017 decreased 1.0% from the previous fiscal year to ¥2,276.8 billion.
This decrease was mainly due to a decrease in personnel expenses in the regional communications business segment due to employee retirements among other factors, despite the continued increase of personnel expenses in the data communication business
segment.
Expenses for Purchase of Goods and Services and Other Expenses
In the fiscal year ended March 31, 2017, expenses for purchase of goods and services and other expenses decreased 1.1%
from the previous fiscal year to ¥5,612.0 billion. This decrease was mainly due to efforts to improve operational efficiency leading to reduced expenses in the regional communications business segment, long distance and international
communications business segment, mobile communications business segment and elsewhere, despite an increase in the number of consolidated overseas subsidiaries.
Depreciation and Amortization Expenses
Depreciation and amortization
expenses in the fiscal year ended March 31, 2017 decreased 17.2% from the previous fiscal year to ¥1,462.2 billion. This decrease was mainly due to the change in NTT Group’s method for calculating depreciation of property, plant,
and equipment from the declining-balance method to the straight-line method, in addition to improved efficiency in capital investments in the regional communications business and mobile communications business.
Operating Income
As a result of the foregoing, operating income for the fiscal year ended March 31, 2017 increased 14.2% from the previous fiscal year to ¥1,539.8 billion.
Other Operating Revenues and Expenses
Other Income (Expenses)
Other expenses for the fiscal year ended
March 31, 2017 decreased to ¥(12.0) billion, from ¥(18.9) billion in the previous fiscal year.
Income before Income Taxes and Equity in Earnings (Losses) of Affiliated Companies
Net income before income taxes in the fiscal year ended March 31, 2017 increased 14.9% from the previous fiscal year to
¥1,527.8 billion for the reasons discussed above.
Income Tax Expense (Benefit)
In the fiscal year ended March 31, 2017, income tax expense increased 32.0% from the previous fiscal year to ¥468.4 billion.
This increase in income tax expense was due to an increase in net income before income taxes, in addition to the reduction to “Income tax expenses (benefit): Deferred” that occurred in the fiscal year ended
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March 31, 2016 due to the decrease of the valuation allowance resulting from the change in the estimate of realizability of deferred tax assets by NTT West and NTT DOCOMO. As a result,
effective tax rates for the fiscal year ended March 31, 2016 and for the fiscal year ended March 31, 2017 were 26.69%, and 30.66%, respectively.
Equity in earnings (losses) of affiliated companies
Equity in earnings
(losses) of affiliated companies for the fiscal year ended March 31, 2017 was approximately equivalent to the previous fiscal year, decreasing to ¥(0.0) billion compared to ¥5.8 billion for the previous fiscal year.
Net Income and Net Income Attributable to NTT
As a result, net income for the fiscal year ended March 31, 2017 increased 8.1% from the previous fiscal year to ¥1,059.4 billion. Net income attributable to NTT (excluding the portion
attributable to non-controlling interests) for the fiscal year ended March 31, 2017 increased 8.5% from the previous fiscal year to ¥800.1 billion.
Segment Information
NTT Group has five business segments: regional communications business, long distance and international communications business, mobile communications business, data communications business and other
business. (For further details, see Note 18 to the Consolidated Financial Statements.)
The regional communications
business segment comprises fixed voice related services, IP/packet communications services, sales of telecommunications equipment, system integration services and other services.
The long distance and international communications business segment principally comprises fixed voice related services, IP/packet
communications services, system integration services and other services.
The mobile communications business segment comprises
mobile voice related services, IP/packet communications services, sales of telecommunications equipment and other services.
The data communications business segment comprises system integration services.
The other business segment principally comprises building maintenance, real estate rentals, systems development, leasing activities and
other services related to research and development.
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An overview of the operational results for each business segment is as follows (intersegment
revenues are included in the operating revenues, operating expenses and operating income of operational results for each business segment):
The fiscal year ended March 31, 2017 compared with the fiscal year ended March 31, 2016
Fiscal Year Ended March 31, 2017
Service Types Operating Revenues (billions of yen) Comparison with Previous Fiscal Year (%)
Regional communications business Fixed voice related services 1,210.6 (6.7 )%
IP/packet communications services 1,540.8 (1.5 )%
System integration services 166.2 3.1 %
Other services 390.6 1.7 %
Total (including intersegment revenues) 3,308.2 (2.9 )%
Intersegment 571.5 14.4 %
Total (excluding intersegment revenues) 2,736.7 (5.9 )%
Long distance and international communications business Fixed voice related services 262.6 (7.9 )%
IP/packet communications services 397.2 6.8 %
System integration services 1,303.3 (8.6 )%
Other services 166.2 (1.5 )%
Total (including intersegment revenues) 2,129.3 (5.4 )%
Intersegment 89.1 (0.5 )%
Total (excluding intersegment revenues) 2,040.2 (5.6 )%
Mobile communications business Mobile voice related services 875.2 3.0 %
IP/packet communications services 2,101.3 7.5 %
Other services 1,608.1 (6.7 )%
Total (including intersegment revenues) 4,584.6 1.3 %
Intersegment 48.7 12.1 %
Total (excluding intersegment revenues) 4,535.8 1.2 %
Data communications business System integration services (including intersegment revenues) 1,718.7 6.3 %
Intersegment 109.6 5.4 %
Total (excluding intersegment revenues) 1,609.2 6.4 %
Other business Other services (including intersegment revenues) 1,282.3 (0.9 )%
Intersegment 813.1 (0.8 )%
Total (excluding intersegment revenues) 469.2 (1.2 )%
Total Consolidated Operating Revenues 11,391.0 (1.3 )%
Note: The above figures do not include consumption tax or other taxes.
(1) Regional Communications Business Segment
Operating revenues in the regional communications business segment for the fiscal year ended March 31, 2017 decreased to ¥3,308.2 billion (a decrease of 2.9% from the previous fiscal year)
due to a decrease in revenues from fixed voice-related services, among other factors.
On the other hand, operating expenses
decreased to ¥2,948.7 billion in the fiscal year ended March 31, 2017 (a decrease of 6.2% from the previous fiscal year), as a result of reducing expenses by controlling marketing
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costs through the development of the Hikari Collaboration Model and by sustained operational efficiency, as well as a decrease in depreciation and amortization expenses due to the change in
calculating the depreciation method.
As a result, segment operating income in the fiscal year ended March 31, 2017
increased 35.7% to ¥359.5 billion.
The state of operations for each service in the regional communications business
segment was as follows:
(Fixed Voice Related Services)
Fixed voice related revenues for the fiscal year ended March 31, 2017 in this segment decreased to ¥1,210.6 billion (a
decrease of ¥87.5 billion (6.7%) from the previous fiscal year), primarily due to the reasons below.
As a result of
the shift in customer demand to mobile telephones, IP phones and broadband access services and to free or low-priced communications services offered by OTT operators, the aggregate number of fixed line
subscriptions (fixed-line telephone & INS-Net) as of March 31, 2017 stood at 21,336 thousand, a decrease of 1,382 thousand from the previous fiscal year.
The numbers of fixed-line telephone and INS-Net subscriptions were as follows:
As of March 31,
2016 2017 Change Percent Change
(in thousands)
NTT East:
Telephone subscriptions 9,875 9,315 (559 ) (5.7 )%
INS-Net subscriptions 1,414 1,293 (121 ) (8.6 )%
NTT West:
Telephone subscriptions 10,068 9,482 (586 ) (5.8 )%
INS-Net subscriptions 1,361 1,246 (116 ) (8.5 )%
(1) Number of Telephone subscriptions is the total of individual lines and central station lines (including lines under the Subscriber Telephone Light Plan).
(2) INS-Net includes INS-Net 64 and INS-Net 1500. In terms of the number of channels, transmission rate, and line use rate (base rate), INS-Net 1500 is in all cases roughly ten times greater than INS-Net 64. For this reason, one INS-Net 1500 subscription is calculated as ten INS-Net 64 subscriptions (including INS-Net 64 Lite Plan subscriptions).
For the fiscal year ended March 31, 2017, aggregate fixed-line ARPU (telephone
subscriber lines plus INS-Net subscriber lines) was ¥2,610 for NTT East and ¥2,580 for NTT West, a decrease of ¥40 (1.5%) and ¥30 (1.1%), respectively, from the corresponding figures
in the previous fiscal year. This decline was due to, among other factors, the shift by high-volume users to IP telephone services and the migration of users from fixed-line services to mobile phone services.
See “—Segment Information—The fiscal year ended March 31, 2017 compared with the fiscal year ended March 31,
2016—Footnote 2, ‘ARPU: Average monthly revenue per unit’” for a description of ARPU, and “—Segment Information—The fiscal year ended March 31, 2017 compared with the fiscal year ended March 31,
2016—Footnote 3, ‘Method of calculating ARPU—(a) NTT East, NTT West’” for a description of how aggregate fixed-line ARPU is calculated.
(IP/Packet Communications Services)
Revenues for IP/Packet Communications
Services in this segment decreased to ¥1,540.8 billion (a decrease of ¥23.6 billion (1.5%) from the previous fiscal year), primarily due to the reasons below.
As a result of NTT’s initiatives to expand its B2B2X business through the Hikari Collaboration Model, as of March 31, 2017, the
number of FLET’S Hikari subscriptions (including the Hikari Collaboration Model) had
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risen to 20,053 thousand channels, an increase of 794 thousand (4.1%) compared to the previous fiscal year; the number of Hikari Denwa subscriptions increased to 17,759 thousand
channels, an increase of 385 thousand channels (2.2%) compared to the previous fiscal year; and the number of FLET’S TV subscriptions increased to 1,521 thousand channels, an increase of 89 thousand channels (6.2%) compared to
the previous fiscal year.
The numbers of subscriptions for “FLET’S Hikari (including the Hikari Collaboration
Model),” “FLET’S ADSL,” “Hikari Denwa,” the IP telephone service, and “FLET’S TV Transmission Service” were as follows:
As of March 31,
2016 2017 Change Percent Change
(in thousands)
NTT East:
FLET’S Hikari (including the Hikari Collaboration Model)(1) 10,666 11,173 507 4.8 %
FLET’S ADSL 475 411 (64 ) (13.5 )%
Hikari Denwa (channels)(2) 9,123 9,369 246 2.7 %
FLET’S TV Transmission Service(2) 910 951 42 4.6 %
NTT West:
FLET’S Hikari (including the Hikari Collaboration Model)(1) 8,593 8,880 287 3.3 %
FLET’S ADSL 577 508 (70 ) (12.1 )%
Hikari Denwa (channels)(2) 8,252 8,390 139 1.7 %
FLET’S TV Transmission Service(2) 522 570 48 9.2 %
(1) FLET’S Hikari (including Hikari Collaboration Model) includes B FLET’S, FLET’S Hikari Next, FLET’S Hikari Light, FLET’S Hikari Lightplus and FLET’S Hikari WiFi Access provided by NTT East, B FLET’S, FLET’S Hikari Premium, FLET’S Hikari Mytown, FLET’S Hikari Next, FLET’S Hikari Light and FLET’S Hikari WiFi Access provided by NTT West, and the “Hikari Collaboration Model,” the wholesale provision of services by NTT East and NTT West to service providers.
(2) The figures for “Hikari Denwa” and “FLET’S TV Transmission Service” include wholesale services provided to service providers by NTT East and NTT West.
FLET’S Hikari ARPU for the fiscal year ended March 31, 2017 was ¥5,250 for NTT East,
¥260 (4.7%) lower than in the previous fiscal year. FLET’S Hikari ARPU for the fiscal year ended March 31, 2017 for NTT West was ¥5,280, ¥190 (3.5%) lower than in the previous fiscal year. These reductions were due to
reduced earnings as a result of the progress of the Hikari Collaboration Model, among other factors.
See “—Segment
Information—The fiscal year ended March 31, 2017 compared with the fiscal year ended March 31, 2016—Footnote 3, ‘Method of calculating ARPU—(a) NTT East, NTT West’” for a description of how FLET’S Hikari
ARPU is calculated.
(Other Services)
With respect to system integration and other services, NTT Group worked to promote the utilization of ICT by providing services that are responsive to the issues and needs of each of its customers,
including businesses and local governments.
(2) Long Distance and International Communications Business Segment
Operating revenues in the long distance and international communications business segment for the fiscal year ended
March 31, 2017 decreased to ¥2,129.3 billion (a decrease of 5.4% from the previous fiscal year) due to, among other things, the impact of exchange rate fluctuations and a reduction in revenues from fixed voice-related services, despite
an increase in revenues from data networks and growth in both domestic and overseas businesses based on the data center business. On the other hand, operating expenses for the fiscal year ended March 31, 2017 also decreased to
¥2,088.4 billion (a decrease of 3.1% from the previous fiscal year) due to, among other things, decreased expenses, such as cost reductions due to increased efficiency in service sales costs
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for consumer services, and reductions based on exchange rate fluctuations, partially offset by temporary expenses relating to structural changes and by impairments such as goodwill in Dimension
Data. As a result, segment operating income in the fiscal year ended March 31, 2017 decreased to ¥40.8 billion (a decrease of 57.8% from the previous fiscal year).
