Ongoing Progress NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2011

Transcription

1 Ongoing Progress ANNUAL REPORT 211 For the Year Ended 211

2 SNAPSHOT Preface Nippon Telegraph and Telephone Corporation (NTT) was incorporated in 1985 after the privatization of Nippon Telegraph and Telephone Public Corporation. Today, under its Medium-Term Management Strategy, Road to Service Creation Business Group, which was announced in May 28, the NTT Group is working to create a diverse range of broadband and ubiquitous services. Broadband networks are advancing The information and communication technology (ICT) industry is undergoing a paradigm shift in a variety of fields, including the convergence of services, the provision of terminals and content in sets, and the transition to cloud computing services. As a responsible member of the information and telecommunications industry, the NTT Group continues to expand and develop its business through activities such as the enhancement of network capabilities as the foundation for our services and joint collaboration with our many different partners, as well as the collective efforts of the Group to maximize synergies in the creation of new services and the introduction of innovation. In addition, through M&A transactions and other measures, the NTT Group is working to establish a system for the provision of total ICT services on a global level. Moving forward, the Group will establish a business model that can take full advantage of Groupwide synergies and strive to increase profitability and corporate value. Upper layer services are growing The NTT Group will aggressively promote the use of ICT, including in the public sector, such as medical, educational, and government institutions. In this way, we will strive to contribute to the solution of social problems, including reducing environmental burdens, through the use of ICT. Borderless businesses are expanding

3 Changing ICT Environment Until the beginning of the 199s, the principal service offered by telecommunications companies had been fixed-line voice telephony service for homes and offices for many years. However, from the latter half of the 199s into the 2s, the use of mobile phones and the Internet registered dramatic growth, and telecommunications companies began to offer a wider range of services through broadband networks and advanced devices. In terms of both fixed-line and mobile, the world s most advanced broadband environment has been developed in Japan. This environment has been realized through competition in facilities investment. For example, from the early 199s until today, the speed of access lines has increased by 1,5 times. In devices, meanwhile, there has been dramatic technological innovation, and the performance of mobile phones that are in common use today far surpasses the performance of the supercomputers of just 3 years ago. Information and telecommunications networks, which have undergone significant advances through the shift to IP and broadband, have become indispensable in business and daily life, and their importance continues to grow. NTT GROUP S PROGRESS ON PAGE 22 In information and telecommunications markets, the rapid growth of mobile phones and the expansion of the Internet, supported by ongoing trends toward IP and broadband, have made various services available. In addition, structural changes in the marketplace have progressed due to a convergence between telecommunications and broadcasting as well as between fixed-line and mobile, and to growth in new networkbased services such as cloud computing services. Accompanying these types of changes in the market, not only existing telecommunications carriers but also newcomers, such as service providers from wide range of other fields, have entered the market. All of the competitors are moving ahead with the provision of services that integrate devices, content, and platforms. Consequently, a diverse range of upper layer services, such as home ICT and digital signage, has become available, and further progress is anticipated in the future. NTT GROUP S PROGRESS ON PAGE 24 For many companies in industrially developed countries, in all industries, overseas business plays an important role in growth strategies. While industrially developed countries have been shaken by the financial crisis, especially after the Lehman Shock, emerging countries have recorded ongoing growth and have supported global economic development. Accordingly, companies in industrially developed countries regard business expansion into emerging countries as the key to gaining and maintaining international competitiveness. In this environment, ICT is an indispensable tool for the purpose of global business development. The transition from ownership to use, as exemplified by cloud computing services, is a driving force behind the trend toward borderless business activities. In addition, progress in the use of ICT is also important for Japan to deal with social issues, such as the aging population, medical and nursing care, education, and the environment and energy. By becoming an advanced problem-solving nation through the use of ICT services, Japan will be able to realize an abundant society and strengthen its international competitiveness. NTT GROUP S PROGRESS ON PAGE 28 ANNUAL REPORT 211 1

4 Ongoing Progress In accordance with its Medium-Term Management Strategy, Road to Service ICT market as business opportunities. Specifically, these changes include ad in borderless businesses. In this setting, the NTT Group will take steps to foster aging synergies among the operations of Group companies. Broadband networks are advancing Medium-Term Management Strategy Road to Service Creation Business Group Upper layer services are growing Borderless businesses are expanding Financial Targets and Progress under the Medium-Term Management Strategy Results Objectives Fiscal year ended 28 Fiscal year ended 211 Fiscal year ending 213 Consolidated operating income: 1.3 trillion (Excluding special factors such as the gain on the transfer of substitutional portion of the Employee Pension Fund.) Ratio of capital investment to sales (consolidated) 2% Consolidated operating income: 1.2 trillion Ratio of capital investment to sales (consolidated) 18% Consolidated operating income: 1.3 trillion Ratio of capital investment to sales (consolidated) 15% Composition of sales Composition of sales Composition of sales Solutions and new businesses IP-related 52% Solutions and new businesses 65% Solutions and new businesses 75% IP-related IP-related Legacy businesses 48% Legacy businesses 35% Legacy businesses 25% 2

5 Creation Business Group, the NTT Group is approaching the changes in the vances in broadband networks, growth in upper layer services, and expansion the full-scale development of broadband and ubiquitous services while lever- Comprehensive Strengths of the NTT Group Regional Communications Business In the regional communications business, we are working to promote the penetration of IP/broadband services, centered on FLET S Hikari, and to enhance customer services. To that end, we are providing attractive services that are safe, secure, and highly reliable. PAGE 36 Long Distance and International Communications Business In the long distance and international communications business, for individual customers, we are proposing the optimal Internet lifestyle in the midst of the ongoing adoption of social media. For corporate customers, we are providing global ICT services to support the seamless expansion of their businesses. PAGE 4 Mobile Communications Business In the mobile communications business, we will take steps to further expand new services in conjunction with changes in the market environment. These steps will include expanding our lineup of smartphones and providing mobile broadband services, such as LTE. PAGE 44 Data Communications Business In the data communications business, in addition to system integration, we are expanding our business in services and software. Aiming to become a true global business partner, we are building a system for the integrated support, in Japan and overseas, of customers that are accelerating their global business activities. PAGE 48 Other Businesses In other businesses, we are working to expand revenues and profits with activities that span a wide range of fields, including real estate, finance, engineering, system integration and data processing, and advanced technology development. PAGE 52 ANNUAL REPORT 211 3

