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Nippon Telegraph and Telephone Corporation (NYSE:NTT)

F4Q 2011 Earnings Conference Call

May 13, 2011 5:00 AM EST

Executives

Koji Ito – IR

Satoshi MiuraRepresentative Director, President and CEO

Analysts

Masuno – Nomura Securities

Takahashi – Mizuho Securities

Moriyuki – SMBC Nikko Securities

Tanaka – Morgan Stanley

Oshidari – JP Morgan

Takahashi – Merrill Lynch

Koji Ito

[Interpreted]

Thank you very much for waiting, ladies and gentlemen. First of all I would like to thank you all for attending this meeting despite your very busy schedule. Now we would like to start the Analyst Meeting to release the Financial Results of the Fiscal Year ended March 2011 of NTT Corporation. My name is Ito from IR. I shall be serving as the moderator.

Let me introduce to you the participants of NTT. Representative Director, President and CEO, Mr. Miura; Mr. Unoura, Representative Director and Senior Executive Vice President; Mr. Watanabe, Director and Senior Vice President in-charge of Corporate Strategy and Planning; Director and Senior Vice President, Mr. Kobayashi, Director of Finance and Accounting Division.

Next I would like to ask you to confirm whether you’ve got all the handout materials in front of you. There are two materials. The first one is a copy of the slide materials as you see here. The title is the Financial Results for the Fiscal Year ended March 2011. Another one is a thick white booklet of data information of financial results of fiscal year 2010.

Now the regarding forward-looking statements and projected figures are contained in the materials are referred to during the presentation and QA session, please notice that there is a written disclaimer information at back of the cover page of the slide materials. Please take a look at it. Today’s meeting will be live broadcast and furthermore recorded video. So it will be distributed on-demand on the company’s IR website. So I would like to seek your understanding regarding this arrangement.

We are planning to spend about 90 minutes, one hour and a half for this meeting. In other words, we shall be closing this meeting at and around 7:30 P.M. Now I would like to ask Mr. Miura to present to you the outlines of the financial results. And after that we would like to entertain your questions.

Satoshi Miura

[Interpreted]

Good afternoon, ladies and gentlemen, thank you joining us despite your very busy and demanding schedule. We appreciate your attendance. In the interest of time, I would like to begin the presentation of the financial results, and also talk about the financial forecast for the year ending March 31, 2012. I would like to start from page two.

Let me begin with the financial results for the year ended March 31, 2011. We were able to realize increase in both operating revenue and operating income for the first time in seven years. In the previous year, we enjoyed increase in operating income but for in the previous period we saw increase in operating income, but for the last fiscal year 2010, we realized increase in both operating revenue and operating income.

Operating revenue increased 123.6 billion yen. This was primarily due to the contribution from the increase in system integration related revenue due to the mergers and acquisitions involving Dimension Data and acquisition of Keane by NTT Data. And also NTT Hikari – correction, FLET'S Hikari subscriber base increased as well as software and services revenue and DOCOMO’s packet ARPU increased leading to increase in IP related revenue, and also other revenues inclusive of mobile phone protection and delivery services provided by DOCOMO was increased.

Turning to operating income. This increased by 97.2 billion yen year-on-year. Temporary drivers such as decline in inventory, asset valuation loss and loss for doubtful accounts in NTT Urban Development and NTT Finance improved, but even if we were to exclude that factor, NTT East, NTT West and DOCOMO all were able to achieve increase in operating income in a steadfast fashion.

So overall, as far as the financial results are concerned, we were able to indicate very clear signal for improved profitability at fixed-line service and also we were able to hold downward trend in mobile service revenue. And also we have seen boost in global revenue due to mergers and acquisitions. So Group as a whole, we were able to realize very strong results for fiscal year 2010.

Please turn to page three. Here we talk about full-year – correction here, fiscal year 2010 results of our operating income versus fiscal year 2010 forecasts. Now the impact of the earthquake is anticipated to be 30 billion yen. However because we realized increased profit for NTT Group as a whole, we were able to exceed forecasts of operating income by 34.9 billion yen and reached 1,214.9 billion yen.

Please turn to page 26. The impact from the earthquake is indicated on page 26. The impact on the operating income for March 2011 is expected to be 20 billion yen for NTT East and 6 billion for NTT DOCOMO and NTT Communications. The line connecting between Japan and the United States and also the line connected to Sendai. These were affected. They were disrupted. And as for others, other subsidiary firms also were affected by the earthquake.

So on a consolidated basis, we are anticipating an impact of 30 billion yen on the operating income for March 2011. Now as far impact for – the impact for March 2012, 20 billion yen for NTT West, 20 billion yen for P&L, construction related impact is 20 billion yen and DOCOMO 10 billion yen and CapEx 10 billion yen impact. So altogether, 30 billion yen impact is expected for March 2012.