Operations for each service in the long distance and international communications business segment were as follows:
(Fixed Voice Related Services)
Revenues for fixed voice-related services in this segment decreased to ¥262.6 billion (a decrease of ¥22.5 billion (7.9%) from the previous fiscal year). This decrease was primarily due
to, among other things, a decrease in the number of fixed telephone subscriptions due to the increasing popularization of mobile phones and optical IP phones and the increase in the number of free or
low-priced communications services offered by OTT operators.
(IP/Packet
Communications Services)
Revenues for IP/packet communications services in this segment increased to
¥397.2 billion (an increase of ¥25.4 billion (6.8%) from the previous fiscal year). This increase was primarily due to the initiatives described below.
In terms of products for individual customers, for “OCN mobile ONE,” an LTE-compatible mobile data communications service, NTT Communications increased
the number of its subscribers by adding new options and rate plans, such as launching Wi-Fi hotspots that can be connected to for free, and billing plans that provide high volumes of data that can be shared by
multiple users under the same plan.
For enterprise customers, NTT Communications worked to increase the number of
subscriptions for “Arcstar Universal One,” a corporate network service, by launching a number of advanced functions, such as improved functions that provide optionality for opening of new lines immediately on demand and changing bandwidth
on demand.
The following table shows the number of subscriptions for IP/packet communications-related services in the long
distance and international communications business segment:
As of March 31
2016 2017 Change Percent change
(in thousands)
Network Services (VPN)*1 (lines) 339 353 14 4.2 %
OCN (ISP) 8,046 7,739 (307 ) (3.8 )%
Plala (ISP)*2 3,005 3,106 101 3.4 %
Hikari TV*2 3,052 3,023 (29 ) (0.9 )%
*1 “Network Services (VPN)” includes Arcstar Universal One and Arcstar Global IP-VPN.
*2 Revenues from Plala and Hikari TV are included in “Other” operating revenues.
(System Integration Services)
Revenues for systems integration services in this segment decreased to ¥1,303.3 billion (a decrease of ¥122.0 billion (8.6%) from the previous fiscal year). This decrease was due to the
impact of exchange rate fluctuations, despite strengthened efforts to expand global cloud services as the foundation of the business for the entire NTT Group.
Among its primary initiatives, in order to further strengthen its ability to provide full-stack and full-lifecycle services, NTT Group worked to expand its cloud computing platforms through establishing
data centers. NTT
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Group also worked to strengthen its ability to offer seamless ICT solutions combining network and security and other features and to strengthen its ability to provide services in the growth areas
of cloud services and IT outsourcing.
In particular, NTT Group expanded the AI capabilities it had installed on the managed
security services operations platform of “WideAngle,” NTT Com’s comprehensive risk-management service, substantially strengthening its cyber-attack analysis logic. In addition, NTT Com has been working to provide services that
comprehensively support risk management and counter-measures against increasingly sophisticated and malicious security threats in conjunction with NTT Security Corporation.
(3) Mobile Communications Business Segment
Consolidated operating
revenues for the mobile communications business segment for the fiscal year ended March 31, 2017 increased to ¥4,584.6 billion (an increase of 1.3% from the previous fiscal year) due to, among other factors, increased packet usage
under the “Kake-hodai & Pake-aeru” billing plan and an increase in the number of docomo Hikari subscriptions, in addition to the growth of NTT Group’s Smart Life area, despite a decrease in the number of wholesale device
sales. On the other hand, despite an increase in revenue-linked expenses as a result of the expansion of NTT Group’s docomo Hikari business and growth of the Smart Life area, consolidated operating expenses for the fiscal year ended
March 31, 2017 decreased to ¥3,632.9 billion (a decrease of 2.8% from the previous fiscal year) due to, among other factors, the promotion of cost optimization initiatives and the change in calculating the depreciation method. As a
result, consolidated operating income increased to ¥951.6 billion (an increase of 20.7% from the previous fiscal year).
Operations for each service in the mobile communications business segment were as follows:
(Mobile Voice Related Services / IP/Packet Communications Services)
Revenues for mobile voice-related services in this segment increased to ¥875.2 billion (an increase of ¥25.8 billion
(3.0%) from the previous fiscal year). This increase was primarily due to an increase in Voice ARPU. Furthermore, IP/Packet Communications Services revenues increased to ¥2,101.3 billion (an increase of ¥146.5 billion (7.5%) from
the previous fiscal year). This increase was due to an increase in Packet ARPU driven by increased demand for second tablet devices, leading to increased packet usage under the “Kake-hodai & Pake-aeru” billing plan, and an
increase in the number of docomo Hikari subscriptions, despite a decrease in revenues due to the effect of strengthening efforts to enhance returns to customers.
As of March 31, 2017, the number of subscriptions to NTT DOCOMO mobile phone services increased by 3.92 million, from 70.96 million at the end of the previous fiscal year to
74.88 million subscriptions. In addition, churn rates decreased by three basis points to 0.59%.
The following table
shows the number of mobile communications subscriptions and estimated market share:
As of March 31,
2016 2017 Change Percent Change
(in thousands)
Mobile phone services(1) 70,964 74,880 3,916 5.5 %
(Included in the above) Kake-hodai & Pake-aeru 29,704 37,066 7,362 24.8 %
LTE (Xi) services 38,679 44,544 5,865 15.2 %
FOMA services 32,285 30,336 (1,949 ) (6.0 )%
Estimated mobile phone market share(1)(2) 45.3 % 46.0 % 0.7 points —
sp-mode services 32,463 35,921 3,458 10.7 %
i-mode services 18,770 15,493 (3,277 ) (17.5 )%
(1) Mobile phone services subscriptions, LTE (Xi) services subscriptions and FOMA services subscriptions include communications module service subscriptions.
(2) Market share data is based on number of subscriptions of other carriers, which is computed based on figures released by the Telecommunications Carriers Association.
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Aggregate ARPU of mobile phone services increased by ¥260 (6.2%) to ¥4,430 in
the fiscal year ended March 31, 2017, from ¥4,170 in the fiscal year ended March 31, 2016. This was due to an increase of ¥40 (3.3%) in Voice ARPU to ¥1,250 in the fiscal year ended March 31, 2017, from ¥1,210 in
the fiscal year ended March 31, 2016, resulting from, among other factors, the effect of continued transition to the “Kake-hodai & Pake-aeru” billing plan, despite a decrease in revenues due to the effect of strengthening
efforts to enhance returns to customers, and an increase of ¥220 (7.4%) in Data ARPU to ¥3,180 in the fiscal year ended March 31, 2017, from ¥2,960 in the fiscal year ended March 31, 2016, resulting from, among other factors,
increased usage of smartphones and increased demand for second devices, such as tablets, despite a decrease in revenues due to the effect of strengthening efforts to enhance returns to customers.
See “—Segment Information—The fiscal year ended March 31, 2017 compared with the fiscal year ended March 31,
2016—Footnote 1, ‘MOU (average monthly minutes of use per unit): Average communication time per subscription’” at the end of this item for a description of how MOU is calculated. See “—Segment Information—The
fiscal year ended March 31, 2017 compared with the fiscal year ended March 31, 2016—Footnote 3, ‘Method of calculating ARPU—(b) NTT DOCOMO’” at the end of this item for a description of how ARPU is calculated for
mobile phone services.
The following table shows data regarding ARPU and MOU of mobile phone services:
As of March 31,
2016 2017 Change Percent Change
Aggregate ARPU ¥ 4,170 ¥ 4,430 ¥ 260 6.2 %
Voice ARPU 1,210 1,250 40 3.3 %
Data ARPU 2,960 3,180 220 7.4 %
Packet ARPU 2,910 2,990 80 2.7 %
“docomo Hikari” ARPU 50 190 140 280.0 %
MOU (minutes) 133 137 4 3.0 %
(Other Services)
Revenues from other services in this segment decreased by ¥114.8 billion (6.7%) from the previous fiscal year to ¥1,608.1 billion. This decrease was due a reduction in the number of
devices sold, despite growth in the Smart Life area.
(4) Data Communications Business Segment
Operating revenues in the data communications business segment for the fiscal year ended March 31, 2017 increased to
¥1,718.7 billion (an increase of 6.3% from the previous fiscal year) due to, among other things, an increase in the number of consolidated subsidiaries resulting from the acquisition of the Dell Services Division, and an expansion of the
scale of its business with the distribution and services industries and with government agencies, partially offset by a decrease in operating revenues from the impact of exchange rate fluctuations. On the other hand, operating expenses increased to
¥1,610.8 billion (an increase of 7.1% from the previous fiscal year) due to, among other things, an increase in personnel expenses and expenses for purchase of goods and services and other expenses as a result of the increase in the number
of consolidated subsidiaries, in addition to M&A-related temporary expenses, partially offset by a smaller impact from unprofitable transactions.
As a result, segment operating income in the fiscal year ended March 31, 2017 decreased 4.3% from the previous fiscal year to
¥107.9 billion.
(5) Other Business Segment
In the other business segment, operating revenues for the fiscal year ended March 31, 2017 decreased to ¥1,282.3 billion (a
decrease of 0.9% from the previous fiscal year), primarily due to decreased revenues in the
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construction and electricity businesses. On the other hand, operating expenses for the fiscal year ended March 31, 2017 also decreased to ¥1,205.0 billion (a decrease of 1.3% from
the previous fiscal year) due to, among other things, a decrease in revenue-linked expenses.
As a result, segment operating
income increased to ¥77.3 billion (an increase of 4.4% from the previous fiscal year).
(Reference) Geographic Sales Information
As of March 31,
2016 2017 Change Percent Change
(in billions of yen)
Domestic(*) 9,646.2 9,556.4 (89.8 ) (0.9 )%
Overseas(*) 1,894.8 1,834.6 (60.2 ) (3.2 )%
Operating revenues (Total) 11,541.0 11,391.0 (150.0 ) (1.3 )%
(*) Figures are shown based on the geographic location of the services and products provided.
Domestic operating revenues for the fiscal year ended March 31, 2017 decreased to ¥9,556.4 billion (a decrease of 0.9% from
the previous fiscal year), due to, among other things, a decrease in fixed voice related revenues and revenues from the sale of telecommunications equipment. Foreign operating revenues for the fiscal year ended March 31, 2017 decreased to
¥1,834.6 billion (a decrease of 3.2% from the previous fiscal year) due to, among other things, the decrease in operating revenues from the impact of exchange rate fluctuations, partially offset by the impact of the expansion of overseas
consolidated subsidiaries.
Notes:
1. MOU (average monthly minutes of use per unit): Average communication time per user
2. ARPU: Average monthly revenue per unit
Average monthly revenue per unit, or ARPU, is used to measure average monthly operating revenues on a per subscriber (user) basis. In the case of NTT Group’s fixed-line business, ARPU is calculated by dividing revenue items included in the operating revenues of NTT Group’s regional communications business segment (i.e., fixed-line (telephone subscriber lines plus INS-Net subscriber lines) and FLET’S Hikari) by the number of Active Subscribers to the relevant services. In the case of the mobile communications business, ARPU is calculated by dividing communications services revenue items included in operating revenues from NTT Group’s mobile communications business segment, such as revenues from LTE (Xi) mobile phone services, FOMA mobile phone services and docomo Hikari services (with certain exceptions), by the number of Active users to the relevant services. The calculation of these figures excludes revenues that are not representative of monthly average usage, such as telecommunications equipment sales, activation fees and universal service charges.
NTT believes that its ARPU figures calculated in this way provide useful information regarding the monthly average usage of its subscribers. The revenue items included in the numerators of NTT Group’s ARPU figures are based on its financial results comprising its U.S. GAAP results of operations.
3. Method of calculating ARPU
(a) NTT East and NTT West
NTT separately computes the following two categories of ARPU for the fixed-line business conducted by each of NTT East and NTT West, using the following measures:
• Aggregate Fixed-line ARPU (Telephone Subscriber Lines + INS-Net Subscriber Lines): Calculated based on revenues from monthly charges and call charges for Telephone Subscriber
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Lines and INS-Net Subscriber Lines, which are included in operating revenues from Voice Transmission Services (excluding IP Services), and revenues from FLET’S ADSL and FLET’S ISDN, which are included in operating revenues from IP Services.
• FLET’S Hikari ARPU: Calculated based on revenues from FLET’S Hikari (including FLET’S Hikari optional services), which are included in operating revenues from IP Services and Supplementary Business, revenues from monthly charges, call charges and device connection charges for Hikari Denwa, which are included in operating revenues from IP Services, and revenues from “FLET’S Hikari” optional services, which are included in Supplementary Business revenues.
(1) FLET’S Hikari includes B FLET’S, FLET’S Hikari Next, FLET’S Hikari Light, FLET’S Hikari Lightplus and
FLET’S Hikari WiFi Access provided by NTT East, B FLET’S, FLET’S Hikari Premium, FLET’S Hikari Mytown, FLET’S Hikari Next, FLET’S Hikari Light and FLET’S Hikari WiFi Access provided by NTT West, and the
“Hikari Collaboration Model” wholesale provision of services provided by NTT East and NTT West to service providers. FLET’S Hikari optional services include wholesale services provided to service providers by NTT East and NTT West.