6 Editorial Policies for the Annual Report This annual report has been prepared as a communications tool that is intended to help a wide range of readers, from individual investors to institutional investors, to better understand the NTT Group s management policies and business strategies. Annual Report 211 introduces the growing scale and technological sophistication of the ICT market in Japan, which has the world s most advanced broadband environment. This report also describes how the NTT Group approaches the creation and expansion of new businesses through cooperative ventures with various partners. Moreover, the report addresses the Group s opportunities to secure development and further growth by outlining specific global strategies aimed at achieving revenue of US$1 billion from overseas markets in the fiscal year ending 213. Business expansion in these overseas markets is the key to the NTT Group s ongoing growth. Glossary To foster a deeper understanding of the content of this report, explanations of specialized terms, as used in the text, are provided in a glossary. Please refer to page 134. Communications Programs With the objective of promoting understanding of a wide range of management information, such as operations and results, the NTT Group offers a number of communications tools on its web site, including the shareholders newsletter NTTis..., presentation materials, shareholders meeting materials, financial results, yuho (marketable securities reports), 2-F, fact sheets, and CSR reports. Shareholders Newsletter NTTis... Presentation Materials Shareholders Meeting Materials Financial Results Yuho (marketable securities reports) F Fact Sheet CSR Report Forward-Looking Statements The forward-looking statements and projected figures concerning the future performance of NTT and its subsidiaries and affiliates contained or referred to herein are based on a series of assumptions, projections, estimates, judgments, and beliefs of the management of NTT in light of information currently available to it regarding the economy, the telecommunications industry in Japan, and other factors. These projections and estimates may be affected by the future business operations of NTT and its subsidiaries and affiliates, the state of the economy in Japan and abroad, possible fluctuations in the securities markets, the pricing of services, the effects of competition, the performance of new products, services and new businesses, changes to laws and regulations affecting the telecommunications industry in Japan and elsewhere and other changes in circumstances that could cause actual results to differ materially from the forecasts contained or referred to herein. 4

7 Contents Performance Highlights 6 Performance Highlights (1) 6 Performance Highlights (2) 8 Message from Top Management 1 To Our Shareholders and Other Investors 1 Interview with Satoshi Miura, President and CEO 12 Special Feature: Ongoing Progress 2 Broadband networks are advancing 22 Upper layer services are growing 24 Borderless businesses are expanding 28 The NTT Group s capabilities are contributing to society 3 Damage Caused by the Great East Japan Earthquake Restoration Measures and Future Initiatives 32 Operations in Review 34 At a Glance 34 Regional Communications Business 36 Long Distance and International Communications Business 4 Mobile Communications Business 44 Data Communications Business 48 Other Businesses 52 CSR & Corporate Governance 54 CSR 54 Corporate Governance 58 Directors and Corporate Auditors 62 Financial Section 63 1-Year Financial Summary 64 Operating and Financial Review and Prospects 68 Consolidated Balance Sheets 8 Consolidated Statements of Income 82 Consolidated Statements of Changes in Equity and Comprehensive Income 83 Consolidated Statements of Cash Flows 84 Notes to Consolidated Financial Statements 85 Report of Independent Registered Public Accounting Firm 128 Reference Information 129 Consolidated Subsidiaries 131 Glossary of Key Words 134 Corporate Information 137 Message from Top Management To Our Shareholders and Other Investors 1 Interview with Satoshi Miura, President and CEO 12 Special Feature: Ongoing Progress Broadband networks are advancing 22 Upper layer services are growing 24 Borderless businesses are expanding 28 The NTT Group s capabilities are contributing to society 3 ANNUAL REPORT 211 5

8 PERFORMANCE HIGHLIGHTS (1) Billions of yen Segment Data Total Operating Revenues *1 Regional communications business 4,38. 4,29.7 4,64.8 3, ,27.2 Long distance and international communications business 1, , , , ,332.7 Mobile communications business 4, , ,448. 4, ,224.3 Data communications business 1,13.8 1,59.5 1, , ,163.2 Other businesses 1, , , , ,12.3 Other (32.8) Total Operating Expenses *1 Regional communications business 4, , , , ,9. Long distance and international communications business 1,23.1 1,217. 1, , ,235.6 Mobile communications business 4,14.6 3, , ,456. 3,385.2 Data communications business ,.7 1,4.5 1,67.6 1,86.2 Other businesses 1,122. 1,16.2 1,15. 1, ,75.4 Total Operating Income *1 Regional communications business Long distance and international communications business Mobile communications business Data communications business Other businesses Other (32.8) Billions of yen Financial Position and Other Financial Data Operating revenues 1,76.6 1,68.9 1, , ,35. Operating expenses 9, , ,36.6 9,63.7 9,9.1 Operating income 1,17. 1,34.6 1,19.8 1, ,214.9 Net income* Total assets* 2 18, , , , ,665.6 Shareholders equity* 2 7,12.8 7,41.8 7, , ,2.7 Interest-bearing debt 4,77.8 4, , , ,553.5 Debt ratio (%)* 3 4.1% 38.7% 4.2% 36.6% 36.2% Capital investment* 4 2, , , , ,87.1 R&D expenses EBITDA* 4 3,34.5 3,67. 3, ,24.8 3,282.2 EBITDA margin (%) 31.% 33.8% 32.4% 31.8% 31.9% Operating free cash flow* 4 1,13.7 1, , , ,412.1 ROE (%) 6.9% 8.7% 7.3% 6.5% 6.4% ROCE (%) 5.5% 6.4% 5.4% 5.4% 5.8% CAPEX to sales* 5 2.8% 19.9% 2.6% 19.5% 18.1% Cash dividends, applicable to earnings for the year (Yen) Dividend payout ratio (%) 23.% 19.5% 27.5% 32.3% 31.2% Net income attributable to NTT per share (Yen)* 2 * *1 Elimination of intersegment and Corporate adjustment (to reverse and defer telephone card revenue for expected future usage) are not included. Certain items for prior years financial statements have been reclassified. *2 In accordance with Accounting Principles Board ( APB ) Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, NTT has retroactively applied the equity method of accounting to prior years for an investment in an affiliate, following the acquisition by the NTT Group of additional shares of the affiliate during the fiscal year ended 28. Accordingly, figures for the fiscal year ended 27 have been retroactively adjusted from previously announced figures. *3 Debt ratio = Interest-bearing debt / (Interest-bearing debt + Shareholders equity) 1 *4 Please refer to Reconciliation of Operating free cash flows, EBITDA, Capital investment on page 129. Operating free cash flow = (Operating income + Depreciation and loss on disposal of property, plant and equipment) Capital investment EBITDA = (Operating income + Depreciation and loss on disposal of property, plant and equipment) Capital investment is on an accrual basis for the acquisition of property, plant and equipment. *5 CAPEX to sales = Capital investment / Operating revenues *6 With the application of the accounting pronouncement issued by the Financial Accounting Standards Board ( FASB ) in December 27, relating to noncontrolling interests in consolidated financial statements, starting from the fiscal year ended 21, the name of this line item was changed. 6