Now as is indicated on the footnote on the page. And as was covered in the most recent press conference as far as NTT East is concerned, from 2011 onwards capital investment was expecting 40 billion yen. This number was already announced. Now all fact, wiring and telecommunication facilities indoors. This involved roughly 20 billion yen impact from March 2012.

Then what about the remaining 20 billion yen? This will be demand based, primarily related to access service. So for fiscal year 2011, we do anticipate some impact, but full-fledged restoration is taking place, but how will this evolve. This will also have to be considered. So this will have an impact on how we invest going forward. So for this fiscal year, we are anticipating roughly 20 billion yen impact on capital investment related to NTT East.

So let me now turn to page 4 of the presentation material, please. Here we talk about contributing factors by segment for fiscal year 2010. Regional Communication business. Operating revenue has increased by 62.9 billion yen year-on-year. Voice service revenue declined but there was increase in IP service revenue and system integration revenue. As for operating expense, expenses related to the earthquake and also revenue linked expenses increased, however with the decline in personnel expense, operating expense only increased by 17.7 billion yen year-on-year. So therefore operating income in this segment increased 45.1 billion yen year-on-year.

Next is Long Distance and International Communication business. As Dimension Data and others were translated to consolidated subsidiary firm, this increased 73 billion yen. However expenses for the net M&A grew as well as operating income declined 1.1 billion yen year-on-year. Turning now to Mobile Communication business. Operating revenue as was already announced by NTT DOCOMO declined 60.1 billion yen year-on-year due to decline in voice service revenue. However, handset sales cost as well as number of related costs declined. So operating expense declined by 70.8 billion yen.

So operating income in this segment increased 10.7 billion yen year-on-year. Turning now to Data Communications business. Keane and other subsidiary firms were consolidated. So therefore operating revenue increased by 30.7 billion yen and operating income in this segment increased 12.1 billion yen year-on-year. As for other business as was mentioned earlier, NTT Urban Development and NTT Finance increased profitability. So therefore year-on-year this segment operating income increased by 31.5 billion yen year-on-year.

I’ll now turn to page five, where we provide fiscal year 2011 forecast summary. FLET'S sky service and also other optional services expected a growth and packet ARPU is expected to increase due to expanded sales of smartphone. So IP service revenue is expected to grow further this fiscal year. And also we anticipate increase in system integration revenue due to full-year contribution from Dimension Data and Keane. So therefore operating revenue despite the decline in IRU related to service revenue, its expected to increase by 235 billion yen and expected to reach 10.540 billion enabling year-on-year increase in operating revenue for second consecutive – for two consecutive years.

As for operating income, well there is a impact from the earthquake. We anticipate increase in operating income in NTT West and DOCOMO. And we expect full-year contribution from Dimension Data. So therefore operating income is expected to increase by 25.1 billion yen year-on-year and reach 1.240 billion yen. As I mentioned earlier, the impact from the earthquake is expected to be roughly 30 billion yen for fiscal year 2011. If we consider this impact and if we were to exclude this impact, then in actuality our operating income would have reached 1,270 billion yen.

So as a result, we believe that we are well within the site of achieving 1.3 trillion yen consolidated operating income in fiscal year 2012 as was outlined in the medium term management plan.

Page 6. I will be very brief on this page. This is NTT East financial results for period ended March 2011. Due to the trend that I’ve outlined earlier, operating revenue – in terms of operating revenue, there was decline of 73.8 billion yen in voice service revenue, however, there was increase in IP service revenue. So therefore operating revenue increased by 28.4 billion yen year-on-year. As for operating expense, there was increase in revenue related expense pertaining to consignment, however due to efficiency and reduction in personnel expense, operating expense declined by 1 billion yen and operating income increased by 29.5 billion yen and reached 77.1 billion yen year-on-year.

As for March 2012, we have reflected the impact from the earthquake, operating income is likely to decline by 7.1 billion yen year-on-year. However, if we were to exclude 10 billion yen impact on operating income on consolidated basis, we would still continue to enjoy increase in both operating income. And so this upward trend in operating income continues, if we were to exclude the impact from the earthquake.

Page 7, NTT West financial results. Decline in voice service revenue was 69 billion yen. So operating revenue declined by 22.7 billion yen year-on-year. However as it was the case with NTT East, there was increased cost efficiency and decline in personnel expense. So operating income increased by 31.1 billion yen and reached 49.6 billion yen. As for forecast for March 2012, operating income is expected to increase by 5.3 billion yen and is expected to reach 55 billion yen.