(2) Revenues from interconnection charges are excluded from the calculation of Aggregate Fixed-line ARPU (Telephone
Subscriber Lines + INS-Net Subscriber Lines) and FLET’S Hikari ARPU.
(3) For
purposes of calculating Aggregate Fixed-line ARPU (Telephone Subscriber Lines + INS-Net Subscriber Lines), the number of subscribers is the number of subscribers for fixed-line services (telephone subscriber
lines or INS Net subscriber lines).
(4) In terms of number of channels, transmission rate, and line use rate (base rate), INS-Net 1500 is in all cases roughly ten times greater than INS-Net 64. For this reason, one INS-Net 1500 subscription is calculated as
ten INS-Net 64 subscriptions.
(5) For purposes of calculating FLET’S Hikari
ARPU, the number of subscribers is determined based on the number of FLET’S Hikari subscribers (including B FLET’S, FLET’S Hikari Next, FLET’S Hikari Light, FLET’S Hikari Lightplus and FLET’S Hikari WiFi Access provided
by NTT East, B FLET’S, FLET’S Hikari Premium, FLET’S Hikari Mytown, FLET’S Hikari Next, FLET’S Hikari Light and FLET’S Hikari WiFi Access provided by NTT West), and “Hikari Collaboration Model” wholesale
services provided by NTT East and NTT West to service providers.
(6) Number of Active Subscribers used in the ARPU
calculation of NTT East and NTT West is as below:
FY Results: Sum of number of Active Subscribers for each month from April
to March
Active Subscribers = (number of subscribers at end of previous month + number of subscribers at end of current
month)/2
(b) NTT DOCOMO
NTT computes ARPU
for NTT DOCOMO as follows:
Aggregate ARPU = Voice ARPU + Packet ARPU + “docomo Hikari” ARPU.
Voice ARPU: Voice ARPU-related revenues (basic monthly charges and voice communications charges) / Number of Active Users
Packet ARPU: Packet ARPU-related revenues (flat monthly fees and packet communication charges) / Number of Active Users
docomo Hikari ARPU: docomo Hikari ARPU-related revenues (basic monthly charges and voice communication charges) / Number of Active Users
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The sum of Packet ARPU and docomo Hikari ARPU is referred to as “Data ARPU.”
(1) Number of Active Users used in the ARPU calculation of NTT DOCOMO is as below.
FY Results: Sum of number of Active Users for each month from April to March
Active Users = (number of users at end of previous month + number of users at end of current month)/2.
(2) The number of “users” used to calculate ARPU is the total number of subscriptions, excluding the subscriptions listed
below:
No. of active users = subscriptions
a. Subscriptions of communication module services, “Phone Number Storage,” “Mail Address Storage,” “docomo Business Transceiver” and wholesale telecommunications services and interconnecting telecommunications facilities that are provided to Mobile Virtual Network Operators (MVNOs); and
b. Data Plan subscriptions in the case where the customer contracting for such subscription in his/her name also has a subscription for Xi or FOMA services in his/her name.
Revenues from communication module services, “Phone Number Storage,” “Mail Address
Storage,” “docomo Business Transceiver” and wholesale telecommunications services and interconnecting telecommunications facilities that are provided to Mobile Virtual Network Operators (MVNOs) are not included in NTT DOCOMO’s
ARPU calculation.
The fiscal year ended March 31, 2016 compared with the fiscal year ended
March 31, 2015
Operating Results
Year Ended March 31,
2015 2016 Change Percent Change
(in billions of yen)
Operating revenues: 11,095.3 11,541.0 445.7 4.0 %
Fixed voice related services 1,441.4 1,330.0 (111.4 ) (7.7 )%
Mobile voice related services 872.1 837.8 (34.2 ) (3.9 )%
IP/Packet communications services 3,672.2 3,757.8 85.7 2.3 %
Sales of telecommunications equipment 997.0 953.0 (44.0 ) (4.4 )%
System integration 2,691.8 3,063.5 371.7 13.8 %
Other 1,421.0 1,598.8 177.9 12.5 %
Operating expenses 10,010.8 10,192.8 182.1 1.8 %
Operating income 1,084.6 1,348.1 263.6 24.3 %
Other income (expenses) (17.9 ) (18.9 ) (1.0 ) (5.3 )%
Income before income taxes and equity in earnings (losses) of affiliated companies 1,066.6 1,329.3 262.6 24.6 %
Income tax expense (benefit) 397.3 354.8 (42.5 ) (10.7 )%
Equity in earnings (losses) of affiliated companies 5.9 5.8 (0.1 ) (2.0 )%
Net income 675.2 980.2 305.0 45.2 %
Less—net income attributable to noncontrolling interests 157.1 242.5 85.4 54.3 %
Net income attributable to NTT 518.1 737.7 219.7 42.4 %
Operating Revenues
NTT Group’s operating revenues are divided into six service categories, comprising fixed voice related services, mobile voice related services, IP/packet communications services, sales of
telecommunications equipment, system integration and other.
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Operating revenues in the fiscal year ended March 31, 2016 increased 4.0% from the
previous fiscal year to ¥11,541.0 billion. This increase was due to such factors as an increase in domestic business revenues as a result of the increase in mobile communications and system integration revenues, in addition to the growth in
overseas business.
Operating revenues for each service category for the fiscal year ended March 31, 2016 are summarized
as follows:
Fixed Voice Related Services
NTT Group’s fixed voice related services include a portion of the services it provides in the regional communications business segment and long distance and international communications business
segment, such as telephone subscriber lines, INS-Net, conventional leased circuits and high speed digital.
Fixed voice related revenues for the fiscal year ended March 31, 2016 decreased 7.7% from the previous fiscal year to ¥1,330.0 billion, accounting for 11.5% of total operating revenues. This
was due to a continued decline in the number of subscriptions for telephone subscriber lines and INS-Net caused by the increased popularization of mobile phones and optical IP telephones, and an increase in
free or low-priced communications services offered by OTT operators (content distribution services utilizing other companies’ communications infrastructure, allowing a service provider to distribute
services without owning its own communications infrastructure).
Mobile Voice Related Services
Mobile voice related services include a portion of the services NTT Group provides in the mobile communications business segment, such as
LTE (Xi).
Mobile voice related revenues for the fiscal year ended March 31, 2016 decreased 3.9% from the previous fiscal
year to ¥837.8 billion, accounting for 7.3% of total operating revenues. This was due to, among other things, the discount effect of the “Monthly Support” discount program.
IP/Packet Communications Services
NTT Group’s IP/packet communications services include a portion of the services it provides in the regional communications business segment, such as FLET’S Hikari, a portion of the services it
provides in the long distance and international communications business segment, such as Arcstar Universal One, IP-VPN, and OCN, as well as a portion of the services it provides in the mobile communications
business segment, such as LTE (Xi) packet communications services.
In the fiscal year ended March 31, 2016, revenues
from IP/packet communications services increased 2.3% from the previous fiscal year to ¥3,757.8 billion, accounting for 32.6% of total operating revenues. This increase was due to, among other things, an increase in subscriptions for
FLET’S Hikari (including Hikari Collaboration Model) in the regional communications business segment and the promotion of upgrades to higher-level plans of the “Kake-hodai & Pake-aeru” billing plan.
Sales of Telecommunications Equipment
This category includes a portion of the services NTT Group provides in the regional communications business segment and the mobile communications business segment.
In the fiscal year ended March 31, 2016, revenues from telecommunications equipment sales decreased 4.4% from the previous fiscal
year to ¥953.0 billion, accounting for 8.3% of total operating revenues. This decrease was due to a decrease in the number of wholesale sales of handsets, such as smartphones, in the mobile communications business segment.
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System Integration
NTT Group’s system integration services include its data communications business segment and a portion of the services it provides in
the long distance and international communications business segment and the regional communications business segment.
In the
fiscal year ended March 31, 2016, revenues from system integration increased 13.8% from the previous fiscal year to ¥3,063.5 billion, accounting for 26.5% of total operating revenues. This increase was due to factors such as the growth
in both domestic and overseas business.
Other
Other services principally comprise building maintenance, real estate rentals, systems development, leasing activities and the Smart Life area in the mobile communications business segment.
In the fiscal year ended March 31, 2016, revenues from other services increased 12.5% from the previous fiscal year to
¥1,598.8 billion, accounting for 13.9% of total operating revenues. This increase was due mainly to an increase in revenues associated with operations in the Smart Life business in the mobile communications business segment and an increase
in revenues in the real estate business.
Operating Expenses
Operating expenses in the fiscal year ended March 31, 2016 increased 1.8% from the previous fiscal year to
¥10,192.8 billion. The reasons for the increase are discussed below. Personnel expenses and expenses for purchase of goods and services and other expenses, described below, are included in cost of services, cost of equipment sold, cost of
system integration, and selling, general and administrative expenses in the consolidated statements of income.
Personnel
Expenses
Personnel expenses in the fiscal year ended March 31, 2016 increased 0.9% from the previous fiscal year to
¥2,299.7 billion. This increase was mainly due to an increase in personnel expenses due to the increase in consolidated overseas subsidiaries and the increase in overseas business operations, despite the focus on reducing the number of
personnel employed in the regional communications business segment.
Expenses for Purchase of Goods and Services and Other
Expenses
In the fiscal year ended March 31, 2016, expenses for purchase of goods and services and other
expenses increased 4.1% from the previous fiscal year to ¥5,675.9 billion. Efforts to improve operational efficiency led to reduced expenses in the regional communications business segment, long distance and international
communications business segment and mobile communications business segment. However, overall expenses increased compared with the previous fiscal year as a result of, among other things, an increase in the number of consolidated overseas
subsidiaries.
Depreciation and Amortization Expenses
Depreciation and amortization expenses in the fiscal year ended March 31, 2016 decreased 3.4% from the previous fiscal year to
¥1,766.3 billion. This decrease was mainly due to a reduction in investments as a result of making more efficient capital investments in the regional communications business and mobile communications business, which offset the increase in
depreciation and amortization expenses due to the increase in capital investments for data centers and other investments in the long distance and international communications business segment.
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Operating Income
As a result of the foregoing, operating income for the fiscal year ended March 31, 2016 increased 24.3% from the previous fiscal year
to ¥1,348.1 billion.
Other Operating Revenues and Expenses
Other Income (Expenses)
Other income (expenses) for the fiscal year ended March 31, 2016 slightly decreased to ¥(18.9) billion, from ¥(17.9) billion in the previous fiscal year.
Income before Income Taxes and Equity in Earnings (Losses) of Affiliated Companies
Net income before income taxes in the fiscal year ended March 31, 2016 increased 24.6% from the previous fiscal year to
¥1,329.3 billion for the reasons discussed above.
Income Tax Expense (Benefit)
In the fiscal year ended March 31, 2016, income tax expense decreased 10.7% from the previous fiscal year to ¥354.8 billion.
This decrease in income tax expense was primarily due to the reduction to “Income tax expenses (benefit): Deferred” due to the decrease of the valuation allowance resulting from the change in the estimate of realizability of deferred tax
assets by NTT West and NTT DOCOMO. As a result, effective tax rates for the fiscal year ended March 31, 2015 and for the fiscal year ended March 31, 2016 were 37.25%, and 26.69%, respectively.
Equity in earnings (losses) of affiliated companies
Equity in earnings (losses) of affiliated companies for the fiscal year ended March 31, 2016 was approximately equivalent to the previous fiscal year, decreasing slightly to ¥5.8 billion
compared to ¥5.9 billion for the previous fiscal year.
Net Income and Net Income Attributable to NTT
As a result, net income for the fiscal year ended March 31, 2016 increased 45.2% from the previous fiscal year to
¥980.2 billion. Net income attributable to NTT (excluding the portion attributable to non-controlling interests) for the fiscal year ended March 31, 2016 increased 42.4% from the previous fiscal
year to ¥737.7 billion.
Segment Information
NTT Group has five business segments: regional communications business, long distance and international communications business, mobile
communications business, data communications business and other business. (For further details, see Note 18 to the Consolidated Financial Statements.)
The regional communications business segment comprises fixed voice related services, IP/packet communications services, sales of telecommunications equipment, system integration services and other
services.
The long distance and international communications business segment principally comprises fixed voice related
services, IP/packet communications services, system integration services and other services.
The mobile communications
business segment comprises mobile voice related services, IP/packet communications services, sales of telecommunications equipment and other services.
The data communications business segment comprises system integration services.
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The other business segment principally comprises building maintenance, real estate rentals,
systems development, leasing activities and other services related to research and development.
