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Nippon Telegraph and Telephone Corporation (NYSE:NTT)

F3Q12 Earnings Conference Call

February 6, 2012 03:00 AM ET


Koji Ito – IR

Hiroo Unoura – Senior EVP and Director, Strategic Business Development


Tetsuro Tsusaka – Morgan Stanley

Atsuo Takahashi – Mizuho Securities

Daisaku Masuno – Nomura Securities

Daisuke Oshidari – JP Morgan

Shinji Moriyuki – SMBC Nikko Securities

Hiroshi Yamashina – BNP Paribas

Hitoshi Hayakawa – Credit Suisse

Koji Ito

Thank you very much for taking your time to attend this Analyst Meeting this afternoon. We would like to start the Analyst Meeting to report NTT’s Financial Results for the nine months ended December 31, 2011. I shall be serving as the moderator. My name is Ito from IR office.

Let me first introduce to you the attendees of this meeting. Representative Director, Senior Executive Vice President, Unoura; Director and Senior Vice President, Director of Corporate Strategy and Planning Department, Watanabe; Director and Senior Vice President, Director of Finance and Accounting Departments, Kobayashi.

Now, I want you to confirm whether you have got all the materials in hand. There are two documents, slide presentation copy titled Financial Report for the nine months ended December 2011 and the other one is white thick booklet.

Now regarding forward-looking statements and projected figures contained in the materials are referred to during presentation and Q&A session, please notice and read a written disclaimer at the back of the cover page of the slide material. And today’s Analyst Meeting will be live broadcast on the company’s IR website. And the recorded video will be delivered on demand at a later date. So I want to have your understanding about this arrangement.

And we are planning to spend about 90 minutes or one hour and a half for this meeting. Now first, Mr. Unoura will give you the outline of the third quarter results before entertaining your questions.

Hiroo Unoura

Thank you very much, my name is Unoura. Thank you very much for joining us despite your business schedule. And despite the very bad weather outside. Then without further adieu I would like to provide you with the highlights of the financial results for the nine months ended December 31, 2011. Please open page three.

I’d like to begin with the highlights and the forecast. As for operating revenue, because of the contribution of global business revenues from Dimension Data and so forth, it reached 7,783,700,000 yen, representing an increase of 241 billion yen on a year-on-year basis.

Turning to operating income, we saw decline in profits at NTT DOCOMO, NTT East and West. So, therefore operating income declined 55.9 billion yen on a year-on-year basis and reached 1 trillion and 9.4 billion yen. As for achieving the consolidated operating income target of 1.25 trillion yen, well we’re concerned about the downward trend of revenue at NTT East and West which has become very difficult, starting from the fourth quarter we would like to realize cost control in line with the revenue trend.

And we would like to secure further increase in companies whereby we see upward trend in revenue and profit and also in companies where we see downward trend in its profit, we will make an effort to improve the structure. And as a result people like to achieve the annual profit target as far as forecast are concerned.

Due to the changes in the corporate tax law, net income has been revised downwards from 545 billion yen to 465 billion yen representing a downward revision of 80 billion yen. As for net income for individual companies, we have carried out review. As for details, please refer to page 23, at your leisure. Then, we would like to talk about the situation pertaining to contributing factors by segment, please turn to page nine.

Page 9, talks about contributing factors by segment, let me start from mobile. NTT DOCOMO has already announced its financial results so therefore I will not talk about this. As for Data Communications, we see expanded impact from increased number of consolidated subsidiaries such as Key which was acquired at the end of the last fiscal year. As a result data communications are increase of 31.3 billion yen and operating income also increased by 5.4 billion yen, 5.6 billion yen correction. We believe that fully our target can be reached.

As for long distance and international communication business, operating revenue increased by 323.4 billion yen on year-on-year basis due to the fact that Dimension Data became a subsidiary. Also Dimension Data itself when they close their books at the end of September 2011 was able to achieve a very strong growth of more than 10% in both operating revenue and operating income. This is after the adjustment of DU exchange rate.

As for operating income, on top of the five, the Dimension Data became a subsidiary NTT Communications was able to achieve reduction in access charge as well as cost reduction. So therefore it increased by 23.7 billion yen on a year-on-year basis. So, for these segments we would like to realize further increase in profit going forward.