Now another element in the medium term management strategy is the improvement in the fiber service profitability at NTT East and West. We continue to see steadfast improvement. Well there was some concern over the stagnation of increase in net-adds for fiber subscriber base, even if we were to include this, we anticipate our financial profitability for fiber in March 2012 for both NTT East and West.

Page eight, NTT Communications financial results. As for NTT Communications, operating revenue saw a decline in both voice service revenue and IP service revenue, and even decline in Solution Service revenues. So overall operating revenue declined by 45.8 billion yen year-on-year. However as for operating expenses, expenses pertaining to Solution Service revenue declined and also there was decline in depreciation related cost.

There was rigorous cost control. So as a result, operating expense declined by 41.6 billion yen year-on-year. So operating income declined by 4.2 billion yen year-on-year. However this still exceeded the initial forecast by 13.2 billion yen and reached 93.2 billion yen. As for NTT Communications Group, while there was decline in the revenue at the non-consolidated basis, which was close to 45.8 billion yen, there was increase in the profitability for domestic subsidiary firm.

So therefore, the Group as whole realized operating income of 97.9 billion yen which is a decline of 30 million yen year-on-year. As for forecasts for March 2012. On a non-consolidated basis, NTT Communications is expecting a decline of 6.2 billion yen in operating revenue and expecting 87 billion yen. However, the Group as a whole, because of increased revenue and profit in domestic and overseas subsidiary firms, they are aiming for 2.1 billion yen increase in profit up to 100 billion yen.

NTT Data and NTT Communications. They have already announced their financial results. So that being the case I would like to skip these pages. Please turn to page 12 in the handout. This provides details of consolidated cash flows. As for operating cash flow, net income increased and therefore this increased as well. As for cash flow from investment activities, there was expenses due to acquisition of Dimension Data and Keane. However, we reduced short-term cash management. So expenditure declined overall. This is a positive factor for our cash flow.

So free cash flow increased 269.7 billion yen year-on-year and reached 778.7 billion yen. As for cash flow from financing activities, we realized fund procurement for acquisition purposes. So this declined by 401.7 billion yen year-on-year. Bottom right hand side graph indicates interest-bearing debt. As for – at the end of the March 2011, despite the capital funding related acquisition, this increased only by 61.8 billion yen and reached 4,553.5 billion yen.

As for March 2012 forecast, there will be demand for cash related to treasury stock purchase. However the interest-bearing debt is expected to be contained only to 50 billion yen at the end of this fiscal year.

Next page 13, let me talk about capital investment. As for March 2011, debt reduction investment by major subsidiary firms, capital investment for March 2011 is expected to climb – decline rather, declined 117 billion yen down to 1,170.1 billion yen. Our forecast for March 2012 is as follows. As was mentioned earlier, investment of 30 billion yen for full-fledged restorations centered on NTT East and DOCOMO is expected. And also DOCOMO has announced investment of 20 billion yen for new disaster preparedness measures. And also data centers related to cloud computing investments to NTT Communications will remain 20 billion yen increase in capital investment in that segment as well.

So capital investment is subject to increase 79.9 billion yen year-on-year up to 1,950 billion yen. Now in terms of indexes, indicators containing the medium term management strategy which was announced in May of 2008, we were anticipating reaching CapEx to sales ratio of 15% by March 2015. However because of the situation that I alluded earlier and because of the need to enhance network due to expanded sales of smartphones and because of the change in demand structure, CapEx to sales ratio of 15% is likely to be somewhat difficult to achieve by that timeline. However we’ll continue to realize efficiency capital investment. So that we get further improved CapEx of sales going forward.

Next page 14. I would like to explain about transformation of business structure, thanks to the continued growth of sales since last year, IP and Solution and new business in the next fiscal 2010 accounted for 65% of the total revenue, roughly achieving the original target of two-thirds. This year fiscal FY2011, we aim at 70% from those segments.

Next page 15. This is a slide showing the number of subscribers for broadband access services. Net addition to FLET’S Hikari over the year were 1.81 million with the number of subscribers of 15 million as of the end of March. Thanks to aggressive marketing activities, but in the fourth quarter mainly because of the earthquake.

Well of course, we’ve restricted the scale size of the advertisement and other activities. So including all of these activities especially in March, we saw a major drop. April, in that sense, we haven't really recovered to get back to the pre earthquake sense, but going forward we would like to beef-up our efforts to boost opportunities.

In Tohoku area, it will be some delay in that area maybe July and August. So we shall recover our efforts. And the new product [ph] FLET’S Hikari light targeting at the non and light users. These new services will be introduced. So using such measures on top of the conventional measures to expand the coverage of apartment house residence and promotion Hikari Portable and Hikari iFrame. And also we shall be addressing and joining activities of the governments. So through all these measures, we would like to attain 2.1 million net additions.