An overview of the
operational results for each business segment is as follows (intersegment revenues are included in the operating revenues, operating expenses and operating income of operational results for each business segment):
The fiscal year ended March 31, 2016 compared with the fiscal year ended March 31, 2015
Fiscal Year Ended March 31, 2016
Service Types Operating Revenues (billions of yen) Comparison with Previous Fiscal Year (%)
Regional communications business Fixed voice related services 1,298.0 (7.7 )%
IP/packet communications services 1,564.4 1.1 %
System integration services 161.2 (1.4 )%
Other services 384.2 (1.3 )%
Total (including intersegment revenues) 3,407.9 (2.8 )%
Intersegment 499.6 5.6 %
Total (excluding intersegment revenues) 2,908.2 (4.1 )%
Long distance and international communications business Fixed voice related services 285.1 (7.2 )%
IP/packet communications services 371.9 2.7 %
System integration services 1,425.3 22.9 %
Other services 168.6 (0.7 )%
Total (including intersegment revenues) 2,250.9 12.6 %
Intersegment 89.5 (2.5 )%
Total (excluding intersegment revenues) 2,161.4 13.4 %
Mobile communications business Mobile voice related services 849.4 (3.9 )%
IP/packet communications services 1,954.8 5.5 %
Other services 1,722.9 4.6 %
Total (including intersegment revenues) 4,527.1 3.3 %
Intersegment 43.5 0.9 %
Total (excluding intersegment revenues) 4,483.7 3.3 %
Data communications business System integration services (including intersegment revenues) 1,616.8 7.0 %
Intersegment 104.0 (5.2 )%
Total (excluding intersegment revenues) 1,512.8 8.0 %
Other business Other services (including intersegment revenues) 1,294.5 1.7 %
Intersegment 819.6 (4.4 )%
Total (excluding intersegment revenues) 474.8 14.5 %
Total Consolidated Operating Revenues 11,541.0 4.0 %
Note:
The above figures do not include consumption tax or other taxes.
(1) Regional Communications Business Segment
Despite an increase in IP/packet communications revenues attributable to the increase in “FLET’S Hikari
(including Hikari Collaboration Model)” subscriptions, operating revenues in the regional communications business segment for the fiscal year ended March 31, 2016 decreased to ¥3,407.9 billion (a decrease of 2.8% from the previous
fiscal year) due to a decrease in fixed voice related revenues resulting from the decline in fixed-line telephone subscriptions. On the other hand, operating expenses decreased to ¥3,142.9 billion in the fiscal year ended March 31,
2016 (a decrease of 5.8% from the previous fiscal year), as a result of reducing
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expenses by controlling marketing costs through the development of the Hikari Collaboration Model and by sustained operational efficiency, as well as a decrease in personnel expenses resulting
from a decrease in the number of employees and a decrease in depreciation and amortization expenses resulting from making more efficient capital investments.
As a result, segment operating income in the fiscal year ended March 31, 2016 increased 56.9% to ¥265.0 billion.
The state of operations for each service in the regional communications business segment was as follows:
(Fixed Voice Related Services)
Fixed voice related revenues for the fiscal
year ended March 31, 2016 in this segment decreased to ¥1,298.0 billion (a decrease of ¥107.8 billion (7.7%) from the previous fiscal year), primarily due to the reasons below.
As a result of the shift in customer demand to mobile telephones, IP phones and broadband access services and to free or low-priced communications services offered by OTT operators, the aggregate number of fixed line subscriptions (fixed-line telephone & INS-Net) as of March 31,
2016 stood at 22,718 thousand, a decrease of 1,625 thousand from the previous fiscal year.
The numbers of
fixed-line telephone and INS-Net subscriptions were as follows:
As of March 31,
2015 2016 Change Percent Change
(in thousands)
NTT East:
Telephone subscriptions 10,492 9,875 (618 ) (5.9 )%
INS-Net subscriptions 1,559 1,414 (144 ) (9.3 )%
NTT West:
Telephone subscriptions 10,794 10,068 (726 ) (6.7 )%
INS-Net subscriptions 1,499 1,361 (137 ) (9.2 )%
For the fiscal year ended March 31, 2016, aggregate fixed-line ARPU (telephone subscriber lines plus
INS-Net subscriber lines) was ¥2,650 for NTT East and ¥2,610 for NTT West, a decrease of ¥50 (1.9%) and ¥40 (1.5%), respectively, from the corresponding figures in the previous fiscal
year. This decline was due to, among other factors, the shift by high-volume users to IP telephone services and the migration of users from fixed-line services to mobile phone services.
See “—Segment Information—The fiscal year ended March 31, 2016 compared with the fiscal year ended March 31,
2015—Footnote 2, ‘ARPU: Average monthly revenue per unit’” for a description of ARPU, and “—Segment Information—The fiscal year ended March 31, 2016 compared with the fiscal year ended March 31,
2015—Footnote 3, ‘Method of calculating ARPU—(a) NTT East, NTT West’” for a description of how aggregate fixed-line ARPU is calculated.
(IP/Packet Communications Services)
Revenues for IP/Packet Communications
Services in this segment increased to ¥1,564.4 billion (an increase of ¥17.3 billion (1.1%) from the previous fiscal year), primarily due to the reasons below.
In February 2015, NTT began providing its “Hikari Collaboration Model,” the world’s first full-fledged wholesale provision
of fiber-optic access services, in order to rejuvenate the ICT market by promoting the
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creation of new value through the use of fiber-optic access services by diverse service providers in a wide variety of industries. NTT continued to implement measures to expand B2B2X business
through the Model throughout the fiscal year.
NTT promoted collaborative projects with mobile network operators and ISPs, in
addition to business operators in diverse industries including the energy industry, real estate industry, and security industry. As a result, the number of service providers providing wholesale service was 350 at the end of the fiscal year ended
March 31, 2016. In the cable television industry, new use cases were born, including the adoption of the Hikari Collaboration Model in the conversion of all service areas to fiber optics. As a result of these initiatives, the number of
fiber-optic access service subscriptions using this model was 4.69 million.
As a result of these initiatives, as of
March 31, 2016, the number of FLET’S Hikari subscriptions (including the Hikari Collaboration Model) had risen to 19,259 thousand channels, an increase of 543 thousand (2.9%) compared to the previous fiscal year; the number of
Hikari Denwa subscriptions increased to 17,374 thousand channels, an increase of 267 thousand channels (1.6%) compared to the previous fiscal year; and the number of FLET’S TV subscriptions increased to 1,432 thousand channels,
an increase of 87 thousand channels (6.5%) compared to the previous fiscal year.
The numbers of subscriptions for
“FLET’S Hikari (including the Hikari Collaboration Model),” “FLET’S ADSL,” “Hikari Denwa,” the IP telephone service, and “FLET’S TV Transmission Service” were as follows:
As of March 31,
2015 2016 Change Percent Change
(in thousands)
NTT East:
FLET’S Hikari (including the Hikari Collaboration Model)(1) 10,403 10,666 264 2.5 %
FLET’S ADSL 550 475 (75 ) (13.6 )%
Hikari Denwa (channels)(2) 9,032 9,123 91 1.0 %
FLET’S TV Transmission Service(2) 877 910 33 3.7 %
NTT West:
FLET’S Hikari (including the Hikari Collaboration Model)(1) 8,313 8,593 280 3.4 %
FLET’S ADSL 669 577 (92 ) (13.7 )%
Hikari Denwa (channels)(2) 8,076 8,252 176 2.2 %
FLET’S TV Transmission Service(2) 468 522 54 11.6 %
(1) FLET’S Hikari (including Hikari Collaboration Model) includes B FLET’S, FLET’S Hikari Next, FLET’S Hikari Light, FLET’S Hikari Lightplus and FLET’S Hikari WiFi Access provided by NTT East, B FLET’S, FLET’S Hikari Premium, FLET’S Hikari Mytown, FLET’S Hikari Next, FLET’S Hikari Light and FLET’S Hikari WiFi Access provided by NTT West, and the “Hikari Collaboration Model,” the wholesale provision of services by NTT East and NTT West to service providers.
(2) The figures for “Hikari Denwa” and “FLET’S TV Transmission Service” include wholesale services provided to service providers by NTT East and NTT West.
FLET’S Hikari ARPU for the fiscal year ended March 31, 2016 was ¥5,510 for NTT East,
¥20 (0.4%) higher than in the previous fiscal year. This slight increase was due to, among other things, a decrease in various discount services. FLET’S Hikari ARPU for the fiscal year ended March 31, 2016 for NTT West was ¥5,470,
¥210 (3.7%) lower than in the previous fiscal year. The main reason for this decrease is the continued impact of discount programs.
See “—Segment Information—The fiscal year ended March 31, 2016 compared with the fiscal year ended March 31, 2015—Footnote 3, ‘Method of calculating ARPU—(a) NTT
East, NTT West’” for a description of how FLET’S Hikari ARPU is calculated.
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(Other Services)
With respect to system integration and other services, NTT Group worked to advance business model proposals that effectively promote
“vitalization of local economics” through ICT by utilizing the strengths of each locality’s business structures and by focusing on understanding the issues and needs of each local government.
Specifically, in the tourism sector, there is increasingly widespread movement amongst local governments and shopping districts for quick
installation of public Wi-Fi in tourist areas in response to the increasing number of foreign tourists. In order to meet this demand, NTT Group has provided support for the installation and operation of Wi-Fi in Fukuoka City and Sapporo City.
(2) Long Distance and International
Communications Business Segment
Despite a decline in domestic fixed voice related revenues, operating revenues in the long
distance and international communications business segment for the fiscal year ended March 31, 2016 increased to ¥2,250.9 billion (an increase of 12.6% from the previous fiscal year) due to, among other things, an increase in system
integration revenues as a result of the expansion of consolidated subsidiaries. On the other hand, operating expenses for the fiscal year ended March 31, 2016 increased to ¥2,154.2 billion (an increase of 14.3% from the previous fiscal
year) due to, among other things, an increase in personnel expenses and other costs as a result of an increase in the number of consolidated subsidiaries. As a result, segment operating income in the fiscal year ended March 31, 2016 decreased
to ¥96.7 billion (a decrease of 14.9% from the previous fiscal year).
Operations for each service in the long
distance and international communications business segment were as follows:
(Fixed Voice Related Services)
Revenues for fixed voice-related services in this segment decreased to ¥285.1 billion (a decrease of ¥22.0 billion
(7.2%) from the previous fiscal year). This decrease was primarily due to, among other things, a decrease in the number of fixed telephone subscriptions due to the increasing popularization of mobile phones and optical IP phones and the increase in
the number of free or low-priced communications services offered by OTT operators, despite NTT Group’s continued support of a variety of customer needs, including, among other things, revising the rates
for the “PL@TINUM LINE” telephone service.
(IP/Packet Communications Services)
Revenues for IP/packet communications services in this segment increased to ¥371.9 billion (an increase of ¥9.9 billion
(2.7%) from the previous fiscal year). This increase was primarily due to the initiatives described below.
In terms of
products for individual customers, for “OCN mobile ONE,” an LTE-compatible mobile data communications service, NTT Communications substantially increased the number of its subscribers by working to
strengthen its sales structure, such as by offering a nationwide same-day delivery counter for “voice-enabled SIM cards,” which allow users to make voice calls.
For enterprise customers, NTT Communications worked to increase the number of subscriptions for “Arcstar Universal One,” a
corporate network service currently provided in 196 countries and regions, by launching a number of advanced functions. For example, NTT Communications launched “Multi-Cloud Connect,” an optional service which allows speedy, flexible and
lower-cost multi-cloud environments to be built by connecting with a wide array of cloud services, including the company’s own cloud services.
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The following table shows the number of subscriptions for IP/packet communications-related
services in the long distance and international communications business segment:
As of March 31
2015 2016 Change Percent change
(in thousands)
Network Services (VPN)*1 (lines) 303 339 37 12.0 %
OCN (ISP) 8,282 8,046 (236 ) (2.9 )%
Plala (ISP)*2 2,960 3,005 45 1.5 %
Hikari TV*2 3,014 3,052 38 1.2 %
*1 “Network Services (VPN)” includes Arcstar Universal One and Arcstar Global IP-VPN.
*2 Revenues from Plala and Hikari TV are included in “Other services” of the Long distance and international communications business described in the operational results table for each business segment above.
(System Integration Services)
Revenues for systems integration services in this segment increased to ¥1,425.3 billion (an increase of ¥265.6 billion
(22.9%) from the previous fiscal year). This increase was due to strengthened efforts to expand global cloud services as the foundation of the business for the entire NTT Group. Specifically, NTT Group carried out the initiatives described below.
In order to further strengthen its ability to provide full-stack and full-lifecycle services, NTT Group pursued M&A and
worked to expand its cloud computing platforms through establishing data centers. NTT Group also worked to strengthen its ability to offer seamless ICT solutions combining network and security and other features and to strengthen its ability to
provide services in the growth areas of cloud services and IT outsourcing.