Turning now to regional communication business, operating revenue has downward trend in voice revenue and also IP Service revenue increased and also telephone equipment sales revenues did not go as much as we had anticipated. So therefore, operating revenue declined by 135.2 billion yen and also operating income also declined substantially by 57 billion yen, on a year-on-year basis in particular at NNT East due to the impact of the earthquake the purchase of equipments was behind. And so, therefore as a result, revenues from telephone equipment sales were also behind.

So, and also the sales of FLET's Hikari LIGHT is below our projection. So, because of this very difficult circumstance our revenue trend has not reverted to a recovery at the time of third quarter. So, during the fourth quarter, we will make aggressive sales efforts, realize cost control so that profit could be increased.

Please go back to page 4. And page four talks about number of subscribers for fixed broadband services. Then we begin with subscriptions. Net addition up until the third quarter was 1.25 million which is 20,000 less on a year-on-year basis. FLET's Hikari LIGHT subscriptions remain at 180,000. They were same back from the earthquake and also there is increased competition with other operators, so therefore achievement of the annual target looks difficult at the strength.

As for the FLET's Hikari LIGHT we see a progress in the housing sector, however in the household sector. But in terms of businesses, also there is a requirement on the part of the I10 users for migration to fiber and we see problems pertaining to implement cost of equipments so therefore we are behind. So, therefore we want to realize support upon installation, upon replacement and also consider probation of rental equipments and we’ll make aggressive sales efforts to our business sector.

NTT West has also begun delivery of FLET's Hikari LIGHT as of January 13, so from the fourth quarter onwards NTT West will also make efforts to expand its sales. Now, unfortunately churn rate is increasing. We believe that FLET's Hikari LIGHT will have certain effect of preventing churns on top of the existing churn preventive measures we will want to take additional measures going forward.

Next, let me talk about ARPU which is indicated on page 6. FLET's Hikari LIGHT ARPU for the third quarter saw increase of 30 yen year-on-year basis at NTT East and due to expanded additional services as for NTT West. Again, there was increase of 30 yen on a year-on-year basis. And ARPU reached 5,100 yen. However, annual achievement of the annual targets seems to be somewhat difficult at this juncture. And also boosting ARPU from additional services be Television, telephony rather has remained less than what’s expected. So, we’ll make up for six months FLET's Hikari telephony every month supports services.

Now, as far as subscription ARPU from mobile broadband services are concerned, I will omit subscriptions at this juncture.

Next, I would like to talk about cash flow. Page 16 please, the slide describes cash flow. Free cash flow was negative last year because we’re large scale M&D deals but this year it increased 111 billion yen year-on-year to 58.9 billion yen positive. The financing cash flow due to the share buyback of 220 million yen in July as well as the debt repayment saw the increase of cash outplays, next I would like to talk about CapEx, page 19 please.

NTT’s capital investments at the end of third quarter December 2011, and reached 1,285,800,000 yen, this is the increase of 22.4 billion yen year-on-year but it is right on track across the full year target of 1.97 trillion yen, in-spite of these impacts are from the earthquake and other problems.

Last but not least, I would like to explain to you the shareholders’ returns please turn to the next page to page 20. The share buyback plan resolved by the board of directors meeting in November last year, it is not exercised as of today. However, we will repurchase up to 44 million shares or 220 billion in accordance with the resolution.

So, this concludes my explanation. Thank you.

Question-and-Answer Session

Hiroo Unoura

Ladies and gentlemen, we would now like to take your questions. If you have questions, please wait until the microphone has been brought to you. May we ask you to state your name and affiliation? Also we would like to receive questions from as many people as possible. We would appreciate if you could keep your questions short and concise, we would appreciate your kind cooperation. Then, if you have any questions, please raise your hand.

We’d like to start with the gentlemen in the first row.

Tetsuro Tsusaka – Morgan Stanley

Thank you very much. Morgan Stanley Securities, my name is Tsusaka. I just have one question. It’s not applicable just to this quarter. But I have to say that the growth in the broadband subscriptions have slowed down. On the other hand they drop in Legacy Services is in line with the past trend. And I believe this represents a structural issue or the fact that demand itself is declining.

So, as we look towards the future, quarterly basis from the first quarter, second quarter to the third quarter, we don't see a substantial change. So, I think this is an established trend that is my view. So, if that is the case, there is running from next fiscal year onwards, what vision do you have for your business as you manage your business? I would appreciate your thoughts. I asked this because KDDI has become very aggressive. And so, the landscape, comparative landscape is changing. So, what do you envision as a target, as a goal for your fixed line business, I think that’s my broad question.