Page 16, ARPU for the fiscal 2010, increase of ARPU of FLET’S Hikari was 140 yen to 5,880 yen for NTT East and 110 yen up to 5890 yen for NTT West. And of course we shall not spare efforts to boost the ARPU, because of this light program. The NTT certainly enjoyed 80 yen increase. NTT West will remain flat year-on-year in the coming year.

Page 21, I would like to refer to our use of shareholder returns. The company consistently promises its shareholders to make improvement on mid-term basis and also we are planning to increase the dividend as much as possible.

And for the FY2011, we have decided to increase annual dividends and to repurchase shares. Annual dividends for the year ending March 2012 will be 140 yen, an increase of 20 yen from the previous fiscal year. You see this graph is showing seven year change of dividends, you may notice steady increase over the time. In five years time, since the FY2007, 50 yen increase will have been achieved.

Now regarding share buyback. Our plan is to purchase the first tranche from the government of up to 60 million shares or 280 billion yen by September 30, 2011. Then after than in accordance with the policy for cancellation of treasury stock announced in May last year, we plan to cancel remaining 125 million shares which will be followed by the purchase of the second tranche as a result of overhand cost by the government ownership. 400 billion yen at the bottom right of the slide is the assumed total amount for both transactions.

In addition, to apply for the future needs of shareholders return measures, we plan to appropriate 600 billion yen in other reserves, and transfer the amount into accumulated earned surplus for that purpose. I now would like to walk you through our plan to strengthen our key growth area of global businesses.

We have given many information about our efforts, as you see here. We shall be focusing on the corporate clients mainly. And we are determined to become a global ICT leader. So based on that, we would like to offer free value propositions as you here to our fliers. So NTT Group in order to deliver these values, as you have already heard, strengthen global synergies through cross selling and new user development by supporting a global customer base of 10,000 clients.

This is something I already told you. So I would like now to talk a little about how we are going to strengthen our service capability, and to strengthen Group structure. Well I think we have already established a basic structure NTT Communication and NTT Data recently exercise M&A to further improve the lineup and also to expand the area coverage. So against that backdrop going forward from the interest of cheer [ph] throughout to the applications, we would like to offer one-stop services to our clients which we consider will be key element for our success.

And the server consolidation through virtualization and cost reduction, this is already the existing trend of the world. So against that backdrop. Installation, infrastructure, and the operations and recovery, in these areas, still the works are now really consolidated and some manual works are required. So the increase of equipments, facilities, and cost are causing very complex operations. So this results in the new challenges for us.

It is time consuming and very – but costly. So in order to solve this question, as NTT Group, we would like to leverage the existing management resources available within our Group to cover all the operations from the infrastructure to the applications including the automation at the end of the day. So this is the concept we described as Orchestration. So this will be the Group wide challenge target going forward. Through this, vis-à-vis the corporate clients, we can respond to the needs of the demands for them in cloud computing at competitive price.

The time is running out so I shall be brief. The Group’s structure, it’s a strongly developed global business. Its something I would like to talk about. As you see here, we shall be setting up two committees by the end of May. We already started discussions internally, but we are planning to establish these two groups. One will be in-charge of the global strategy decision and sharing at the same time, other representatives of share such strategies. Another group of course will be responsible for HR matters, which is very important for the global management.

And this global committee will be responsible tracking and developing future top managing personnel from the Group wide perspectives. So this is the global HR committee. As a pioneer case, cross Group companies, we have appointed Dimension Data member as an outside Director at Keane. So despite the HR exchange among the overseas, subsidiaries would be important. And we would like to send people from Japan to the overseas companies and vice versa. So this HR exchange rotation will be conducted globally going forward.

And at holding company, to make a successful progress with global initiative, we established the global business office which reports directly to the President. So this office will be responsible for coordination and as the contact point for the communication, outside communications. On page 25, its something you are very much familiar. In the March 2011, actual revenue of the global business for that year was $4.8 billion versus the November forecast of $4.0 billion.

In March 2012, we have full contribution from both Dimension Data and Keane. It is quite natural that we can exceed $8 billion. So as I said, as has been said in the mid-term management strategy, we would like to achieve more than $10 billion. And we are confident, we can achieve that. Maybe we will be able to very largely exceed that number, even that is possible. This concludes my presentation. Thank you.

Question-and-Answer Session

Koji Ito

[Interpreted]

Thank you very much. We would now like to your questions. We would appreciate your cooperation, and ask that you wait until the microphone has been brought to you. We also ask you to state your name and your affiliation. So we would like to take your questions now and please be sure to raise your hand. We’ll go to the gentlemen in the first row.