In particular, NTT Group increased its system
integration revenues by expanding its consolidated subsidiaries, including Lux e-shelter 1 S.a.r.l, RagingWire Data Centers, Inc., Arkadin International SAS and Oakton Limited. In addition, in order to
strengthen its ability to meet the demand for cloud services and data centers in various global regions, NTT Group began providing services at new data centers that achieve high reliability, through redundancy of electric power facilities and
telecommunications equipment, and enhanced security, in Sacramento in North America, Vienna in Europe, and Hong Kong, Mumbai and Bangkok in Asia, thereby working to increase the number of its customers worldwide. Furthermore, with a particular focus
on cloud migration and IT outsourcing projects, NTT Group promoted cross-selling through collaboration between NTT Communications and Dimension Data, the leading companies in this segment, and NTT DATA and other leading companies in the data
communications segment, and received orders from leading companies in a variety of industries.
(3) Mobile
Communications Business Segment
Consolidated operating revenues for the mobile communications business segment for the
fiscal year ended March 31, 2016 increased to ¥4,527.1 billion (an increase of 3.3% from the previous fiscal year) due to, among other factors, the expansion of NTT Group’s Smart Life business and a relatively favorable impact on
revenues of the “Kake-hodai & Pake-aeru” billing plan compared to the previous fiscal year. Further, despite an increase in revenue-linked expenses as a result of the expansion of NTT Group’s Smart Life business, consolidated
operating expenses for the fiscal year ended March 31, 2016 decreased to ¥3,738.8 billion (a decrease of 0.2% from the previous fiscal year) due to, among other factors, the promotion of cost optimization initiatives. As a result,
consolidated operating income increased to ¥788.4 billion (an increase of 24.0% from the previous fiscal year).
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Operations for each service in the mobile communications business segment were as follows:
(Mobile Voice Related Services / IP/Packet Communications Services)
Revenues for mobile voice-related services decreased to ¥849.4 billion (a decrease of ¥34.4 billion (3.9%) from the
previous fiscal year). This decrease was due to a decrease in voice ARPU, primarily due to the discount effect of the “Monthly Support” program, despite efforts to increase the number of subscriptions and to maintain or reduce churn rates.
IP/Packet Communications Services revenues in this segment increased to ¥1,954.8 billion (an increase of
¥101.8 billion (5.5%) from the previous fiscal year). This increase was due to an increase in packet ARPU, primarily due to increased demand for second tablet devices as a result of an improved tablet device lineup and to the promotion of
upgrades to higher-level plans of the “Kake-hodai & Pake-aeru” billing plan.
As of March 31, 2016,
the number of subscriptions to NTT DOCOMO mobile phone services increased by 4.37 million, from 66.60 million at the end of the previous fiscal year to 70.96 million subscriptions. In addition, churn rates slightly increased to 0.62%,
approximately equivalent to the end of the previous fiscal year.
The following table shows the number of mobile
communications subscriptions and estimated market share:
As of March 31,
2015 2016 Change Percent Change
(in thousands)
Mobile phone services(1) 66,595 70,964 4,368 6.6 %
(Included in the above) Kake-hodai & Pake-aeru 17,827 29,704 11,877 66.6 %
LTE (Xi) services 30,744 38,679 7,934 25.8 %
FOMA services 35,851 32,285 (3,566 ) (9.9 )%
Estimated mobile phone market share(1)(2) 43.6 % 45.3 % 1.7 %
sp-mode services 28,160 32,463 4,303 15.3 %
i-mode services 22,338 18,770 (3,569 ) (16.0 )%
(1) Mobile phone services subscriptions, LTE (Xi) services subscriptions and FOMA services subscriptions include communications module service subscriptions.
(2) Market share data is based on number of subscriptions of other carriers, which is computed based on figures released by the Telecommunications Carriers Association.
Aggregate ARPU of mobile phone services increased by ¥70 (1.7%) to ¥4,170 in the fiscal year ended
March 31, 2016, from ¥4,100 in the fiscal year ended March 31, 2015. This was due to an increase of ¥140 (5.0%) in Data ARPU to ¥2,960 in the fiscal year ended March 31, 2016, from ¥2,820 in the fiscal year ended
March 31, 2015, resulting from the reduced impact on revenues of the “Kake-hodai & Pake-aeru” billing plan and the introduction of “docomo Hikari,” despite a decrease of ¥70 (5.5%) in voice ARPU to ¥1,210 in
the fiscal year ended March 31, 2016, from ¥1,280 in the fiscal year ended March 31, 2015, resulting from the continuing impact of the “Monthly Support” discount program.
See “—Segment Information—The fiscal year ended March 31, 2016 compared with the fiscal year ended March 31,
2015—Footnote 1, ‘MOU (average monthly minutes of use per unit): Average communication time per subscription’” at the end of this item for a description of how MOU is calculated. See “—Segment Information—The
fiscal year ended March 31, 2016 compared with the fiscal year ended March 31, 2015—Footnote 3, ‘Method of calculating ARPU—(b) NTT DOCOMO’” at the end of this item for a description of how ARPU is calculated for
mobile phone services.
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The following table shows data regarding ARPU and MOU of mobile phone services:
As of March 31,
2015 2016 Change Percent Change
Aggregate ARPU ¥ 4,100 4,170 ¥ 70 1.7 %
Voice ARPU 1,280 1,210 (70 ) (5.5 )%
Data ARPU 2,820 2,960 140 5.0 %
Packet ARPU 2,820 2,910 90 3.2 %
“docomo Hikari” ARPU 0 50 50 — %
MOU (minutes) 122 133 11 9.0 %
(Other Services)
With respect to sales of telecommunications equipment, a part of other services, in order to meet the diverse needs
of its customers, NTT DOCOMO has strived to enrich its handset lineup, adding new models such as Android smartphones, iPhone 6s*, “docomo Feature Phones”, “docomo tablets,” wearable devices and
Wi-Fi routers, among other devices.
* TM and © 2016 Apple Inc. All rights reserved. iPhone is a trademark of Apple Inc. The iPhone trademark is used under license from AIPHONE CO, Ltd.
(4) Data
Communications Business Segment
Operating revenues in the data communications business segment for the fiscal year ended
March 31, 2016 increased to ¥1,616.8 billion (an increase of 7.0% from the previous fiscal year) due to, among other things, an increase in the number of overseas consolidated subsidiaries, the cultivation of new customers, and an
expansion of the scale of systems provided to existing customers. On the other hand, operating expenses increased to ¥1,504.1 billion (an increase of 5.6% from the previous fiscal year) due to, among other things, an increase in personnel
expenses and expenses for purchase of goods and services and other expenses as a result of the increase in the number of consolidated subsidiaries.
As a result, segment operating income in the fiscal year ended March 31, 2016 increased 30.5% from the previous fiscal year to ¥112.7 billion.
In the data communications business segment, NTT responded to the acceleration of 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.
Operating revenues for business operations directed toward the public and social infrastructure field, which provide
high value-added IT services that support government, medicine, communications, energy and other social infrastructure and regionalization, increased as a result of business expansion in response to changes in the market in conjunction with new
businesses created under the nationwide IT strategy and institutional changes in the utility industry (power system reform), despite an anticipated decline in the government and telecom industries.
Operating revenues for the global business of this segment, which supplies high value-added IT services both within and across various
regions overseas, increased due to, among other factors, increased revenues from an increase in the number of consolidated subsidiaries through the acquisition of Carlisle & Gallagher Group, Inc. in the North American market, which is the
largest IT services market in the world and is expected to grow even further.
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(5) Other Business Segment
In the other business segment, operating revenues for the fiscal year ended March 31, 2016 increased to ¥1,294.5 billion (an
increase of 1.7% from the previous fiscal year), primarily due to increased revenues in the real estate business as a result of improved vacancy rates for both new and existing properties in the leasing business and as a result of the expansion
of property sales, among other factors. On the other hand, operating expenses for the fiscal year ended March 31, 2016 also increased to ¥1,220.4 billion (an increase of 1.3% from the previous fiscal year) due to, among other things,
an increase in revenue-linked expenses.
As a result, segment operating income increased to ¥74.0 billion (an
increase of 9.7% from the previous fiscal year).
(Reference) Geographic Sales Information
As of March 31,
2015 2016 Change Percent Change
(in billions of yen)
Domestic(*) 9,509.9 9,646.2 136.3 1.4 %
Overseas(*) 1,585.4 1,894.8 309.4 19.5 %
Operating revenues (Total) 11,095.3 11,541.0 445.7 4.0 %
(*) Figures are shown based on the geographic location of the services and products provided.
Domestic operating revenues for the fiscal year ended March 31, 2016 increased to ¥9,646.2 billion (an increase of 1.4%
from the previous fiscal year), due to, among other things, an increase in IP/packet communications revenues and an increase in domestic system integration revenues. Foreign operating revenues for the fiscal year ended March 31, 2016 increased
to ¥1,894.8 billion (an increase of 19.5% from the previous fiscal year) due to, among other things, the expansion of overseas consolidated subsidiaries.
Notes:
1. MOU (average monthly minutes of use per unit): Average communication time per user
2. ARPU: Average monthly revenue per unit
Average monthly revenue per unit, or ARPU, is used to measure average monthly operating revenues attributable to each designated service on a per subscriber (user) basis. In the case of NTT Group’s fixed-line business, ARPU is calculated by dividing revenue items included in the operating revenues of NTT Group’s regional communications business segment (i.e., fixed-line (telephone subscriber lines plus INS-Net) and FLET’S Hikari) by the number of Active Subscribers to the relevant services. In the case of the mobile communications business, ARPU is calculated by dividing revenue items included in operating revenues from NTT Group’s mobile communications business segment, such as revenues from LTE (Xi) mobile phone services and FOMA mobile phone services, that are incurred consistently each month (i.e., basic monthly charges and voice/packet transmission charges), by the number of Active users to the relevant services. The calculation of these figures excludes revenues that are not representative of monthly average usage, such as telecommunications equipment sales, activation fees and universal service charges.
NTT believes that its ARPU figures calculated in this way provide useful information regarding the monthly average usage of its subscribers. The revenue items included in the numerators of NTT Group’s ARPU figures are based on its financial results comprising its U.S. GAAP results of operations.
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3. Method of calculating ARPU
(a) NTT East and NTT West
NTT separately computes the following two categories of ARPU for the fixed-line business conducted by each of NTT East and NTT West, using the following measures:
• Aggregate Fixed-line ARPU (Telephone Subscriber Lines + INS-Net Subscriber Lines): Calculated based on revenues from monthly charges and call charges for Telephone Subscriber Lines and INS-Net Subscriber Lines, which are included in operating revenues from Voice Transmission Services (excluding IP Services), and revenues from FLET’S ADSL and FLET’S ISDN, which are included in operating revenues from IP Services.
• FLET’S Hikari ARPU: Calculated based on revenues from FLET’S Hikari (including FLET’S Hikari optional services), which are included in operating revenues from IP Services and Supplementary Business, revenues from monthly charges, call charges and device connection charges for Hikari Denwa, which are included in operating revenues from IP Services, and revenues from “FLET’S Hikari” optional services, which are included in Supplementary Business revenues.
(1) FLET’S Hikari includes B FLET’S, FLET’S Hikari Next, FLET’S Hikari Light, FLET’S Hikari Lightplus and
FLET’S Hikari WiFi Access provided by NTT East, B FLET’S, FLET’S Hikari Premium, FLET’S Hikari Mytown, FLET’S Hikari Next, FLET’S Hikari Light and FLET’S Hikari WiFi Access provided by NTT West, and the
“Hikari Collaboration Model” wholesale provision of services provided by NTT East and NTT West to service providers. FLET’S Hikari optional services include wholesale services provided to service providers by NTT East and NTT West.
(2) Revenues from interconnection charges are excluded from the calculation of Aggregate Fixed-line ARPU (Telephone
Subscriber Lines + INS-Net Subscriber Lines) and FLET’S Hikari ARPU.
(3) For
purposes of calculating Aggregate Fixed-line ARPU (Telephone Subscriber Lines + INS-Net Subscriber Lines), the number of subscribers is determined using the number of lines for each service.
(4) In terms of number of channels, transmission rate, and line use rate (base rate), INS-Net
1500 is in all cases roughly ten times greater than INS-Net 64. For this reason, one INS-Net 1500 subscription is calculated as ten
INS-Net 64 subscriptions.
(5) For purposes of calculating FLET’S Hikari ARPU,
the number of subscribers is determined based on the number of FLET’S Hikari subscribers (including B FLET’S, FLET’S Hikari Next, FLET’S Hikari Light, FLET’S Hikari Lightplus and FLET’S Hikari WiFi Access provided by
NTT East, B FLET’S, FLET’S Hikari Premium, FLET’S Hikari Mytown, FLET’S Hikari Next, FLET’S Hikari Light and FLET’S Hikari WiFi Access provided by NTT West), and “Hikari Collaboration Model” wholesale services
provided by NTT East and NTT West to service providers.
(6) Number of Active Subscribers used in the ARPU calculation of NTT
East and NTT West is as below:
FY Results: Sum of number of Active Subscribers for each month from April to March
Active Subscribers = (number of subscribers at end of previous month + number of subscribers at end of current month)/2
(b) NTT DOCOMO
NTT computes ARPU
for NTT DOCOMO as follows:
Mobile Aggregate ARPU = Voice ARPU + Packet ARPU + “docomo Hikari” ARPU.