9 Operating Revenues Operating Expenses (Billions of yen) (Billions of yen) 12, 1,35. 12, 9,9.1 8, 8, 4, 4, Years ended March Years ended March 31 Operating Income / Net Income (Loss) (Billions of yen) 1,8 Interest-Bearing Debt / Debt Ratio (Billions of yen) 7,5 (%) 75 1, , 4, % 2, Years ended March As of March 31 Total operating income Net income (Loss) Interest-bearing debt (left scale) Debt ratio (right scale) EBITDA / EBITDA Margin Capital Investment / CAPEX to Sales (Billions of yen) (%) (Billions of yen) (%) 4, 4 3, 3 3, % 3, 2, 3 2 2, 1, % 1, 1 1, Years ended March Years ended March 31 EBITDA (left scale) EBITDA margin (right scale) Capital investment (left scale) CAPEX to sales (right scale) Dividends (Yen) (%) % Years ended March 31 Dividends per share (left scale) Dividend payout ratio (right scale) Ratings Aa1/AA+ Aa2/AA Aa3/AA A1/A+ A2/A A3/A Baa1/BBB+ Baa2/BBB Baa3/BBB 21/11/3 AA AA 22/5/23 Aa1 Aa2 26/1/3 Aa2 Aa1 27/5/21 AA AA 211/9/1 Aa1 Aa Moody s S&P *As of September 1, 211 AA ANNUAL REPORT 211 7

10 PERFORMANCE HIGHLIGHTS (2) Thousands of subscribers Various Subscriber Numbers* 1 (At year-end) Fixed-Line Communications Services Fixed-Line Broadband Services FLET S ADSL 5,323 4,656 3,992 3,381 2,858 FLET S Hikari* 2 6,76 8,777 11,134 13,251 15,59 Hikari Denwa* 3 3,174 5,725 8,11 1,142 12,113 Number of fixed-line telephone services subscribers Telephone Subscriber Line* 4 43,343 39,62 36,361 33,238 3,271 INS-Net* 5 7,152 6,414 5,724 5,92 4,613 Number of upper layer business-related subscribers OCN 6,91 6,83 7,367 7,892 8,234 Plala 2,329 2,644 2,896 3,5 3,11 Hikari TV 552 1,9 1,413 Mobile Communications Services Number of mobile phone subscribers Mobile phone 52,621 53,388 54,61 56,82 58,1 FOMA Services* 6 35,529 43,949 49,4 53,23 56,746 Xi 26 Churn rate for mobile phones (FOMA and mova)* 6.78%.8%.5%.46%.47% Yen ARPU* 7 Fixed-Line Communications Services ARPU of fixed-line (Telephone Subscriber Line + INS-Net Subscriber Line) NTT East 3,17 3,11 3,5 2,98 2,93 NTT West 3,2 2,96 2,9 2,85 2,8 ARPU of FLET S Hikari NTT East 5,5 5,31 5,58 5,74 5,88 NTT West 5,12 5,46 5,62 5,78 5,89 Mobile Communications Services Mobile aggregate ARPU (FOMA + mova + Xi) Voice ARPU 4,69 4,16 3,33 2,9 2,53 Packet ARPU 2,1 2,2 2,38 2,45 2,54 *1 Subscriber numbers are as of each fiscal year-end. *2 Number of FLET S Hikari includes B FLET S and FLET S Hikari Next (launched in March 28) provided by NTT East and B FLET S, FLET S Hikari Premium, FLET S Hikari Mytown, and FLET S Hikari Next (launched in March 28) provided by NTT West. *3 Number of Hikari Denwa is calculated by number of channels in thousands. *4 Number of Telephone Subscriber Lines is the total of individual lines and central station lines (Subscriber Telephone Light Plan is included). *5 Number of INS-Net is the total of INS-Net 64 and INS-Net 15 (INS-Net 64 Lite Plan is included). In terms of number of channels, transmission rate, and line use rate (base rate), INS-Net 15 is in all cases roughly 1 times greater than INS-Net 64. For this reason, one INS-Net 15 subscription is calculated as 1 INS-Net 64 subscriptions. *6 Includes Communication Module Service subscriptions. *7 Please see page 129 for the ARPU calculation method and other details. 8

11 1. Various Subscriber Numbers* 1 Fixed-Line Communications Services Fixed-Line Broadband Services (Thousands of subscribers) FLET S ADSL FLET S Hikari* 2 Hikari Denwa* 3 Mobile Communications Services Number of Mobile Phone Subscribers* 6 (Thousands of subscribers) Mobile Phone FOMA Services Xi 2, 6, 58,1 56,746 15, 1, 5, 2,858 15, ,113 4, 2, As of March 31 As of March 31 Number of Fixed-line Telephone Services Subscribers (Thousands of subscribers) Telephone Subscriber Line* 4 INS-Net* 5 6, Churn Rate for Mobile Phones (FOMA and mova)* 6 (%) 1.5 4, 2, 34,884 4,613 3, As of March 31 Years ended March 31 Number of Upper Layer Business-Related Subscribers (Thousands of subscribers) 12, OCN Plala Hikari TV 11,335 8, 4, 3,11 8, ,413 As of March ARPU* 7 Fixed-Line Communications Services ARPU of Fixed-line (Telephone Subscriber Line + INS-Net Subscriber Line)* 3 (Yen) NTT East NTT West 4, Mobile Communications Services Mobile Aggregate ARPU (FOMA + mova + Xi) (Yen) Voice ARPU 5, Packet ARPU 3, 2,93 2,8 2, 2,5 2,53 2,54 1, Years ended March 31 Years ended March 31 ARPU of FLET S Hikari (Yen) NTT East NTT West 6, 5,88 5,89 4, 2, Years ended March 31 ANNUAL REPORT 211 9