Masuno – Nomura Securities

[Interpreted]

Thank you. My name is Masuno from Nomura Securities. I have two questions. The first question, this relates to the trend of the operating revenue. It seems that this has improved. But I wanted to know how strong the trend is. In the fixed-line, you see upper trend in operating revenue. In the mobile side, you see increase in operating income. Now you are aiming for operating income – the operating income is 1.2 trillion – 1.24 trillion yen.

Now when you listen to NTT DOCOMO’s presentation inclusive of new disaster preparedness, operating income will be affected negatively by 20 billion yen and also NTT Data, I was there at their presentation. NTT Data has also said that because of restoration, they are also anticipating downward impact of 7 billion yen on their operating income. 20 billion yen for NTT East, so altogether 50 billion yen negative impact is likely from the earthquake. So if you exclude that, the operating income would have been much higher than 1.24 trillion yen. I think that is the trend of your operating revenue, and operating income. Is my analysis correct?

My second question relates to shareholder return. Earlier on page 21, if you take a look at the footnote in the small print, you will be able to understand what – we are able to understand what you want to do, but if you could elaborate share repurchase, 400 billion yen. This is assumption. Now on the cover sheet of the press release, EPS is provided, based on the number of shares which excludes the shares that were subject to share repurchase.

Let's now bring financial results release cover sheet, but then you’re increasing dividend by 28 per share this time around. So share repurchase of 400 billion yen. This is main pursuit, we were considering about dividend increase but you are indeed realizing dividend increase. So going forward, your shareholder return will be based on dividend you say. So may be taking that the dividend increase will continue going forward? That’s my second question. I would appreciate your response. Thank you very much.

Satoshi Miura

[Interpreted]

Yes, thank you, 1.24 trillion yen. This is not 1.7 trillion yen, maybe you are saying that excluding the impact of earthquake the consolidated operating income could be pretty much higher than the 1.27 trillion yen. Its true. It’s very difficult to pinpoint the exact impact of the earthquake.

If you take a look at the performance of other companies, they are not even able to provide forecast for this fiscal year. So how you measure the impact from the earthquake? It’s a very difficult to exercise. As far as the holding company is concerned, the direct impact needed to be calculated in a steadfast fashion and this is the level which is being reflected in the forecast.

Yes, you point out that the consolidated operating income could have been much higher excluding the impact from the earthquake, for example NTT Data is involved in system integration. Impact from the financial crisis, if we exclude that of course the operating income – NTT Data could have been higher. So it is true.

Masuno – Nomura Securities

What is the exact impact from the earthquake?

Satoshi Miura

[Interpreted]

It’s very difficult to analyze and to pinpoint. So that being the case, that is why 1.24 trillion yen, 30 billion yen impact for the earthquake. That is the analysis we carried out this time around. However if we are able to – correction, we need to revisit the actual impact of the earthquake, so after the first half it may be after the full-year, we need to revisit the impact of the earthquake at those junctures.

We talked about disaster preparedness measure. It could be that to the contrary, we might have to enhance disaster preparedness. And this could actually push up the costs at the end of the day. So we need to bear that in mind. We would appreciate your understanding.

Masuno – Nomura Securities

[Interpreted]

Now what about next fiscal year onwards?

Satoshi Miura

[Interpreted]

In principal, as far as shareholder return is concerned, we want to further enhance this. That principal remains in tact. So for this fiscal year, we are carrying our share repurchase till they get the overhand question, the NTT shares sold by the government, but from next fiscal year onwards, we’ll continue to eye our corporate performance and also payout ratio and other indicators and the environment surrounding NTT. And we’ll continue to consider shareholder return from that point onwards.

Masuno – Nomura Securities

[Interpreted]

Thank you.

Koji Ito

[Interpreted]

Next question please. The gentlemen sitting next to the previous questionnaire please.

Takahashi – Mizuho Securities

[Interpreted]

My name is Takahashi from Mizuho Securities. I have three questions. The first one NTT East, I would like to confirm their profitability. And NTT Comm’s Group wide revenue forecast. And this is my second question. And number three, post earthquake, the consignment works related expenses and costs. The NTT East JGAAP based profitability, you indicated us the size of loss. The operating expenses and if it is broken down to operating expenses and extraordinary [ph] losses, what will be numbers for this year – for the year just ended and for this coming year? And your forecast – in relation to that, your forecast in the business plan, I don’t feel any discomfort but are there any assumption – change in assumptions after the earthquake?