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(1) NTT DOCOMO’s Voice ARPU is based on operating revenues related to voice services,
such as basic monthly charges and voice communication charges, and its Packet ARPU is based on operating revenues related to packet services, such as basic monthly charges, flat monthly fees and packet communication charges attributable to its LTE
(Xi) and FOMA services, and its “docomo Hikari” ARPU is based on operating revenues from basic monthly charges and voice communication charges for “docomo Hikari” (including “docomo Hikari” optional services).
(2) NTT DOCOMO’s ARPU and MOU calculation methods changed from the second quarter of the fiscal year ended
March 31, 2016. Accordingly, the ARPU data for the results for the fiscal year ended March 31, 2015 have also changed.
(3) Number of Active Users used in the ARPU calculation of NTT DOCOMO is as below.
FY Results: Sum of number of Active Users for each month from April to March
Active Users = (number of users at end of previous month + number of users at end of current month)/2.
(4) The number of “users” used to calculate ARPU is the total number of subscriptions, excluding the subscriptions listed
below:
No. of active users = subscriptions
a. Subscriptions of communication module services, “Phone Number Storage,” “Mail Address Storage,” “docomo Business Transceiver” and wholesale telecommunications services and interconnecting telecommunications facilities that are provided to Mobile Virtual Network Operators (MVNOs); and
b. Data Plan subscriptions in the case where the customer contracting for such subscription in his/her name also has a subscription for Xi or FOMA services in his/her name.
Revenues from communication module services, “Phone Number Storage,” “Mail Address
Storage,” “docomo Business Transceiver” and wholesale telecommunications services and interconnecting telecommunications facilities that are provided to Mobile Virtual Network Operators (MVNOs) are not included in NTT DOCOMO’s
ARPU calculation.
Liquidity and Capital Resources
The fiscal year ended March 31, 2017 compared with the fiscal year ended March 31, 2016
Financing, Capital Resources and Use of Funds
Net cash provided by
operating activities during the fiscal year ended March 31, 2017 amounted to ¥2,917.4 billion, an increase of ¥205.5 billion from ¥2,711.8 billion in the fiscal year ended March 31, 2016. This increase was
primarily the result of, among other things, an increase in the amount of accounts receivable collected in the fiscal year ended March 31, 2017 compared to the fiscal year ended March 31, 2016.
NTT Group used the net cash provided by operating activities mainly to acquire property, plant and equipment, acquire new subsidiaries
and to complete stock repurchases.
Net cash used in investing activities during the fiscal year ended March 31, 2017
amounted to ¥2,089.3 billion, an increase of ¥329.5 billion from ¥1,759.8 billion in the fiscal year ended March 31, 2016. This increase was due to, among other things, a ¥64.3 billion increase in payments
for property, plant and equipment and in intangible assets computed on a cash basis, in addition to a ¥208.4 billion increase in expenditures on acquisitions of subsidiaries.
The increase in payments for investments in property, plant and equipment and in intangible assets for the fiscal year ended
March 31, 2017 resulted from, among other things, an increase in capital expenditures due to measures to consolidate facilities and increase existing facility capacity in the mobile communications business
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and the expansion of the scope of large-scale projects in the data communications business, despite a reduction in fiber-optic-related capital expenditures in the regional communications
business. For the fiscal year ended March 31, 2017, capital investments amounted to ¥1,700.0 billion on an accrual basis, of which ¥583.4 billion was invested in the regional communications business and ¥597.1 billion
was invested in the mobile communications business.
Net cash used in financing activities during the fiscal year ended
March 31, 2017 amounted to ¥981.5 billion, an increase in payments of ¥273.9 billion from ¥707.6 billion in the fiscal year ended March 31, 2016. The increase in payments was due to, among other things, a net
increase of ¥280.5 billion in payments due to stock repurchases in addition to a net increase of ¥140.2 billion in payments for the acquisition of shares of subsidiaries from noncontrolling interests, partially offset by a net
decrease of ¥175.9 billion in expenses from the repayment of short-term and long-term debt. The capital raised from the issuance of long-term debt in the fiscal year ended March 31, 2017 includes ¥128.3 billion in net proceeds
from corporate bond offerings and an aggregate of ¥192.2 billion in loans from financial institutions.
As of
March 31, 2017, the total balance of the interest-bearing debt of NTT Group was ¥4,088.2 billion, a decrease of ¥75.1 billion compared to the balance of ¥4,163.3 billion as of March 31, 2016. The ratio of
interest-bearing debt to shareholders’ equity stood at 45.2% as of March 31, 2017 (compared to 47.1% as of March 31, 2016). Interest-bearing debt as of March 31, 2017 comprises short-term debt and long-term debt, as shown in
Note 11 to the Consolidated Financial Statements, as well as ¥10.6 billion in deposits received pursuant to depositary agreements.
NTT Group believes that the net cash it expects to generate from operating activities, financing made available to NTT Group from banks and other financial institutions and/or offerings of equity or debt
securities in the capital markets will provide the requisite financial resources to meet NTT Group’s currently anticipated capital investment and expenditure needs and debt service requirements. Management believes NTT Group’s working
capital is sufficient for its present requirements.
For the fiscal year ending March 31, 2018, NTT Group expects to make
capital investments totaling ¥1,700.0 billion on an accrual basis, which represents a similar amount as for the fiscal year ended March 31, 2017, due to, among other things, an increase in capital investments due to effect of
consolidating the Dell Services Division, which became a consolidated subsidiary of NTT Group during the fiscal year ended March 31, 2017, for the entire fiscal year and the expansion of the scope of large-scale projects in the data
communications business, partially offset by, among other things, a decrease in capital investments related to network improvements in the regional communications business and improved efficiency in the construction of LTE base stations in the
mobile communications business. The total amount of expected capital investments includes ¥555.0 billion by the regional communications business and ¥570.0 billion by the mobile communications business. The actual amount of capital
investments may vary from expected levels, since capital investments may be influenced by trends in demand, the competitive environment and other factors. In addition, the actual amount of NTT Group’s funding will depend on its future
performance, market conditions and other factors, and is therefore difficult to predict.
Liquidity
As of March 31, 2017, NTT Group had cash and cash equivalents balance (including short-term investments with principal maturities of
less than three months) of ¥925.2 billion, a decrease of ¥163.1 billion compared to the balance of ¥1,088.3 billion as of March 31, 2016. Cash equivalents represent a temporary cash surplus used to repay debts and
make capital investments, among other things, and are used as working capital. Accordingly, the balance of cash equivalents fluctuates each fiscal year depending on particular funding and working capital requirements.
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Contractual Obligations
The following table summarizes NTT Group’s existing contractual obligations as of March 31, 2017:
Payments Due by Period
Contractual Obligations Total Less than one year One to three years Three to five years More than five years
(in millions of yen)
Long-term debt(1)
Bonds 1,574,339 425,215 499,489 369,688 279,947
Bank loans 2,276,043 256,689 591,253 470,586 957,515
Interest payments on long-term debt 195,594 40,747 58,428 36,840 59,579
Capital lease obligations(2) 48,276 16,840 20,120 8,291 3,025
Operating leases 165,290 41,176 54,907 30,366 38,841
Purchase obligations(3) 222,087 134,541 80,850 4,275 2,421
Other long-term obligations(4) — — — — —
Total contractual obligations 4,481,629 915,208 1,305,047 920,046 1,341,328
(1) See Note 11 to the Consolidated Financial Statements for details on Long-term debt.
(2) Capital lease obligations include interest.
(3) Purchase obligations mainly represent outstanding commitments for the purchase of property, plant and equipment and other assets. The amount includes outstanding commitments with a remaining term of one year or less but excludes those which are cancelable.
(4) The amount of other long-term obligations is not shown in the above table, due to the immateriality of certain obligations and uncertainty of certain payments. In addition, NTT Group expects to contribute a total amount of ¥16,531 million to its pension plans in the fiscal year ending March 31, 2018 (see Note 12 to the Consolidated Financial Statements).
As of March 31, 2017, NTT Group had outstanding commitments mainly for the purchase of property, plant and equipment and other
assets of approximately ¥222.1 billion. NTT Group expects to fund such commitments with cash provided by operating activities.
The fiscal year ended March 31, 2016 compared with the fiscal year ended March 31, 2015
Financing, Capital Resources and Use of Funds
Net cash provided by
operating activities during the fiscal year ended March 31, 2016 amounted to ¥2,711.8 billion, an increase of ¥320.0 billion from ¥2,391.8 billion in the fiscal year ended March 31, 2015. This increase was
primarily the result of, among other things, an increase in operating income in the fiscal year ended March 31, 2016 compared to the fiscal year ended March 31, 2015.
NTT Group used the net cash provided by operating activities mainly to acquire property, plant and equipment, repay interest-bearing debt
and pay dividends.
Net cash used in investing activities during the fiscal year ended March 31, 2016 amounted to
¥1,759.8 billion, a decrease of ¥108.8 billion from ¥1,868.6 billion in the fiscal year ended March 31, 2015. This decrease was due to, among other things, a ¥165.6 billion decrease in payments for property,
plant and equipment and in intangible assets computed on a cash basis, partially offset by a ¥78.4 billion increase in expenditures on acquisitions of subsidiaries.
The decrease in payments for investments in property, plant and equipment and in intangible assets for the fiscal year ended March 31, 2016 resulted from, among other things, improved efficiency in
the construction of LTE base stations in the mobile communications business, in addition to reduced fiber-optic-related capital expenditures in the regional communications business. For the fiscal year ended March 31, 2016, capital investments
amounted to ¥1,687.2 billion on an accrual basis, of which ¥622.1 billion was invested in the regional communications business and ¥595.2 billion was invested in the mobile communications business.
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Net cash used in financing activities during the fiscal year ended March 31, 2016
amounted to ¥707.6 billion, an increase in payments of ¥29.6 billion from ¥678.0 billion in the fiscal year ended March 31, 2015. The increase in payments was due to, among other things, a net increase of
¥411.3 billion in expenses from the repayment of short-term and long-term debt, partially offset by a net decrease of ¥244.5 billion in payments due to stock repurchases and a net decrease of ¥159.4 billion in payments for
the acquisition of shares of subsidiaries from noncontrolling interests. The capital raised from the issuance of long-term debt in the fiscal year ended March 31, 2016 includes ¥6.1 billion in net proceeds from corporate bond offerings
and an aggregate of ¥392.2 billion in loans from financial institutions.
As of March 31, 2016, the total
balance of the interest-bearing debt of NTT Group was ¥4,163.3 billion, a decrease of ¥243.4 billion compared to the balance of ¥4,406.7 billion as of the end of the previous fiscal year. The ratio of interest-bearing debt
to shareholders’ equity stood at 47.1% as of March 31, 2016 (compared to 50.8% as of the end of the previous fiscal year). Interest-bearing debt as of March 31, 2016 comprises short-term debt and long-term debt, as shown in
Note 11 to the Consolidated Financial Statements, as well as ¥10.7 billion in deposits received pursuant to depositary agreements.
Liquidity
As of March 31, 2016, NTT Group had cash and cash
equivalents balance (including short-term investments with principal maturities of less than three months) of ¥1,088.3 billion, an increase of ¥239.1 billion compared to the balance of ¥849.2 billion as of the end of the
previous fiscal year.
Research and Development
Research and development costs are charged to expenses as incurred. Research and development costs for the fiscal years ended March 31, 2015, March 31, 2016 and March 31, 2017 were
¥233.8 billion, ¥213.4 billion and ¥211.6 billion, respectively.
The following table presents a
summary of research and development costs by segment for the fiscal years ended March 31, 2015, March 31, 2016 and March 31, 2017:
Year ended March 31,
2015 2016 2017
(in millions of yen)
Regional Communications Business(1) ¥ 99,239 ¥ 93,740 ¥ 91,298
Long Distance and International Communications Business(2) 16,380 15,971 15,976
Mobile Communications Business(3) 96,997 83,315 83,050
Data Communications Business(4) 12,912 12,413 12,360
Other Business(5) 114,724 109,996 108,932
Sub-total 340,252 315,435 311,616
Elimination (106,500 ) (102,000 ) (100,000 )
Total ¥ 233,752 ¥ 213,435 ¥ 211,616
(1) Research and development relating to IP and broadband services, increasing access services to meet diversifying user needs, high value-added services, and other services.
(2) Development of high value-added services in fields ranging from IP networks to platforms, and other services.
(3) Research and development in the area of new products and services related to mobile communications, and research and development aimed at increasing the quality of existing services and enhancing the performance of network functions, among other things.
(4) Technology development to strengthen competitiveness in systems integration and other fields.
(5) Research and development relating to: (a) the creation of basic technologies required for the development of advanced networks and new services that will support the development of an ICT society, (b) technologies that contribute to reducing industry’s burden on the environment, (c) new principles, new parts and new materials expected to bring about extensive technological innovations in the information and communications sector, and (d) others.