12 TO OUR SHAREHOLDERS AND OTHER INVESTORS 1

13 In the field of information and communication technology (ICT), the markets continue to undergo significant change. These changes include the continued growth of the broadband and ubiquitous market, the spread of smartphones and tablet devices, and the expansion of cloud computing services. Combined with ongoing globalization, these changes are unfolding at an accelerating pace. In this business environment, the NTT Group is working to increase the penetration of advanced broadband networks and to create a wide range of broadband and ubiquitous services. Performance in the Fiscal Year Ended 211 The NTT Group surpassed its targets for consolidated operating revenues and consolidated operating income in the fiscal year ended March 31, 211. Moreover, despite the impact of the Great East Japan Earthquake, NTT East, NTT West, and NTT DOCOMO recorded steady gains in profits, and consequently we achieved year-on-year increases in operating revenues and operating income for the first time in seven years. Implementing Initiatives to Promote the Wide Adoption of Broadband Services In fixed-line communications, the NTT Group continued working to extend FLET S Hikari service areas, in part through alliances with local governments. We also took steps to enhance the service line-up and to improve customer support. As a result, the number of FLET S Hikari subscriptions reached 15.6 million as of 211. In the fiscal year ending 212, the NTT Group will work to further develop various services which meet the needs of customers. For example, we will endeavor to expand our broadband customer base through the introduction of easy-to-use rate plans, including FLET S Hikari Light, a two-tier fixed-rate service. In mobile communications, responding to the rapidly growing market for smartphones, the NTT Group endeavored to increase sales of smartphones and made efforts to enhance customer convenience. We worked to enrich NTT s or NTT DOCOMO s handset lineups as well as to introduce sp-mode, a new mobile ISP service from NTT DOCOMO. This service enables customers to use mail service on smartphones with the same i-mode mail address that they previously used on conventional handsets. It also allows them to pay for purchases of online content via smartphones through its usage charge account. In December 21, the NTT Group launched a new mobile broadband service, Xi (read crossy ), in certain regions. This service is based on the new Long Term Evolution (LTE) wireless access standard, which offers high-speed, large-capacity, and low-latency transmission. Going forward, the NTT Group will continue working to further enhance ICT services using both fixed-line and wireless broadband. Enhancing Upper Layer Services and Solutions Businesses Currently, we are focusing on measures to achieve wider adoption among customers of our state-of-the-art broadband network. Those measures include actively promoting video services; enhancing our lineup of easy-to-use attractive handsets; and creating new services through cooperative ventures with our business partners. In addition, we are aggressively promoting the use of ICT in various sectors, including the public sector, such as in the fields of medicine, education, and government administration. In the midst of a transition from ownership to use, we are working to further enhance our cloud computing services and data centers so that we can respond promptly to diverse customer needs. Advancing Global Business In global business, our objective is to achieve revenues of more than US$1 billion in the fiscal year ending 213, making global business one of our earnings pillars. Targeting the achievement of that objective, we acquired Dimension Data Holdings plc, which has offices in 49 countries around the world, and Keane International, Inc., which has offices in 11 countries, centered on North America. As a result, we added Australia, South America, the Middle East, and Africa to our existing operations in Asia, Europe, and the United States. In this way, the NTT Group has established a framework that enables it to provide one-stop total ICT services on a global basis. By enhancing our service lineup and area coverage, we will leverage operational synergies among the Group and accelerate growth in our global business. Contributing to Solutions for Social Issues The NTT Group is working to promote the use of ICT as a means of contributing to the resolution of a variety of social issues. In November 21, the NTT Group formulated its new environmental vision, called THE GREEN VISION 22, for the period up to the fiscal year ending 221. The entire NTT Group will work together to implement the Green of ICT, Green by ICT, and Green with Team NTT initiatives and thereby contribute to the sustained development of society. Through these efforts, the NTT Group will further advance the reform of its business structure, focusing on the IP-related, solutions, and new business fields, and will strive to improve in profitability. In this way, we will work to enhance our corporate value. In closing, I would like to express my sincere appreciation for your continued understanding, and to ask for your ongoing support in the years ahead. Satoshi Miura Representatvie Director and President Chief Executive Officer ANNUAL REPORT

14 INTERVIEW WITH SATOSHI MIURA, PRESIDENT AND CEO Q1 A1 How would you evaluate the NTT Group s financial results in the fiscal year ended 211? Despite the impact of the Great East Japan Earthquake, we achieved year-on-year increases in operating revenues and operating income for the first time in seven years. In the fiscal year ended 211, we achieved increases in both operating revenues and operating income for the first time in seven years. Following several years of declines in operating revenues and operating income, we recorded higher income in the fiscal year ended 21, followed by higher revenues and income in the year under review. These results gave us, the NTT Group as a whole, a strong sense of achievement. Operating revenues were up billion, to 1,35. billion, and operating income increased 97.2 billion, to 1,214.9 billion. In particular, there is a clear trend toward improved income in fixed-line communications services. For the first time since its establishment, NTT East recorded an increase in operating revenues, due in part to an increase in IP-related revenues, which offset a decrease in voice-related revenues. In mobile communications, the number of customers using smartphones and other wireless access data communications devices increased, leading to higher packet revenues. Consequently, we are reversing the trend toward lower revenues in mobile communications services. As a result of the Great East Japan Earthquake, which occurred on March 11, 211, the NTT Group incurred 28.2 billion in operating expenses on a consolidated basis, including loss on retirement of damaged equipment and costs for restoration construction. The NTT Group offered a range of support for those affected by the disaster, including the provision of free communications services, information regarding the whereabouts of individuals, and company housing facilities for use as temporary accommodations by evacuees. We also donated 1 billion. Consolidated Financial Highlights Billions of yen 211 Change year-on-year % Change from the Revised Forecasts 21 Forcasts for Year ended 211 (Announced 211/ Nov) Operating Revenues 1, % , ,14 Operating Expenses 9, % ,63.7 8,96 Operating Income 1, % , ,18 Net Income * % * Net income represents net income attributable to NTT, excluding noncontrolling interests. 12