And the point number two, in page 323, the Group-wide 100 billion yen, is this a number based on the US GAAP. Is this a measure you are using? And this year’s Dimension Data’s performance including operating profit and loss and revenues. And number three, the long-term basis of the personnel and the consignment related costs and expenses after the earthquake, I think to-date the number of employees in the fixed-line services have been either flat or declined, but now it seems that you have changed your mind for certain period of time about 40 billion yen in extra investment that would be required that’s what you meant in the NTT East. So this kind of consignment work related expenses and at the same time the total personnel cost of the NTT East as a whole. If there are any changes I would like to share that.

Satoshi Miura

[Interpreted]

Now on the first one NTT East, I would like to respond to that part of your questions. FY11 NTT East’s earthquake related damage, operating expenses and extraordinary losses 50/50. That is the relationship. And in that, NTT East’s trend if I refer to that, 77.1 billion yen, operating profit in FY11. So 70 billion. 10 billion yen – well, without earthquake, it was 80 billion yen. So it was really the positive trend. But in FY10 compared with the previous year, because of the actuarial loss – actuarial differences function positively and the access charge review also worked favorably for us, that’s what from FY10 and FY11 unfortunately these elements will be loss.

So the profitability will be further boosted, but at the same time we have to discount the (inaudible) related expenses out of that. So the basic trend remains unchanged. The NTT Comm’s forecast of 87 billion yen is the – this is the number on unconsolidated basis. 13 billion yen is the subsidiaries of Comm’s forecast. So in total about 100 billion yen. So based on the JGAAP. Last year – last fiscal year FY10 according to the original forecast 80 billion yen unconsolidated and 10 billion subsidiaries in total, 90 billion yen. So this is the equivalent to such numbers forecast.

And number three, post earthquake personnel costs and consignment contract related expenses forecast. Had we changed that number? But basically speaking there are no major changes, but what we can say is that on group basis including M&A, of course the number of employees has increased. So if you just look at the personnel costs, on the domestic side, we have continuously slimmed but with these M&As, personnel costs unfortunately went up. But aside from that, we haven't made any change – major change regarding the basic trend.

Takahashi – Mizuho Securities

[Interpreted]

Now Dimension Data related performance forecasts. Can you talk about that regarding Dimension Data compared with FY10, FY11?

Satoshi Miura

[Interpreted]

Of course we have plan to grow in terms of top line, 430 billion yen were top line in terms of profitability, 20 billion plus. So this is the size of the forecast we have in making the plan. So roughly speaking domestic subsidiaries, Hikari and the difference of 30 billion yen improvement. The majority of that derives from Dimension Data, is that what you mean? So the JGAAP based 100 billion yen forecast.

Takahashi – Mizuho Securities

[Interpreted]

Dimension Data, well if not included in the subsidiaries of NTT Comm, it is affiliated company. So US GAAP basis, so long distance company, your forecast will be 100 billion plus something?

Satoshi Miura

[Interpreted]

Well Comm will be transferred to US GAAP. And by segment of course as Dimension Data will be included in that in this long-term businesses. The numbers I sighted earlier is the Comm unconsolidated basis numbers as well as Comm’s pure subsidiaries.

Koji Ito

[Interpreted]

Next question. Yes, we’ll go to the gentlemen in the second row.

Moriyuki – SMBC Nikko Securities

[Interpreted]

Moriyuki from SMBC Nikko Securities. I wanted to go back to the profit and loss trend at NTT East. The impact of the earthquake if you exclude that and if you add 10 billion yen, it would have been an increase in revenue, but actually had anticipated even robust upward trend in operating revenue. So I questioned these numbers, but then I noticed one thing. In their presentation in the midway, in the midst of the presentation, you mentioned that the expanded marketing for fixed-line services stagnated and also advertising stagnated due to the earthquake. So 3 billion yen is the direct impact on a consolidated basis, that’s the negative impact I believe. But what about operating expense?

So last year there was an upward pressure on the operating expense. So if this unique factor due to the earthquake were alleviated, then your operating expense might be in a much better situation. This applies to other operators as well, but what about yourself? In the initial plan, operating expense which would have incurred actually might have been contained because of the earthquake. So excluding the impact on the retirement of property, maybe this fiscal year there was going to be deferred impact of spending which will be required.

Satoshi Miura

[Interpreted]

Well after March 11, yes it’s true that some of the advertisement had to be stopped. But then having said that, the actual impact in terms of advertisement is not as substantial – its not that substantial. Actually advertisement over the 20-day period were affected by the earthquake, but at the same time capital investment and CapEx during the 20-day period had to be deferred because of the earthquake. And depreciation related to capital investment will come around in the coming fiscal year. So in any event, cost wise the impact of earthquake is not that substantial.