Is this relevant to the problem of your business portfolio? So, how do you see the current situation?

Hiroo Unoura

Thank you. I think I received a similar question when we announced the first half results. In terms of legacy business in particular, the voice service revenue continues to show a downward trend. And I think that’s to a certain degree inevitable as we have consistently mentioned, we want to overcome this deficit through increase in IP service revenue that has been the vision in our fixed line business. And that vision remains unchanged.

Now, this time around we had seen impact of the earthquake and also impact from the power saving measures. So, it’s not so much in the housing sector, the household sector, I think the greatest gap in terms of our target or in terms of our forecast, is in relation to the situation of the corporate sector. We have seen a not too favorable trend, I’m afraid in the corporate sector.

But inclusive of retail or consumer market, how do we see the broadband market going forward, we need to of course carry out a more detailed study. We still see as the end lines as well the DSL remaining. So, though the competition has become much harsher, I believe that there is still room to increase demand for our services for fiber.

As for DSL, how can we encourage migration from DSL to fiber, it’s not just DSL customers, we can actually also include the DSL customers of other operators. So, I think there is still room for SME growth in this business and also as for corporate sector at the risk of there is still room for growth if we do more. So, of course there is impact of the economic situation and it’s true that the SME segment is sluggish. So, therefore started fiscal year how can we address this market? We need to give thought to this.

Also as I mentioned earlier, in terms of the consumer market, we still have yet to see a effective counter measure to prevent potential churns. And I believe the FLET's Hikari LIGHT has a certain impact. So, therefore I think we can make effective utilization of this service. And also, I think we can use the FLET's Hikari LIGHT to encourage migration on DSL customers.

And also for long-term customers, what counter measures should we take, how should we address this long term customers, so these are some of the issues to be considered. So, you might ask about the future, we can talk about ten years from now but I think for the next year or two, I think we can continue with the counter measures which we have in mind at this juncture. Thank you.

Next question please. Yes, the gentlemen in the second row from front.

Atsuo Takahashi – Mizuho Securities

My name is Takahashi from Mizuho Securities, I have two questions. Earlier you said talked about the regional communications and long distance international business activities. Recently, NTT East have partnership with (inaudible) and of course our collaboration with wireless operators.

So, these are the new developments. And at the same time, competitors are taking the similar measures 2.5 gigabyte spectrum were newly allocated. If that is the case, East and West, wireless other companies together with them or do they have their own idea to limit the cancellation of FTTA services, do you have any specific plans, ideas about effective measures? That’s number one.

Number two, Encom and other subsidiaries related issue, generally speaking, yes they are performing quite well. But the question is, whether it is sustainable into the next year, regarding next year, what kind of image do we have and if possible come on its own and our Dimension Data and other individual companies forecast about the next year is something I would like to hear from you?

Hiroo Unoura

NTT East, regarding wireless, what kind of vision, plans do they have, that is the question. E-Mobile is the partner, they have already chosen and recently they have partnership of Japan com. So, they are making more than one approach as to meet the needs of the market. I think these will be the continuous efforts to be made by them. And the point to the question I think is the KDDI, Hikari and CATV’s broadband combined programs was announced. And the application will start in the Mid-February. So, we would like to carefully watch the developments to follow. And against such backdrop, how can we reward the faithful loyal users.

So, these are some of the major so we would like to come up with, so, against such general background, we would like to come up with any good ideas to solve the issue. So, realistically speaking, I think there are many possibilities so we can pursue.

I would like to move on to the question number two, adding some comments, circled FMC has been quite a popular issue, talked by many people. But in essence, fixed and mobile, how can they jointly launch the seamless service that is the key question. And I think the new moves have already been made, but going forward, further improve better ideas are weighted for. And FMC with wireless would be very much effective for such effect.

Mobile broadband services and fixed broadband services what will be the relationship between the two going forward. What I think is that, they will be increasingly complementary. As you know, wireless offloading is very much needed. And efficient use of facilities by both parties must be realized. So, we have to launch services heading for that direction ahead of others.

Now regarding communication, NTT communications is just like East and West, in the area of corporate sectors, they are struggling yes, that is the fact. So, this year, through the cost reduction in different areas, they are making efforts so for the next day, we would like them to expand the corporate segment market. Of course the actual outcomes please, wait, give us a little more time to report to you. We are still contemplating, what effect majors will be available.