15 Q2 A2 In response to the Great East Japan Earthquake, what restoration activities has the NTT Group conducted, and what initiatives will it implement going forward? We allocated more than 1, employees to restoration activities, and for the most part, we were able to complete those activities and restore exchange office buildings and mobile base stations by the end of April. Leveraging this experience, we will move ahead with new disaster countermeasures. The earthquake disrupted certain fixed-line and mobile communications services, principally in the Tohoku region in the northeast part of Honshu Island. This experience has reinforced our acute awareness of the significance of the concept of bridging and the importance of the services that we provide as a telecommunications carrier. Immediately after the earthquake, we sent more than 1, employees from around Japan to provide support in the disaster-stricken area, focusing on the rapid recovery of communication capabilities for affected people through the use of the Group s comprehensive strengths. Up until then, we had implemented a range of disaster countermeasures, but the damages caused by the tsunami this time were enormous and unprecedented. Nonetheless, we feel strongly that Sustaining Japan s communications network infrastructure is the crucial mission of the NTT Group. That conviction is both the corporate DNA of the NTT Group and a key source of our vitality. With that spirit, we devoted ourselves to the restoration effort, and by the end of April, with a few exceptions, we had basically restored the damaged exchange office buildings and mobile base stations. Based on the experience that we acquired during the restoration process caused by the earthquake, we have accelerated the formulation of our basic policy on disaster countermeasures, and we are also moving forward to develop the action plan to implement the policy above. As an example of these actions, we began working to establish a framework for converting voice messages into digital files that can then be delivered through packet communications. We began to consider this measure due to our regret that both fixed-line and mobile networks were over-crowded and congested with voice calls immediately after the earthquake, and customers had difficulty getting connections. However, the users of Internet-based services, such as and Twitter, could get connections to the network. We plan to begin to offer this service during the current fiscal year for communications among users of NTT DOCOMO. Also, when we visited evacuation sites, we saw hundreds of hand-written notes on the walls near the shelter entrances. These notes had a range of information, such as the whereabouts of individuals and lists of needed supplies. I think that this is an area where we could take steps to support smoother communications, such as digitizing the information on these notes and coordinating these efforts. Going forward, I would like everyone at the NTT Group to think about how we can work in consultation with local governments to assist in the creation of a new Japan through the use of ICT. Restoration Status Exchange offices / base stations with disrupted service 385 6,72 Exchange Base offices stations Fixed Mobile Exchange Base offices stations Nuclear power plant area, etc. March 11, 211 (After disaster) Exchange offices 18 Base stations 6 Exchange Base offices stations March 28, 211 End of April End of May ANNUAL REPORT

16 INTERVIEW WITH SATOSHI MIURA, PRESIDENT AND CEO Q3 A3 Would you discuss the conclusion of the deliberations regarding the Hikari-no-Michi vision *? * Literally, Hikari-no means fiber-optic and Michi means road/street. As for the capital structure of the NTT Group, the proposal made by another telecommunications carrier for the so-called capital separation of the access line operations currently belonging to NTT East and NTT West was not adopted due to the high degree of uncertainty regarding its realization. The Hikari-no-Michi vision was discussed for about a year, and the basic policy for the vision, which was released by MIC in December 21, included conclusions regarding certain issues. The proposal for the capital separation of the access line operations belonging to NTT East and NTT West was not adopted. As a result, we were able to avoid a situation in which the interests of NTT shareholders would be damaged. The Hikari-no-Michi vision calls for the realization of broadband usage for all households. Essentially, this does not differ from the direction of the initiatives that have been implemented by NTT. For many years, NTT has worked to contribute to the resolution of various social problems, such as the aging population and declining birth rate, through increased broadband penetration and the promotion of ICT usage. In addition, we have called for the realization of a broadband and ubiquitous society in which diverse content and applications can be utilized easily and with peace of mind. On that basis, we have energetically developed our operations. We have done our utmost to support the increased penetration of broadband, and the deployment rate for fiber-optic broadband networks has surpassed 9%. To further increase broadband penetration, I believe it will be necessary to utilize both fiber-optic and wireless networks. Accordingly, in December 21 we began to provide LTE service, which offers speeds on a par with fiberoptic transmission. In the promotion of ICT usage, meanwhile, the NTT Group is working in such fields as government services, education, and medicine. The Education Square x ( by ) ICT cloud computing field trial that we implemented is just one example of those initiatives. Delays in Adoption and Use of Broadband Device Content/ application Usage context Benchmark indicator PCs e-commerce/auctions TVs Mobile phones/ smartphones Tablet devices Electronic blackboard Medical equipment Broadband network services Portals/ search engines Content distribution Blogs and SNS and SaaS, etc. Digital teaching materials e-learning and distance learning National and local e-government Online itemized medical fee statement and electronic medical records Telepathology Home office Education Public services Medical care Internet population penetration rate* 1 School LAN development rate* 2 Electronic income tax filing rate* 3 Electronic medical record adoption rate (for clinics only) * 4 Approx. 75% Approx. 64% Approx. 31% Approx. 8% Gap Approx. 73% Approx. 94% Approx. 6% Approx. 26% Approx. 72% Approx. 87% Approx. 5% Approx. 94% Approx. 76% Approx. 1% Approx. 8% Approx. 85% *1 Internet population penetration rate: Japan: FY28 Survey of Communications Use, Ministry of Internal Affairs and Communications (as of December 31, 28) ; U.S., U.K., and South Korea: Measuring the Information Society: The ICT Development Index (as of 27), ITU *2 School LAN development rate: Survey of Current Status of IT Education in Schools Ministry of Education, Culture, Sports, Science and Technology (Japan, as of end of March, 29; U.S., U.K., and South Korea, as of 25) *3 Electronic income tax filing rate: Japan: About e-tax usage in FY28 by the National Tax Agency; U.S., U.K., and South Korea: various news media reports *4 Electronic medical record adoption rate: IT Strategy in the Medical Care and Social Security Fields (Japan, as of October 25; U.S. and U.K., as of 26; South Korea as of 25), IT Strategic Headquarters 14