Moriyuki – SMBC Nikko Securities

[Interpreted]

I see. Well DOCOMO’s CapEx had to be deferred. So in the previous period, 7 billion yen worth of retirement of fixed property had to be deferred to fiscal year – had to be deferred to this fiscal year. So that’s the reason why I asked this question. My second question is this. The impact of the earthquake on a consolidated basis is expected to be 30 billion yen for this fiscal year. But then still you were able to exceed the plan by 30 billion yen. So that actually represents 60 billion yen better than your initial plan. So 30 billion yen is the upside among the five major subsidiary firms, but what about the others? So aside from the five major subsidy firms, where there any upward trend among other subsidiary firms?

Satoshi Miura

[Interpreted]

Yes, against the initial forecast, against our initial business plan, NTT East and West had upside of roughly 25 billion yen, that’s an upside of 25 billion yen. And DOCOMO had an upside of 5 billion yen. So that comes to 30 billion yen altogether.

Moriyuki – SMBC Nikko Securities

[Interpreted]

So if we were to exclude the major subsidiary firms, still there was an upside of 30 billion yen, so what’s the breakdown? Well the remaining, well there is – actually the major drivers for subsidiary firms associating companies for NTT East and West and NTT in such, any numbers because 30 billion yen is a very large number. Now this fiscal year is this say a trend that can be continued that’s my question as well.

Satoshi Miura

[Interpreted]

Well let me put it this way. The breakdown of 35 billion upside, right? So 35 billion yen – well there is impact of 30 billion yen. So altogether it should be a 60 billion yen, right. Okay, so aside from the major subsidiary firms, NTT East and West outsourcing companies and also Dimension Data was added. So altogether you come to this number. So that will be the breakdown.

Moriyuki – SMBC Nikko Securities

[Interpreted]

Any detailed data numbers that you’re able to share with us? I mean for individually, for example, outsourcing companies?

Satoshi Miura

[Interpreted]

Well in the case of outsourcing companies, well altogether 10 billion yen upside for outsourcing companies belonging to both NTT East and West combined.

Moriyuki – SMBC Nikko Securities

[Interpreted]

I see, thank you. And I hate to repeatedly ask this, but you talked about upward trend in operating income in NTT East and West. If any view at or exclude the impact of the earthquake, actually the trend or the upward trend in operating revenue was not as robust as we had anticipated. Am I being too greedy?

Satoshi Miura

[Interpreted]

Well if we begin explanation, we can be very detailed and we might sound being very conservative, but in principal in the previous year, revenue pertaining to consignment such as IRU was there, that a positive impact and outsourcing companies benefited from this, because they saw a very rapid spike in the construction related to terrestrial broadcast, and one-off factors such as actuarial loss has had a positive impact. So I don’t sound too negative, but access charge, interconnection charges, that’s something that we’ll have just to point out.

So if we exclude unique factors from the previous year, as far as the overall underlying trend is concerned, as we have consistently mentioned, in terms of legacy service revenue and IP service revenue, it is still on an upward trend. That is how we view the situation and we believe that this upward trend in revenue will continue. So one-off factors which we saw in the previous year, they may have reemerge going forward who knows, but as far as the overall underlying trend is concerned, it is an upward trend. So as far as the fixed-line services and NTT Services is concerned, you have asked us that we make such sort of a statement about the upwards trend. And like I can simply say that we are more confident now about the outlook for the year for (inaudible) fixed-line services.

Koji Ito

[Interpreted]

Next question please, anybody. Yes, that gentlemen in back, please.

Tanaka – Morgan Stanley

[Interpreted]

(inaudible) Morgan Stanley. My name is Tanaka. I have two questions. The first one, now talking about the Dimension Data in the year just ended, they made contribution to their revenues. So how much contribution I would like to know? Number two, overseas subsidiaries and the synergies from them such as joint order receipt cases?

Satoshi Miura

[Interpreted]

Now Dimension Data fiscal ‘010 and their contribution to our revenues was two months worth amount. So 78 billion yen plus. So in terms of profitability, their contribution was around 2 billion yen plus. Now the joint order receipt for example in Asia, the pharmaceutical manufacturers vis-à-vis such company NTT Comm and Dimension jointly won projects. There are more than 10 such cases.

In total as of now, the order receipt cases about 5 billion yen worth of performance was achieved. But of course pending business exists as of today. So I think we would be able to enjoy this logistic effect gradually, but steadily. NTT Comm and NTT Dimension Data synergy has been introduced but on top of that, NTT Comm and NTT Data or Data subsidiary Keane, so the application related synergistic good impact are being involved.

Tanaka – Morgan Stanley

[Interpreted]

Thank you.

Koji Ito

Any other question? Yes, we’ll go to the gentlemen in the second row.