Additional question regarding the wireless related partnership, let’s say the Soft Bank, I think you’re already working together with Soft Bank. So, what will be the future of this partnership, Yahoo, BB, FLET's Hikarim, I think the number is increasing. So, when we think about the major limit cancellation, I think this kind of existing program will be very effective. I think it will be a very good exercise of brain for you. So, I think maybe you can strengthen your partnership collaboration with the mobile players.

So, if you were asking if we were trying to launch a bundled pricing services well then we have to consider the situations of each party. In the case of mobile and Japan com I think that could be one viable option. But if we are to – or if you’re suggesting a different approach, then I think the answer will be rather difficult. Thank you.

Next question please, we’d like to go to the gentlemen in the front row.

Daisaku Masuno – Nomura Securities

Thank you. My name is Masuno from Nomura Securities. I have two questions. First relates to the consolidated results for this fiscal year and for the next fiscal year. March 1, I understand the business plans for NTT East and West will be submitted. And at that juncture, I suppose, are you going to revise your forecast for NTT east at that juncture.

Also the 1.3 trillion in consolidated operating profit target for the next fiscal year well DOCOMO has said the target of 100 billion yen, which means that (inaudible) income by 30 billion yen. So, for the next fiscal year, through what measures are you going to expand your consolidated operating income? That’s my first question.

Second relates to fixed mobile conversions. I know not based on your announcement. But I think in newspaper report they talked about unification or integration of your billing services and collection services, this is going to increase convenience whereas improve deficiency, can you talk about the progress in your billing operations, can you talk about the developments pertaining to integrated billing operations.

Hiroo Unoura

Thank you. Let me start with your first question. On March 1, NTT East and West, including NTT Holding Company I should say, will be submitting the business plan for the next fiscal year. They will be submitting plans for approval.

Now, I would like to clarify, what we are going to submitting is actually plans for CapEx, so the financial plan and profitability plan is simply for reference purposes. I know that I repeatedly talked about the nature of the business operation plan. NTT East and West, is still making consideration of this plan. I think it would be too premature at this juncture. So that is why, any required revisions are usually carried out in the month of May. So, I hope that this is the reception we hope you will have when you take a look at our business operation plan submitted on March 1.

But having said that, based on a certain level of assumption and forecast we have to come up with numbers of integrated into the business operation plans. So, in that regard, numbers we continue the business operation plan can be used for some reference.

Now what about the outlook for 1.3 trillion yen? We want to maintain this consolidated operating target for the next fiscal year. So, internally toward March and April, we’ll begin hearing in interviews from the other group companies. And based on that at the month of May, we hope that we’ll be able to provide you with greater details.

Turning to your second question, when you refer to fixed mobile conversions and billing. As far as billing is concerned, those of you in this – those of you in this room are properly well aware of the fact that we wanted to – we’ve been wanting to do this for the past three years. So, it took us this long to reach the stage. We’ve had to carry out certain discussions with outside parties. And so, that’s why it took us this amount of time.

And that’s what we found that the systems deployed in different companies were quite varied and therefore system development also took time. But we are now in the midst of testing and I believe that as scheduled we’ll be able to, proceed to this unified or integrated billings operations turning from July.

In principle, we want to improve the convenience on the part of the customers. At the same time, within the group, as for operations which could not. In terms of those operations, whose efficiency could not be improved on independent basis, we feel the unification of these services will help for improved efficiency.

Now, consolidated billing operations at the group level, how will we proceed with this? I think that is just a fair question, we have many thoughts as to the scenario. But I think just as far as I can say today.

Yes, we are ready for the next question please. Person in the third row, please.

Daisuke Oshidari – JP Morgan

Oshidari from JP Morgan, just one question. Broadband subscription, yes, of course there was an earthquake. So, your expectation was not achieved, reached. And maybe my question is redundant. But in essence, the demand has maybe depleted in a sense or broadband itself is competing fiercely between the fixed line and the mobile broadband. So, the business situations nowadays are very much different from the original situations when you made the plan.

So, I think we will be hearing from you the next year’s plan as shortly. So maybe at this juncture, you may find it very difficult to make a clear comment. But from our perspectives, your submission of business plan to the ministry is nothing to do with our interest. What we are interested in is that when on semi-microscopic basis, what is the current business environment surrounding you?