17 Q4 A4 While the construction of NTT s broadband networks has greatly progressed, what is the outlook for full-fledged contributions to revenues from related business segments? We have restructured our business portfolio, shifting the focus from voice toward IP-related and systems integration (SI) services, and as a result we have seen improved profits in the regional communications business. In addition, in the mobile communications business, packet ARPU has surpassed voice ARPU, and we are reversing the trend toward declining revenues. In fixed-line communications, there were more than 15 million subscribers to our FLET S Hikari fiber-optic broadband services at the end of March 211. The total number of subscribers to fiber-optic broadband services in Japan is about 2 million, giving the NTT Group a share of about 75%. Looking at our results for the fiscal year ended 211, one thing that stands out is the improvement in profits in the regional communications business. Voice-related revenues continued to decline, but the increase in IP-related revenues and SI revenues offset the decrease in voice-related revenues. As a result, the segment was able to record an overall increase in revenues. This was attributable to a contribution made by the growth of ARPU in addition to the increase in the number of subscribers to our fiber-optic broadband services. In FTTH services, our results improved significantly from the previous fiscal year and we are on track to achieve our objective to generate a profit in these services in the fiscal year ending 212. In mobile communications, to promote the use of smartphones, we took steps to offer attractive handsets and to enhance rate plans. In this way, we are increasing ARPU and halting the trend toward lower revenues. Moving forward, we will continue to support the adoption of smartphones, and we will promote the Xi ( crossy ) LTE service that we launched in December 21. Now, we expect to be able to improve total ARPU to an upward trend during the fiscal year ending 212. Fixed Line Communications Voice and IP-related Revenues (Sum of NTT East and NTT West) Mobile Communications Voice Revenues + Packet Revenues Billions of yen 3, (Thousands of subscribers) 6, Billions of yen 2,94.4 3, 2,645.1 (Thousands of subscribers) 9, 2, 1,87.6 4, 1, , ,442. 1, 2, , , , , , FLET S Hikari subscribers (right scale) 1, , , , Voice revenues (left scale) 1,32. 17,159 Year ending 212 (forecast) 2, 2, 1, 1, , , , , , ,79 29 Packet flat-rate service subscriptions (right scale) 1,91.5 1, , , , , ,83. 43,71 Year ending 212 (forecast) 1,538. 6, 3, IP-related revenues (left scale) Voice revenues (left scale) Packet revenues (left scale) Voice Revenues + IP-related Revenues Billions of yen Year ending 212 (forecast) 2, , ,832. 2, , ,744. (Change year-on-year) ( 66.3) ( 65.1) ( 46.6) ( 7.4) ( 33.9) Voice and Packet Revenues Billions of yen Year ending 212 (forecast) 4, ,19. 3, , ,47.1 3,368. (Change year-on-year) ( 163.6) ( 357.7) ( 161.8) ( 92.4) ( 39.1) ANNUAL REPORT

18 INTERVIEW WITH SATOSHI MIURA, PRESIDENT AND CEO Q5 A5 Please tell us your view on recent global business development, and on the future outlook for these operations. Through the pursuit of synergies within the Group, we will work to accelerate growth and to achieve revenues of more than US$1. billion from global business in the fiscal year ending 213. Since I became president, we have taken steps to promote global business expansion, which is the core of our growth strategies. One of those steps is the provision of total ICT services including networks, data centers and solutions to corporate customers. At the same time, we need to make further progress in certain areas, such as provisioning and maintaining network equipment, servers, and other hardware at customer sites. We also need to enhance the services provided in regions such as Africa, the Middle East, and South America. Accordingly, we have implemented measures to expand our global area coverage and enhance our lineup of ICT services. Last year s acquisition of Dimension Data is one example of these initiatives. In this way, we have built a structure that enables us to provide total ICT services to customers who are engaged in business around the world. We are already seeing the synergy effects from the acquisition. For example, we are aggressively taking advantage of cross-selling opportunities by leveraging the NTT Group s customer base, which includes about 1, clients overseas. Specifically, Dimension Data, NTT Communications, and NTT Data have enjoyed success with their cooperative marketing, and as of the end of March 211 they had received orders totaling about 5. billion. We will strive to manage global business by sharing challenges we encounter within the Group. To that end, we have established two committees that are staffed by representatives from Group companies. The Global Strategy Committee is responsible for formulating the global strategy of the entire NTT Group and for sharing information throughout the Group. The Global HR Committee tracks top management talent and works to ensure that our human resources are utilized effectively. Through these initiatives, we will further accelerate global business growth by rigorously pursuing synergies among the Group. As for the revenues from our global operations, we are targeting more than US$8. billion in the fiscal year ending 212, which I believe that we have a good chance to surpass that target. Furthermore, in the fiscal year ending 213, we will strive to achieve sales of more than US$1. billion. Global Business Asia Europe North America Australia, South America, Africa, and others Applications Customized Subsidiaries in Asia Platforms Packaged (SAP and others) Data Centers NTT Worldwide Telecommunication Respond to the needs for high-quality, comprehensive ICT services from corporate customers in Japan and abroad with global, end-to-end, one-stop services Networks Subsidiaries in Asia NTT Europe NTT America Subsidiaries in BRICs and other countries Office ICT (Customer Worksites) Locations in 49 countries (including Africa and the Middle East) 16

19 Q6 A6 Following the earthquake in March, cloud computing services are drawing considerable attention for their advantages in such areas as power failure countermeasures and data preservation. Please explain the type of cloud computing services offered by the NTT Group. The advantages of cloud computing services, such as resistance against disaster and flexibility, are the focus of growing attention, and we are receiving a large number of inquiries from customers about these services. As for service development, we will leverage our strengths cultivated as a telecommunications carrier and introduce those new services. Since the Great East Japan Earthquake, there has been a rapid increase in needs related to the formulation of business continuity and disaster recovery plans. To prevent the interruption of business operation and services, and the loss of important data, such as customer data, due to the failure of information systems caused by disasters or accidents, a range of issues has been addressed, such as the decentralization of information systems, data backups, and emergency blackout countermeasures. Accordingly, cloud computing services which store data in secure locations are drawing attention, and we are receiving a large number of inquiries about these services. For example, looking at the administrative services of local governments, some local government offices were damaged in the March earthquake, resulting in the loss of residents data. This type of damage can be minimized by digitizing the information and storing it in a separate location, such as at a data center. The use of ICT in this way by government and other institutions should be further advanced to reduce future risks. Furthermore, since the earthquake, cloud computing services have drawn attention for their merits in situations where people are unable to go to the office due to a disaster or power outage. Telecommuting is also one means of accommodating the need to substantially reduce power consumption during summer 211. The NTT Group provides Biz Desktop and Mobile Secure Desktop as telecommuting systems. In the future, we will continue to actively promote these systems so that we can contribute to the business continuity and power-saving initiatives of companies and local governments. The cloud computing services of the NTT Group draw on the strengths that we have cultivated as a telecommunications carrier highly reliable operations and management systems and advanced security technologies. Moving forward, the NTT Group will strive to make the most of its strengths in accordance with the concept of cloud computing services that are secure, safe, and reliable. Safe, Secure, Highly Reliable Cloud Computing Services from the NTT Group The NTT Group s Cloud Computing Services Integration with networks Seamless maintenance, including the network Effective use of highly reliable NGN/LTE network Highly reliable cloud platform Cloud platform lineup that can meet a variety of needs Operational management technology with coverage including the network Mobile cloud Promotion of cloud computing services for smartphone use, creation of communities Safe data centers Carrier grade data centers Domestic and overseas locations R&D-based technological capabilities Accumulation and utilization of security technology (fundamental authentication technologies, traceability, cipher technology, and others) Proven open source utilization and community collaboration Technology for analyzing and utilizing large quantities of data ANNUAL REPORT