Oshidari – JP Morgan

[Interpreted]

Thank you. Oshidari from JP Morgan. I have two questions. My first question relates to fixed-line services at NTT West. In the case of NTT East, we saw very strong recovery, but as far as NTT West is concerned, it seems that they are realizing cost up. They are realizing increase in operating income through cost control. So therefore the top line and operations in NTT West inclusive of IP service revenue increase being able to offset the declining voice service revenue. When will this be on part with NTT East? That’s my first question.

My second question, CapEx to sales 15%, you mentioned that achieving this might be somewhat difficult in the timeline. If it’s difficult to achieve, then if you were to normalize or to normalize, do you – are you going to trying to maintain maybe like 18% CapEx to sales ratio, or are you going to make continuous efforts to continue to reduce CapEx to sales. So are you still going to be aiming for CapEx to sales ratio of 15%, if difficult to achieve next fiscal year, what about beyond that point? So can you share with us your thoughts about the level of CapEx to sales?

Satoshi Miura

[Interpreted]

Let me begin with your first question related to NTT West. You are familiar I am sure with this situation. First, inclusive of fiber, the market at NTT West is very competitive. So because of the harsh competitive landscape, NTT West is somewhat lagging behind NTT East, correction. And I think the lag is anywhere from two to three years between NTT East and NTT West.

Now as far as CapEx is concerned, CapEx to sales ratio is the average is about 18%, but its not that we’re going to maintain this average. On a temporary basis, we might have to accommodate increase in CapEx due to earthquake, but in principal, we want to improve CapEx to sales ratio step-by-step. So when we determine the capital investment for next fiscal year, we will certainly be mindful of that and will try to control this number.

Oshidari – JP Morgan

[Interpreted]

So that means that and again this relates to my second question. You are saying that on a temporary basis, CapEx is increasing but CapEx will continue to fall, is that the case?

Satoshi Miura

[Interpreted]

Yes, we’ll make efforts to reduce CapEx.

Oshidari – JP Morgan

[Interpreted]

I see, thank you very much.

Koji Ito

[Interpreted]

Any other questions? Yes that gentlemen there in the middle, please.

Takahashi – Merrill Lynch

[Interpreted]

My name is Takahashi form Merrill Lynch. I have two questions. The first one is both East and West’s forecast for this fiscal year. And that voice and IP business, if they put together compared with the previous year, their negative number will enlarge. And regarding the East, because of the earthquake about 7 billion yen downward revision in terms of top line is expected. Are there any other factors causing that?

And now talking about the question number two, 40 billion yen will be spent to buy every share owned by the government at the moment, correction, 400 billion yen. So are you going to continue this share buyback? Are you planning any additional write-offs or cancellation? And you were talking about the increase – possible increase on interest-bearing debt. So in comparison to 400 billion yen, so the increase – projected increase of interest-bearing debt seems quite small.

Satoshi Miura

[Interpreted]

So what I’ll use the first one, the voice and the IP revenues put together trend of both East and West, FY11 (inaudible) based access charge, the unit price costs will be higher. So 10 billion yen, positive impact will be brought to both companies in FY11 minus 4 billion yen will be the size of the impact respectively. So excluding that, deducting that, from our perspectives both East and West are following the upward trend improvement trend.

Number two, fund raising. Yes, you’re right we shall be conducting a share buyback. And with certain assumptions of 400 billion yen worth needs [ph] will arise. The holding company will use its cash on hand, but of course there were some shortfall. So we have to find a way to raise fund from outside, but at the same time, Group as a whole, when you look at other Group companies, there is of course there will be a redemption need but they may reduce the size of the borrowing. So as a Group, as a whole 50 billion yen will be the total amount of increase expected for the interest-bearing debt.

Unidentified Company Representative

I would like to add some comments that share buyback as Mr. Masuno mentioned, we are very diligently more than 200 billion yen as the result of resolution by the Board meeting. But for the second quarter, we are planning to buy everything from the government, but in terms of procedures, we haven't completed the cancellation that we have to do before buying the second tranche. So up to the second tranche, yes we are planning to complete our transactions, but beyond that nothing is finalized yet, but as written in the footnotes, we are appropriating some amount from the reserves. So we would like – that means we would like to continue with the share buyback.

And at the same time we think that we will maintain a certain amount of treasury stocks which will apply to the current buyback. Now after that, of course or beyond that in the future what do we do with those treasury shares. So some of them will be cancelled and some of them may be used for other applications as we have been telling you. So after the first round of process is over I think it would be time for us to give you the details.

Takahashi – Merrill Lynch

[Interpreted]

Thank you.

Koji Ito

[Interpreted]

Any other question? Thank you very much, if not, then we would like to end the session. So we’re ahead of the schedule. So with this we’d like to conclude today’s briefing session. Thank you once again for your attendance. Thank you ladies and gentlemen.

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