Hiroo Unoura

I think we need to spend time in analyzing many factors, regarding the connectivity issues, NTT both East and West, hardly disclose the information they’ve got. That’s why we have to be somewhat abstract in providing you information. Now, the SVTA service sales, when we look at the actual situation this year, until last year or until two years ago, the condominium involving sales was very much at risk.

But of course this is condominium so there is – there are many movements including the students. But unfortunately it is not moving very, very recently, probably in relationship to the smartphones sales. But we haven’t really conducted survey what happened to the vacant flat. So, the mobile broadband, against the competition against mobile broadband is occurring.

But at the same time, as I said earlier whether it would be fixed or wireless broadband service related demand, still exists. As Holding Company, ideally speaking you need to say that both fixed broadband and mobile broadband services hopefully would be supported by both user segments. I think the (inaudible) launched by AU is based on such concepts. So, we would like to do the same thing going forward.

Now, FTTH, how far can it grow? Originally we said 30 million but of course that was a rather too ambitious number for NTT on their own. So, including other operators, I think we can still head for that level of number.

Daisuke Oshidari – JP Morgan

In relation to that another question. Maybe this is the question which suits to your timing of announcement of your full year results. The bundled services between the fixed and mobile, maybe in terms of relationship is not very difficult, in other words, the joint work between East and West and DOCOMO. Realistically speaking as such approach would be very difficult.

So, the fixed communication related services, which is struggling for some time, in relation to that maybe you should think about the alliance involving external parties. And you should give freedom to the East and West pursuit such relationship in order to maximize the profitability of each company. Can you think of such solution?

Hiroo Unoura

Well, this rather a difficult question for me to answer. But as I said earlier, essentially speaking by way of FMC, both services and devices inclusive going forward, I think that we would see increasing changes occurring. If that is the case, the fixed line services, the role should be as open as possible. They should not just pursue the FMC services targeting at DOCOMO because it will not be preferable from the users perspective. And the situation applies to the other players.

So, the most convenient FMC service from the user’s perspective that is something we have to think about. And that is I think regardless of network is using East and West fixed lines, we should seek the opportunities, a partnership with non-NTT mobile players. That should be an ideal situation. So, I think that is the future direction we should pursue going forward. Thank you.

Thank you. We’d like to go to the gentlemen in the second row.

Shinji Moriyuki – SMBC Nikko Securities

Moriyuki from SMBC Nikko Securities. I do apologize for asking this question. But considering the future direction and also considering the immediate situation whereby your – where your competitors are now already providing fixed mobile bundled pricing. What extent have you carried out the case studies? You talked about you want to see the developments going forward. But if there is going to be impact from the bundled pricing then, Mr. Unoura, you mentioned that you want to pursue discussions with non group companies. You mentioned that you will consider this option as well.

But if you’re going to study options, if you’re going to carry out negotiations after the impact is already felt, it’s going to be too late. Have you already cleared that case studies and do you believe that if there is certain impact, do you think that at a fairly early stage, you’re going to allow for this alliance with non-group companies? Or at this juncture, is it simply a mental exercise or are you going to consider FMC in the next 2 to 3 years. So, within this spectrum, which of this scenario is most likely for you?

Hiroo Unoura

Well, I hope I can correct the misconceptions you have. Alliance with non-group companies, unless there are services involved, I do not believe that we pursue such an alliance. And that applies to all the operators, unless you have services, you cannot pursue such alliances that easily. But I’m focused not just on bundled pricing I think we should be focused on the delivery of services.

So, from that perspective I would like to enhance the openness. And Mr. Moriyuki, I think you want to ask about the use of bundled pricing. How will NTT respond to use bundled pricing, are we going to make, are we going to hurry in responding to that or are we going to take our time? To be very candid with you, at this juncture, we are not yet certain as to how much impact this bundled pricing KDDI will have. Rather than ask me, you might want to ask your questions to KDDI as to what extent they are willing to go.

And to be very candid, I do not believe that there is going to be rapid impact. Also, we have in minds several counter measures. And I believe that in a timely fashion, we can introduce them. So, we need to engage the impact. And also, we need to have in mind the long-term impact as well. For example, impact in the next two to three years from now, Mr. Moriyuki, I know that you’re concerned. You might be concerned that you will be too late for NTT but I can assure you that it’s not the case.

We’re going to make sure that we do not fall into the tramp of a straight forward pricing war. We want to respond to the users requirements. So, that being the case, I do not believe that just because we don't do this now, we will – it will be too late. We will take effective countermeasures.