20 INTERVIEW WITH SATOSHI MIURA, PRESIDENT AND CEO Q7 A7 Would you describe the progress made toward the objectives in Medium-Term Management Strategy, Road to Service Creation Business Group? We are forecasting continued growth in revenues and profits in the fiscal year ending 212. We are on track to achieve our strategic objectives. The NTT Group has worked to create and promote customer oriented broadband and ubiquitous services utilizing its full-ip network. We have also steadily reformed our business structure, centered on the IP-related, solution, and new business fields. Consequently, in the fiscal year ending 212, we anticipate the second consecutive year of growth in consolidated operating revenues, with revenues rising 235. billion, to 1,54. billion. We expect higher IP-related revenues due to expanded FLET S Hikari services and growth in packet ARPU as a result of increased sales of smartphones. We also anticipate higher SI revenues due to the contributions of Dimension Data and Keane. We are forecasting an increase of 25.1 billion in consolidated operating income, to 1,24. billion, due in part to higher income at NTT West and NTT DOCOMO. This plan incorporates a negative financial impact from the disaster of about 3. billion. I think that we are on track to achieve the goal of consolidated operating income of 1,3. billion in the fiscal year ending 213 that is spelled out in the Medium-Term Management Strategy. IP-related revenues and sales from solution and new business fields together accounted for about 65% of total revenues in the fiscal year ended 211. Moving forward, in response to structural changes in the market, such as globalization, the shift toward cloud computing services, and the diversification of customer devices, we will continue to accelerate specific service creation initiatives and work to achieve our objective of 75% of total revenues from these fields in the fiscal year ending 213. In capital investment, we are facing substantial changes in our management environment and in our markets. These changes include network enhancment accompanying the growth in smartphones, early deployment of LTE, and data center expansion accompanying the development of cloud computing services, as well as the influence of the Great East Japan Earthquake. As a result, it seems that it will be difficult for us to achieve a Capex to sales ratio of between 15% and 16%, which was the objective set out for the fiscal year ending 213. Nonetheless, we will continue working to increase efficiency in capital investment in order to come as close as possible to the 15% level. Consolidated Revenues Composition (Image) Capital Investment (Consolidated Basis) (%) (Billions of yen) (%) % 26% 48% 29% 29% 3% 52% 58% 61% 65% 33% 7% 29% 42% 32% 39% 35% 35% IP and solution businesses and other new businesses account for 2/3 37% 3% 2,5 2, 1,5 1, 5 2.8% 2, % 2, % 2, % 1, % 1, % 1, Solution, new business, and others IP business Legacy business Year ending 212 (forecast) NTT East NTT West NTT Holdings NTT Communications 211 Year ending 212 (forecast) NTT DATA consolidated NTT DOCOMO consolidated Others Optical investment CAPEX to sales (right scale) 18

21 Q8 A8 Finally, what is NTT s approach to shareholder returns? Our basic policy calls for the enhancement of shareholder returns over the medium term. I consider shareholder returns to be a vital management priority. Accordingly, it remains the basic policy of management to enhance shareholder returns over the medium term. While bearing in mind the need to maintain stable, continuous dividend payments, we have conveyed to investors that dividends are the centerpiece of our shareholder return policy. We plan to pay an annual dividend of 14 per share for the fiscal year ending 212, an increase of 2 per share from the previous year. The dividend payout ratio is projected at around 32%. In regard to repurchase of treasury stock, on July 5, 211, we implemented the first phase of the acquisition of government-owned shares, buying million shares of stock at a total cost of billion. Moving forward, in accordance with the policy on cancellation of treasury stock that was announced in May 21, we will cancel 125 million shares of treasury stock within the fiscal year ending 212, and we will subsequently proceed with the second phase of the acquisition of government-owned shares. As a result of this repurchase of treasury stock, we anticipate a substantial increase in EPS, from 385 per share in the fiscal year ended 211, to 434 per share in the fiscal year ending 212. Dividends Repurchase of Treasury Stock (Yen) 2 (%) 4 (Billions of yen) 4 (Yen) Approx % 8 23%* % % % %* Annual dividend of per share (left scale) Payout ratio (right scale) 211 Year ending 212 (forecast) Share repurchase (left scale) 29 EPS (right scale) Year ending 212 (forecast) *1 The calculation excludes special factors such as the transfer of the substitutional portion of the Employee Pension Fund. *2 Based on the assumption that NTT will buy back all of the million shares that the government has budgeted for sale, and make them its treasury stock. (Note) The basic policy on cancellation of all treasury stock owned by NTT as of 21 (approx. 25 million shares) was resolved in May 21, and one-half had been cancelled in November 21. The remaining half is expected to be cancelled during the year ending 212. ANNUAL REPORT

22 SPECIAL FEATURE Ongoing Progress 2

23 Broadband networks are advancing 22 Broadband Access: Higher Speed and Broader Area Coverage Increasing FLET S Hikari Penetration and Boosting ARPU LTE Service Xi ( crossy ) Fixed-Mobile Convergence Upper layer services are growing 24 Fiber-Optic Video Services Home ICT e-learning Safe, Secure, Highly Reliable Cloud Computing Services from the NTT Group Research and Development Supports the Growth of the NTT Group Borderless businesses are expanding 28 Business in Asia M&As Accelerate Growth of Global Business The NTT Group s capabilities are contributing to society 3 Education X ( by ) ICT Increasing the Convenience of Government Services Using ICT on the Medical Front-Lines ANNUAL REPORT