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Information on Market and Operation Trends (Trend Information)
In the information and telecommunications market, a wide range of changes took place, with the increased spread and market penetration of
devices that utilize fixed-line and mobile broadband, and improved convenience in people’s everyday lives and productivity in various industries through the emergence of new services made possible by the evolution of technologies such as cloud
services, AI, Big Data and IoT. In addition, the role of information and telecommunications is becoming increasingly important, including strengthening security measures against increasingly sophisticated and complex cyberattacks, strengthening
natural disaster countermeasures and managing safe and secure social systems. This change can be seen on a global scale.
The
fixed-line communications market is also changing dramatically. In addition to growing competition in broadband service facilities and services centered around the shift to fiber-optic services, there has been an increase in new services that use a
variety of wireless devices, as a result of which there has been more diversification of customer usage applications, and an increase in off-load needs resulting from the increase in the amount of data
transmitted.
There has been a dramatic change in the environment surrounding the mobile communications market due to the
rapid proliferation of smartphones and tablet devices, developments related to the government’s competition policy (such as new market entry by Mobile Virtual Network Operators (MVNOs), the obligation to unlock handset SIMs, the adjustment of
subsidies for device purchases, the proposals by the Ministry of Internal Affairs and Communications’ “Task Force on Service Verification from the Perspective of Consumers and Task Force on Mobile Phone Rates and Other Conditions for
Service Offerings” and “Terms for Providing Mobile Services/Follow-Up Meetings on Devices”) the rise of inexpensive smartphones from MVNOs and elsewhere, and other factors.
NTT Group anticipates the following major trends in the fiscal year ending March 31, 2018:
• NTT Group expects an increase in consolidated operating revenues for the fiscal year ending March 31, 2018 resulting from an increase in mobile communications services revenues and fiber-optic communications services revenues in the mobile communications business segment, and from the impact of the acquisition of the Dell Services Division on the data communications business segment.
• NTT Group expects a net increase in the overall number of subscriptions to fiber-optic access services, such as “FLET’S Hikari,” during the fiscal year ending March 31, 2018, due to improvements of the business support structure for partners through the Hikari Collaboration Model and by creating new demand through the combination of various services, including video services.
• Fixed-line telephone and INS-Net subscriptions are expected to decline in the fiscal year ending March 31, 2018, similar to the decline recorded in the fiscal year ended March 31, 2017, due to, among other things, continued customer migration to mobile phone and IP telephone services or to free or low-priced communications services offered by OTT operators.
• NTT Group expects a net increase in the number of mobile phone service subscriptions in the fiscal year ending March 31, 2018. NTT intends to retain customers by further enhancing the Kake-hodai & Pake-aeru billing plan and by offering it as a set with “DOCOMO Hikari,” and to reduce its subscription cancellations by expanding its networks and services to differentiate itself from other companies. In addition, NTT Group is working to support the needs for various services and devices, such as smartphones, tablets, wearable devices, Wi-Fi routers and others. In addition to these initiatives, in order to improve the profitability of the Smart Life business, NTT Group will promote its “+d” initiatives, in which new value is created by collaborating with a variety of businesses, and also expand its content services and finance/online payment services. At the same time, NTT will continue to streamline capital investments and improve cost efficiency in an effort to reduce costs.
• In order to achieve consistent growth in its overseas business in the future, NTT Group is working to strengthen its products and services and to further improve its global business promotion systems. NTT
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Group will continue to strengthen its sales and marketing, including its global account expansion and promotion of upselling and cross-selling. Furthermore, NTT Group will also work to promote thorough cost efficiency and strengthen group governance and risk management.
Additional information
relating to market trends can be found elsewhere in this Item 5.
The foregoing contains forward-looking statements
reflecting the expectations and perceptions of NTT Group’s current management based on the various factors described above, market and industry-related conditions, and NTT Group’s performance under such conditions (see “Item
3—Key Information—Forward-Looking Statements”).
Off-Balance Sheet Arrangements
As of March 31, 2017, NTT Group’s contingent liabilities for loans and other loans that NTT Group guaranteed
totaled ¥75.8 billion.
Critical Accounting Policies
NTT Group’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Note 2 to the Consolidated Financial Statements
includes a summary of significant accounting policies used in the preparation of these financial statements. NTT believes that, of its significant accounting policies, the following may involve a higher degree of judgment or complexity.
Revenue recognition
Revenues arising from fixed voice related services, mobile voice related services, IP/packet communications services and other services are recognized at the time these services are provided to customers.
Revenues from non-recurring upfront fees, such as activation fees, are deferred and recognized as revenue over the estimated average period of the customer contract for each service. The related direct costs
are deferred only to the extent of the non-recurring upfront fee amount and are amortized over the same period. While this policy does not have a material impact on net income, the reported amounts of revenue
and cost of services are affected by the level of revenues from non-recurring upfront fees and related direct costs and the estimated average customer relationship period. Factors that affect management’s
estimate of the average customer relationship period over which such fees and costs are amortized include subscriber churn rates and newly introduced or anticipated products, services and technologies. The current amortization periods are based on
an analysis of historical trends and the experience of NTT and its subsidiaries, adjusted for the estimated impact of future events and circumstances. Sales of telecommunications equipment less certain amounts of agency commissions and customer
incentives are recognized as revenue upon delivery of the equipment to agent resellers, which is considered to have occurred when the agent resellers have taken title to the product, and the risks and rewards of ownership have been substantially
transferred. In connection with revenues from system integration projects, provision for estimated losses, if any, is made in the fiscal year in which the loss first becomes probable and reasonably quantifiable. NTT Group recognizes such losses
based on estimates of total expected contract revenues and costs upon completion. NTT Group follows this method because it permits reasonably dependable estimates of revenues and costs to be made at various stages of a contract. Recognized losses
are subject to revision as the contract progresses to completion. Revisions in loss estimates are charged to income in the period in which the facts that give rise to the revision become known.
Property, plant and equipment, software and certain other amortizable intangible assets and intangible assets with indefinite
useful lives
NTT Group estimates the useful lives and the residual values of property, plant and equipment, software
and certain other intangibles with finite useful lives, in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The useful lives and the residual values are estimated at the time the
assets are acquired and are based on historical experience with similar assets as well as
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anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets
may need to be shortened, resulting in the recognition of increased depreciation and amortization expenses in future periods. Alternatively, these types of technological changes could result in the recognition of an impairment charge to reflect a
write-down in the value of the assets. Effective July 1, 2014, NTT Group revised its estimate of the expected useful life of certain software for telecommunications network and internal-use software based
on the actual utilization of the software to reflect an extended expected useful life of up to 7 years. Due to this change, “Depreciation and amortization” for the fiscal year ended March 31, 2015 decreased by ¥51.3 billion.
NTT and its subsidiaries in Japan traditionally used the declining-balance method for calculating depreciation of property, plant and equipment. Effective April 1, 2016, NTT and its subsidiaries adopted the straight-line method of depreciation.
In line with the change in the depreciation method, NTT and its subsidiaries reviewed the residual carrying amount of property, plant and equipment and made changes where necessary. As a result of the change in the depreciation method, depreciation
expenses on a consolidated basis for the fiscal year ended March 31, 2017 decreased by ¥244.2 billion.
NTT
Group also reviews such assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the total of the expected future undiscounted cash flow is less than the carrying amount of the
asset, NTT Group records the difference between the carrying value of the asset and its fair value as measured through various valuation techniques, including discounted cash flow models, quoted market value and third-party independent appraisals,
as considered necessary, under “Impairment losses—Other.” For the fiscal year ended March 31, 2015, NTT Group recorded an impairment loss of ¥30.2 billion on its multimedia broadcasting business for mobile
devices-related long-lived assets. Intangible assets with indefinite lives are not amortized and are tested for impairment at least once a year. NTT Group’s total “Impairment losses—Other” in the fiscal years ended March 31,
2015, 2016 and 2017 (including the impairment loss described above) were ¥38.7 billion, ¥28.0 billion and ¥20.6 billion, respectively.
Goodwill
Goodwill is tested for impairment at the reporting unit
level, which is either at the business segment level or one level below, at least annually and more frequently if there are indications of impairment, using a two-step process that begins with an estimation of
the fair value of the reporting unit. Under the first step, the fair value of the reporting unit, which is calculated based on assumptions such as discounted cash flow projections, is compared with its carrying amounts (including goodwill). Under
the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the goodwill. If an entity concludes that it is not more likely than not that the fair value
of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit.
During the fiscal year ended March 31, 2015, NTT DOCOMO realigned its operating segments in order to reflect its changing business
management. As a result of this realignment of operating segments, NTT Group reorganized the reporting structure of its mobile communications business segment into communications, smart life and other businesses reporting units. In conjunction with
this change, NTT Group reassigned the goodwill attributable to these reporting units prior to the realignment to the communications, smart life and other businesses reporting units using a relative fair value allocation approach based on the
composition of each business reporting unit prior to the realignment.
The determinants used for the fair value measurement
include management’s estimate of the reporting unit’s continuing ability to generate income from operations and cash flows in future periods, and the strategic significance of the reporting unit to NTT’s business objectives. NTT Group
measures fair value based on certain assumptions that are determined to be currently reasonable. However, actual values may differ from those stated in the consolidated financial statements if unexpected changes occur in the business operation
environment in the future. NTT Group’s total “Impairment losses—Goodwill” in the fiscal years ended March 31, 2015, 2016 and 2017 were ¥3.5 billion, ¥4.7 billion and ¥53.3 billion, respectively.
The material reporting units are Dimension
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Data in the long distance and international communications business segment and Global Business in the data communications business segment. As of March 31, 2017, the carrying amount of
goodwill attributable to Dimension Data decreased to ¥235.7 billion, due to the recognition of an impairment loss of ¥48.8 billion as the result of the annual impairment test conducted for the fiscal year ended March 31, 2017.
As of March 31, 2017, the carrying amount of goodwill attributable to Global Business in the data communications business segment was ¥396.2 billion. As a result of the annual impairment test conducted for the fiscal year ended
March 31, 2017, the fair value of the reporting unit attributable to Global Business exceeded their carrying amounts by 13.3%.
Investments
NTT Group holds investments in other companies, which
NTT Group accounts for under the cost method, equity method or at fair value. NTT Group recognizes an impairment loss when the decline in value below the carrying amount of the investment is other than temporary, which then establishes a new cost
basis in the investment. When determining if the decline in value is other than temporary, NTT Group considers, among other items, the magnitude of the decline in value below the carrying amounts, the length of time the value has been below the
carrying amounts, the financial condition of the investee company, the strength of the industry in which it operates, and NTT Group’s ability or intent to retain the investment. NTT Group performs a review for impairment whenever events or
changes in circumstances indicate that the carrying amount of an investment may not be recoverable.
Further, NTT Group
utilizes a variety of information, including cash flow projections, independent valuations and, if applicable, stock price analyses, in performing its evaluations. Such projections and valuations necessarily require estimates involving, among
others, demographics (e.g., population, penetration rates and penetration speed, churn rates, etc.), technology changes, capital investments, market growth and share, ARPU and terminal values. NTT Group’s total impairment losses for
“Marketable securities and other investments” in the fiscal years ended March 31, 2015, 2016 and 2017 were approximately ¥2.0 billion, ¥6.0 billion and ¥3.0 billion, respectively. NTT Group reviews factors
such as the financial condition and near-term prospects of those investees in order to determine if the value of any of its investments in them has suffered a decline that was other than temporary due to the recent economic and financial environment
surrounding the industry of those equity method investees. For the fiscal year ended March 31, 2017, NTT Group recorded an impairment loss of ¥23.9 billion relating to investments in affiliated companies, including Hutchison Telephone
Company Limited.
In the past, NTT Group experienced material impairments in the value of its investments in equity method
affiliates that were included in “Equity in earnings (losses) of affiliated companies” in its consolidated statements of income and comprehensive income for relevant years. NTT Group may experience similar impairments with respect to
“Marketable securities and other investments” and “Investments in affiliated companies” again in the future. NTT Group may also experience material gains or losses on the sale of investments.
Employees’ retirement benefits
The total costs of employees’ retirement benefits and pension plans represented approximately 1.0%, 0.9% and 1.0% of NTT Group’s total operating expenses for the fiscal years ended
March 31, 2015, 2016 and 2017, respectively. The amounts recognized in the consolidated financial statements related to employees’ retirement benefits and pension plans are determined on an actuarial basis, which utilizes certain
assumptions in the calculation of such amounts. The assumptions used in determining net periodic costs and liabilities for retirement benefits and pension plans include the expected long-term rate of return on plan assets, a discount rate, the rate
of increase in compensation levels, average remaining years of service, and other factors. Specifically, the expected long-term rate of return on assets and the discount rate are two critical assumptions. Assumptions are evaluated at least annually,
and events may occur or circumstances change that may have a significant effect on the critical assumptions. In accordance with accounting principles generally accepted in the United States, actual results that differ from NTT Group’s
assumptions are accumulated and amortized over future periods, thereby reducing the year-to-year volatility in pension expenses. As of March 31, 2017, the total
amount of net actuarial loss was
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¥420.9 billion. The net actuarial loss exceeding 10% of the greater of the projected benefit obligation or the fair value of plan assets will be amortized over the expected average
remaining service period of employees on a straight-line basis. That amortization will increase future pension costs.