Shinji Moriyuki – SMBC Nikko Securities

Thank you very much. I appreciate your interest to my question. Let me ask another question. Unlike the competitive landscape up until now, migrating to mobile broadband has become the reason for cancellation of our fixed line fiber. This is unlike, this is unlike the AU question, do you believe that on a consolidated basis, we’ll be able to stop potential churns or do you believe that it’s about pricing. Or can fixed line businesses take countermeasures on their own on a standalone basis. Because impact is where it’s going to be felt?

Hiroo Unoura

Well, the example that I referred to earlier is for young users to find smartphones to be more convenient for them. So, it’s going to be very difficult to let countermeasures to these young customers to also to subscribe to fixed line broadband. So, that we have to accept that. I believe in previous sessions, I mentioned my example, the example of my elder son. When he was single, he only had mobile. But when he got married and has his family, he also subscribed to fixed line broadband.

In other words, when it comes to services, there are services which befit, small screens and there are services which befit larger screens and terminals. So, it’s important that we encourage customers to subscribe to both. That I believe is the question in essence. This is the challenge which we need to resolve. So, for the time being, you are saying that there are counter measures that can be taken for our fixed line broadband services? Yes, I think it’s inevitable that we do so. Thank you.

Yes, that, gentlemen there, please.

Hiroshi Yamashina – BNP Paribas

My name is Yamashina from BNP Paribas Securities. In relation to the question raised by the gentlemen just before me, you said, if there was good services, if that is the case, mobile type devices and the devices used at household, if we think about that, let’s say Apple or Google and Cloud services, iCloud services and others. Are you thinking about that level of services or are you thinking about the services a step or two steps before that so, in competition or complementary relationship. How can you explore the demand now the inter group Cloud services?

When it is the question your relationship to DOCOMO, comes services and DOCOMO services, I don't think they will be compatible. So, if that is the case, DOCOMO’s SP mode issue existed. So, Cloud Look service was planned then they fell into a failure. So, as a holding company clouding services design, how much will you be getting involved in designing of each company?

Hiroo Unoura

Well, I think it’s all your questions are related in terms of elements. What I image is that before too long, we including the video related services, we show the entering the cloud computing type services Google and Apples. In part I think they will compete against them. But in other parts, we shall be working together with them. But having said that, on the other hand, when you look at the SEES this year the Smart TV was the main product. So, including Smart TV, wireless and fixed together, how can they in collaboration cope with the new needs?

So, cloud computing services as a group, how can are we going to approach the needs of cloud computing services? So, in the last year, we repeated discussions with many group companies. At some point in the next year, or this year rather, I would like to make a report to you in the renewed mid-term management plan. Consumer related cloud computing service and corporate user targeting cloud computing services, how are we going to develop at these two types of cloud computing services? At that point in time, I think that we can give you more details when we make an announcement in order to perceive your input as well. Thank you.

Sorry, for being too abstract. So, if I may, I would like to add one comment here. Consumer related services, in terms of – in our group, I think DOCOMO will be the key player. So, in order to avoid a redundant investment, redundant activities so, that is one thing that I can tell you at this juncture.

The gentlemen in the front row please.

Hitoshi Hayakawa – Credit Suisse

Thank you very much. Hayakawa from Credit Suisse, I would like to ask two questions. My first question, this relates to the recent situation pertaining to NTT East and West and entity communications. I know the questions so far have talked about the future. But I would like to ask about the immediate.

Taking a look at the numbers so far, the profitability of NTT East West and Communications has been weaker. And as you mentioned Mr. Unoura, you want to achieve profit based on cost reduction. But if you add NTT East West and Communications, I think the plan was about 20 billion yen operating income, I think that was the number but what about the breakdown?

NTT Communications I think is actually increasing but as for NTT East and West to be quite candid, for this fiscal year, I think reaching the target looks somewhat difficult. Is that the impression you have? You’ll be submitting your business operation plans to MIC. Are you going to change the numbers for NTT East and West or do you believe that through cost reduction, you’ll be able to achieve 50 billion yen maybe from NTT East and West. And as a result of cost reduction, will you be able realize the target. So, can you be very candid when you talk about the profitability for NTT East and West at this juncture?

Should I ask one question at a time or should I ask both questions?

Hiroo Unoura

Yes, I think we’d like to respond to each question then. Thank you. Adding NTT East West and NTT Communications 20 billion yen, for fixed operations that is the level which we have in mind and out of that, what about NTT East and West?

Compared against our initial forecast revenue is weak. So, although we have realized cost reduction we have yet to reach the target. So, that being the case toward the end of this fiscal year, we will be reviewing various measures. And we may decide to do differ certain items so that we could achieve the profit target.

But at the same time the situation is very difficult. But then, having said that, NTT Communications, although we revised to the outlook after the first six months, we now see a trend a momentum whereby we can actually exceed in the revised target for NTT communications. So, for the immediate I believe there is the possibility that we can achieve the number that to outline. So NTT East and West and NTT Communications will make efforts to achieve increasing operating profit. So, that’s my response to your first question.

Hitoshi Hayakawa – Credit Suisse

Well then, with regard to the subscriptions for fiber, there is sluggish growth in the subscriptions. You talked about preventing churns, in particular, in terms of long-term customers. For the long-term faithful customers, what – what measures will you take against these long-term faithful customers for fiber? Also when you consider the fundamental question of increasing the net add fiber. Maybe you should consider 8-way fiber basis although there have been some in favor and some not in favor of this. But in other words, if your fiber lines are open to the other operators, then, what is your position the 8-way split fiber. What will your position be, I have to appreciate your comment on this matter. Thank you.

Hiroo Unoura

Thank you, I’d like to respond to your question. Your first question about how we address faithful long term customers. Now, this is something which NTT East and West are thinking about. And I believe in appropriate time we’ll be able to talk about this. I’m afraid at this juncture, since I’m not the principal operating company, I cannot make – or cannot disclose the specifics. I would appreciate your understanding.

As for the 8-way split fiber, as you are aware, KDDI has mentioned that dealing with other 8-way split they can be viable. So, in essence, it’s a matter of will the operator take the necessary risk. So, our view toward 8-way split has not changed whatsoever.

Hitoshi Hayakawa – Credit Suisse

Thank you very much.

Hiroo Unoura

Next question please, yes please.

Daisuke Oshidari – JP Morgan

Oshidari, JP Morgan. Sorry for second question. I would like to hear a specific timeline. You know, you – I think every time we attend this kind of meeting you said, we are not able to talk about that. So, including the definition of cloud computing for NTT? And regarding and you earlier said, the NTT both East and West are making best efforts to reduce cost. But they are not still achieving the target. If that is the continuous situation, you have to make a reset.

I think it is time for you to make the essential improvement so when you announce the full year results, including the revision of the mid-term management, do we hear any such report or because of the expected reshuffle-ment of management structure, then and because of that you will not be able to talk about the new plans. So, how should we understand this situation? What is your idea about the roadmap, timeline of the group-wide management?

Hiroo Unoura

As I have been talking, anything related to NTT East and West the timing of the submission of business plan and also depending on the timing of the announcement of the full year results I think that we can report to you something more tangible. Now regarding the outlook of the mid-term plan, as (inaudible) has just mentioned the needier of course are right about so many things. So, not limited to just media report, basically cloud services may affect our very essence of our business structure.

So, I think that’s why I say that we need very good in-depth deliberations. And in a couple of years, the situations could be totally different. If that is the case, at this point, at this juncture, all I can say is that something like, vision, something that we head for, that is something we would like to report to you as soon as possible, maybe sometime in spring.

But if you’re asking for numbers, if that is the just of your question, well, I think there are some numbers we can disclose but there are some others which we cannot disclose so easily. We have to take some time so in two steps or in three steps maybe we can – we will release the numbers because in spring, we will have certain level of fixed outlook and certain level of number based target. But regarding other information I think that we still need to spend some more time and time for discussion among ourselves.

Hitoshi Hayakawa – Credit Suisse

Just for confirmation, when you released your full year results, some kind of detailed ideas outlook will be shown?

Hiroo Unoura

Yes. But further details, we have to wait for sometime more, that’s right.

Hitoshi Hayakawa – Credit Suisse

To what extent can we give you the information?

Hiroo Unoura

So, that is a very difficult question. We are talking about some items, not all the items but some of the items cannot be fully disclosed in spring. So, that’s why we are trying to follow this phased approach so, as soon as possible, please and so, that you will not lose the users and the shareholders hopefully.

Next question, please. If not, then, it seems that we have no other questions. So, we’d like to conclude the presentation meeting at this juncture. Thank you very much for your attendance today. Thank you very much.

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