NTT
Group used an expected long-term rate of return on pension plan assets of 2.0% to 2.5% for the fiscal years ended March 31, 2016 and March 31, 2017. In determining the expected long-term rate of return on pension plan assets, NTT considers
the current and projected asset allocations, as well as expected long-term investment returns and risks for each category of plan assets based on NTT’s analysis of historical results. The target allocation ratios for plan assets are developed
in consideration of the expected long-term investment returns for each category of plan assets. In the fourth quarter of the fiscal year ended March 31, 2017, with an objective of ensuring more stable pension financing, NTT Group revised the
target allocation ratios for plan assets. As a result of this revision, the expected long-term rate of return on pension plan assets decreased from 2.0% to 2.5% to 1.0% to 1.9%, but had an immaterial effect on the consolidated financial statements
for the fiscal year ended March 31, 2017. As a result, NTT Group did not revise the expected long-term rate of return on pension plan assets used to determine net periodic benefit cost for the fiscal year ended March 31 2017. With respect
to the target allocation ratio for each plan asset, for Severance Payments and Contract-type Corporate Pension Plans, approximately 65.0%, 10.0%, 5.0% and 20.0% of the plan assets will be allocated to domestic bonds, domestic stocks, foreign stocks
and life insurance company general accounts, respectively, and for the NTT Corporate Defined Benefit Pension Plan, approximately 55.8%, 15.0%, 6.2%, 10.6% and 12.4% (weighted-average) of plan assets will be allocated to domestic bonds, domestic
stocks, foreign bonds, foreign stocks and life insurance company general accounts, respectively, to moderate the level of volatility in pension plan asset returns and reduce risks. As of March 31, 2017, the actual allocations of plan assets
were generally consistent with the projected allocations stated above, and the target allocation ratios for plan assets for the year ending March 31, 2018 are expected to maintain the same levels. The actual returns for the fiscal years ended
March 31, 2016 and 2017 were approximately 0% and 3%, respectively. The actual returns on pension plan assets may vary in future periods, depending on market conditions. The fair value of plan assets is measured using market values on the plan
measurement date.
Another critical assumption is the discount rate used in the annual actuarial valuation of net periodic
costs and benefit obligations. In determining the net periodic costs, NTT Group used a discount rate of 1.0% as of March 31, 2016 and 0.5% as of March 31, 2017. In determining the benefit obligations, NTT Group used a discount rate of 0.5%
as of March 31, 2016 and 0.7% as of March 31, 2017. In determining the appropriate discount rate, NTT considers available information about the current yield on high-quality fixed-income investments with maturities corresponding to the
expected duration of the pension benefit obligations (“PBO”).
The following table illustrates the sensitivity to
changes in the discount rate and the expected return on pension plan assets, while holding all other assumptions constant, for NTT Group’s pension plans as of March 31, 2017:
Change in Assumption Change in PBO Change in Pre-Tax Pension Expenses Change in Equity (Net of Tax)
(in billions of yen)
50 basis point increase / decrease in discount rate -/+ 240.0 +/- 6.0 +/- 170.0
50 basis point increase / decrease in expected return on assets — -/+ 11.0 —
Income taxes
NTT Group recognizes deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax bases
of assets or liabilities and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to be applicable during the periods in which existing temporary differences reverse and loss
carryforwards are utilizable. The effect on deferred tax assets and liabilities of a change in tax rates is
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recognized in income tax expenses in the period that includes the enactment date. In accordance with the Act on Partial Revision of the Income Tax Act enacted on March 31, 2015, the income
tax rates have been changed for fiscal years beginning on or after April 1, 2015. As a result of this change in the tax rate, net deferred tax asset amounts existing on the enactment date decreased by ¥54.4 billion, whose effect is
included in “Income tax expense (benefit)—Deferred” in the consolidated statements of income for the fiscal year ended March 31, 2015. Net income attributable to NTT decreased by ¥47.8 billion for the fiscal year ended
March 31, 2015. Following the enactment of the Act for the Partial Revision of the Income Tax Act and the Act for the Partial Revision of the Local Tax Act on March 29, 2016, the corporate tax rates have been changed for fiscal years that
began on or after April 1, 2016. As a result of this change in the tax rate, net deferred tax asset amounts existing on the enactment date decreased by ¥32.7 billion, whose effect is included in “Income tax expense
(benefit)—Deferred” in the consolidated statements of income for the fiscal year ended March 31, 2016. Net income attributable to NTT decreased by ¥23.7 billion for the fiscal year ended March 31, 2016. NTT Group
recognizes a valuation allowance on deferred tax assets to reflect the amount of future tax benefits that are not expected to be realized. In determining the appropriate valuation allowance, NTT Group takes into account the level of expected future
taxable income and available tax planning strategies. If future taxable income is lower than expected or if expected tax-planning strategies are not available as anticipated, NTT Group may recognize an
additional valuation allowance through income tax expense (benefit)—Deferred in the period in which such judgment is made.
As of March 31, 2016 and 2017, NTT Group had deferred tax assets of ¥1,561.8 billion and ¥1,732.3 billion, which
included respective valuation allowance of ¥167.1 billion and ¥379.5 billion. The valuation allowance mainly related to deferred tax assets of NTT and certain subsidiaries with operating loss carryforwards for tax purposes that are
not expected to be realized. The net change in the total valuation allowance for the fiscal years ended March 31, 2016 and March 31, 2017 were a decrease of ¥98.8 billion and an increase of ¥212.3 billion, respectively.
The decrease in the amount of the valuation allowance for the fiscal year ended March 31, 2016 was due primarily to a decrease of ¥43.7 billion for regional tax in NTT West related to the improvement of its forecast of future taxable
income and a decrease of ¥32.7 billion in NTT DOCOMO considering the prudent and feasible tax-planning strategies that became available during the year. The increase in the amount of the valuation
allowance for the fiscal year ended March 31, 2017 was due primarily to the impact of NTT America, Inc.’s merger with Verio Inc., its subsidiary. For additional details, please see Note 13 to the Consolidated Financial Statements.
Accrued liabilities for point programs
NTT Group offers mobile services subscribers “points” based on the usage of mobile, FLET’S Hikari and other services. Points may be exchanged for benefits, including discounts on handsets.
NTT Group records “Accrued liabilities for point programs” relating to the points that customers earn. The aggregate total amount of accrued liabilities for point programs recognized as short-term and long-term liabilities as of
March 31, 2016 and 2017 was ¥94.1 billion and ¥114.6 billion, respectively. Point program expenses for the fiscal years ended March 31, 2015, 2016 and 2017 were ¥77.8 billion, ¥60.3 billion and
¥94.7 billion, respectively.
In determining the accrued liabilities for point programs, NTT Group estimates such
factors as the point utilization rate, taking into account the forfeitures caused by, among other things, expected future subscription cancellations if NTT Group could estimate such forfeitures. Higher than estimated point utilization rates could
result in the need to recognize additional expenses or accrued liabilities in the future.
In determining the accrued
liabilities for point programs, NTT Group estimates that as of March 31, 2017, a one-percent increase in the point utilization rate would result in an immaterial amount of additional liability
accrual, if all other factors are held constant.
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Application of New Accounting Standards Not Yet Adopted
Revenue from Contracts with Customers
On May 28, 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers,” which requires an entity to recognize revenue when the entity
transfers control of promised goods or services to customers. Revenue is recognized in an amount that reflects the consideration an entity expects to receive in exchange for those goods or services. An entity also is required to disclose sufficient
quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The ASU will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective.
The FASB also issued ASU
2016-08 “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU2016-10 “Identifying Performance Obligations and Licensing,”
ASU2016-12 “Narrow-Scope Improvements and Practical Expedients,” ASU 2016-20 “Technical Corrections and Improvements to Topic 606,” and ASU 2017-05 “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” in March, April, May and December 2016, and February 2017, respectively, to amend ASU 2014-09 partially.
On August 12, 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date,” and deferred the effective date of ASU 2014-09 by one year. Consequently, the new
standard is effective for annual reporting periods beginning after December 15, 2017. The standard is expected to take effect for NTT Group on April 1, 2018. Early adoption of the standard as of April 1, 2017 would also be permitted.
The two permitted transition methods under the new standard are the full retrospective method, or the modified retrospective
method. Under the full retrospective method, all periods presented will be updated upon adoption to conform to the new standard and a cumulative adjustment for effects on periods prior to the reporting period will be recorded to retained earnings at
the beginning of the initial reporting period. Under the modified retrospective approach, the current reporting period will be updated to conform to the new standard and a cumulative adjustment for effects of applying the new standard to periods
prior to the reporting period that includes the date of initial application is recorded to retained earnings as of the date of initial application, and also incremental disclosures related to the amount affected by the application of this new
standard are required.
NTT has not decided on a transition method and is currently evaluating the impact of the new standard
on NTT’s consolidated financial statements and related disclosures.
The impact on revenue resulting from the application
of the new standard will be subject to assessments that are dependent on many variables, including, but not limited to, the terms, the transaction prices including discounts and the mixture of the goods and services of NTT’s contractual
arrangements. While NTT is continuing to assess all potential impacts resulting from the application of the new standard, NTT believes that the most significant impacts may include the following items:
• The new standard requires the recognition of incremental costs of obtaining contacts and direct costs of fulfilling contracts with customers as assets. Under the current standard, those costs relating to communication services provided on the Regional communications business, the Long distance and international communications business, and the Mobile communications business are capitalized and amortized up to the upfront fees as the upper limit over the estimated average period of the subscription for each service. After adopting the new standard, all of those costs will be capitalized, and therefore, part of the sales commissions and other charges that have previously been treated as expenses will be recognized as additional assets. For the fiscal year ended March 31, 2017, the majority of the amount of sales commissions incurred for agent resellers was ¥320,800 million which was mainly included in the Mobile communication business.
• The new standard requires that if customers are granted by an entity the option to acquire additional goods or services at a discount by a contract agreed between the customer and the entity, the entity
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shall identify this option as a separate performance obligation upon granting such option as a part of the consideration of the transaction being recognized as contract liabilities, and recognize revenue when the additional good or service is transferred at a discount to the customer or when such option expires. Under the current standard, NTT Group records accrued liabilities relating to the points that customers earn. After adopting the new standard, NTT Group will recognize a part of the consideration for transactions of mobile communications and other services as contract liabilities at the time when the points are granted, and recognize revenue when points are used for additional goods or services at a discount. For the fiscal year ended March 31, 2017, the majority of the amount of expenses for point programs under the existing standards was ¥94,291 million, which was included in the Mobile communication business.
NTT Group is in the process of establishing its operating processes and internal
controls for the adoption of the new revenue recognition standard.
Recognition and Measurement of Financial Assets and
Financial Liabilities
On January 5, 2016, the FASB issued ASU 2016-01
“Recognition and Measurement of Financial Assets and Financial Liabilities,” which makes targeted improvements to the accounting for, and presentation and disclosure of, financial instruments. ASU
2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. ASU 2016-01 does not affect the
accounting for investments that would otherwise be consolidated or accounted for under the equity method. The new standard also affects the recognition of changes in fair value of financial liabilities under the fair value option and the
presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017. The new standard is expected to take effect for NTT Group
on April 1, 2018.
NTT is currently evaluating the effect of adopting the ASU.
Leases
On February 25, 2016, the FASB issued ASU 2016-02 “Leases,” which requires all lessees to recognize right-of-use assets and lease liabilities, principally. The new standard is effective for fiscal years beginning after December 15, 2018. The new standard is expected to take effect for NTT Group on
April 1, 2019. Early adoption is permitted.
The adoption of the new accounting standard is expected to result in the
recognition of additional right-of-use assets and lease liabilities. NTT is considering the scope and the amounts of assets and liabilities to be recognized.
Simplifying the Test for Goodwill Impairment
On January 26, 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the goodwill impairment
test. Instead, the amendments in this update require that an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and an entity should recognize an impairment
charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 on a prospective basis. The new
standard is expected to take effect for NTT Group on April 1, 2020. Early adoption of the standard for goodwill impairment tests with measurement dates after January 1, 2017 would also be permitted.
NTT is currently evaluating the effect of adopting the ASU.
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
On March 10, 2017, the FASB issued ASU2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,”
which requires that employers report the service cost component in the same line item(s) as other employee compensation costs arising from services rendered during
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the period, and report the other components of net benefit cost separately from the service cost component and outside a subtotal of operating income. Only the service cost component will be
eligible for capitalization. The updated presentation of net benefit cost in an employer’s income statement is to be applied retrospectively while the change in capitalized benefit cost is to be applied prospectively. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017. The standard is expected to take effect for NTT Group on April 1, 2018. Early adoption of the standard as of April 1, 2017
would also be permitted.
NTT is currently evaluating the effect of adopting the ASU.
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