24 SPECIAL FEATURE Ongoing Progress Broadband networks are advancing The NTT Group is working to build the world s most advanced broadband network and to promote the usage of a wide range of services by an increasing number of customers. Broadband Access: Higher Speed and Broader Area Coverage The NTT Group s Medium-Term Management Strategy, Road to Service Creation Business Group, was formulated in May 28. In accordance with this strategy, the NTT Group has worked to build full-ip networks for both fixed-line and mobile communications and to promote the creation and adoption of broadband and ubiquitous services using those networks. In fixed-line communications, FLET S Fiber-Optic Broadband Hikari service is available to more than 9% of the households in Japan. In mobile, in addition to FOMA which is already available throughout Japan, we launched Xi, an LTE service, in December 21, thereby fostering further progress in increasing speeds. In this way, Japan s broadband environment is the most advanced in the world in terms of both speed and service area coverage. Mobile Broadband Coverage ratio FLET S Hikari (Maximum 2 Mbps) NGN (Maximum 2 Mbps) Launched NGN (March 28) about 9% Coverage of about 99% when ADSL is included NGN coverage extends to all fiber-optic service areas Full-scale migration from existing regional IP networks to NGN Coverage ratio 1% HSDPA nationwide coverage (December 28) FOMA High-Speed (maximum 7.2Mbps) Launched HSPA (June 29) Launched LTE (December 21) Population coverage ratio of about 7% by the fiscal year ending March LTE (Maximum 75Mbps)* 28/3 29/3 21/3 211/3 28/3 29/3 21/3 211/3 * Speed in certain indoor areas. Maximum in outdoor areas is 37.5Mbps. HSDPA: High Speed Downlink Packet Access HSPA: High Speed Packet Access Increasing FLET S Hikari Penetration and Boosting ARPU NTT East and NTT West have worked to increase user coverage by expanding the NGN provision area and by installing fiber-optic cables into internal condominium wiring conduits, and they have also worked to strengthen customer retention initiatives by enhancing their members-only programs and promoting sales of video services. Moreover, NTT East and NTT West have taken steps to generate new demand through a new type of device, Hikari i-frame. As a result, at the end of March 211 the number of FLET S Hikari subscriptions had surpassed 15 million. In addition, starting with the NTT East service area, we have launched FLET S Hikari Light. This two-tiered fixed-rate service offers economical pricing for customers who want to start using the Internet or do not have the opportunity to use the Internet regularly. In Number of FLET S Hikari Subscriptions (Thousands of subscribers) 2, 15, 1, 5, 6, ,159 Year ending 212 (Forecast) Hikari Denwa FLET S TV Remote Support Service Percentage of FLET S Hikari users 77% Number of channels (Ten thousands) 1,14 8% 84% 1,211 1,436 8,777 11,134 Number of subscriptions (Ten thousands) , ,59 Number of subscriptions (Ten thousands) this way, we have worked to expand the base of FLET S Hikari users. Moreover, through the expansion of optional services, such as Hikari Denwa and Remote Support Services, we have steadily increased ARPU. 525/month (including tax) ~ Year ending 212 (Forecast) 472.5/month (including tax) ~ Year ending 212 (Forecast) 525/month (including tax) ~ Year ending 212 (Forecast) 22

25 LTE Service Xi ( crossy ) In December 21, NTT DOCOMO launched Xi, a service based on the new Long Term Evolution (LTE) communication standard, which features high-speed, large-capacity, and low latency. This service was initially launched in certain areas of Tokyo, Nagoya, and Osaka, and in July 211, the service area was expanded to six other major cities Sapporo, Sendai, Kanazawa, Takamatsu, Hiroshima, and Fukuoka. In the future, the service area will be expanded to include prefecturalcapital-sized cities, and plans call for Xi-compatible mobile Wi-Fi routers and an expanded lineup of devices, such as tablet devices and smartphones. We are aiming to surpass 1 million subscriptions by 212. Fixed-Mobile Convergence Currently, as for fixed-line communications, FLET S Hikari, which offers stable, ultra-high-speed communications, is available to more than 9% of the households in Japan. On the other hand, as for mobile, FOMA High Speed is available throughout the entire country, followed by the launch of the even-higher-speed LTE service. Based on this progress, the business environments to provide seamless services on the foundation of a full-ip network for both fixed-line and mobile communications are completed. The NTT Group is now providing a range of products and services that combine fixed-line and mobile communication. One example is a mobile Wi-Fi router that makes it possible for customers to use the best broadband connection without paying any attention to location or communications network. Another is Hikari TV Dokodemo, which enables Hikari TV content to be viewed not only at home but also on devices such as smartphones. Moving forward, the NTT Group will continue to respond to customer needs and accelerate the provision of new services that combine fixed-line and mobile. June Trial operation of commercial network December Approx. 1, base stations Approx. 7% population coverage 211 Data communication devices Xi LTE service launch Mobile Wi-Fi routers Year ending 212 Tablet devices (planned) Handset-type devices (planned) Approx. 5, base stations Approx. 2% population coverage Major cities across Japan Prefectural-capital-size cities Tokyo/Nagoya/Osaka LTE-related capital investment Approx. 1 billion Approx. 17 billion Approx. 26 billion Fixed-line broadband (FLET S Hikari, etc.) PCs, netbooks Approx. 15, base stations Approx. 4% population coverage Further area expansion Year ending 213 Internet Public wireless LANs (FLET S SPOT, etc.) Year ending 214 Cafes, shops, trains, airports, schools Cloud Approx. 35, base stations Approx. 7% population coverage Year ending 215 Automatic selection of and connection to the optimal broadband network Mobile Wi-Fi routers Connection to any of the many Wi-Fi compatible devices Hikari i-frame Tablet devices Smartphones Game machines Mobile data communications E-book readers Digital cameras Home/office While out While in transit ANNUAL REPORT

26 SPECIAL FEATURE Ongoing Progress Noritaka Uji Representative Director and Senior Executive Vice President In charge of technical strategy; Chief Technology Officer; and Chief Information Officer Due in part to the widespread adoption of FTTH and the introduction of the mobile LTE service, the broadband network in Japan has the world s most advanced features in terms of both speed and service area coverage ratio. The next challenge faced by the NTT Group is the effective use of this infrastructure in the provision of services. Specifically, it is crucial that we explore the development of new services while also striving to enhance video services, home ICT, and cloud computing services. At the end of March 211, the number of subscriptions to the Hikari TV video distribution service had surpassed 1.41 million. Moving forward, we will continue to take steps to make Hikari TV more convenient and enjoyable. For example, we will offer VOD (Video on Demand) service directly to customers smartphones and tablet devices, and we will facilitate remote TV program viewing/recording reservations through PCs, cellular phones, and smartphones. In home ICT, we launched the FLET S JOINT service in August 211. We are also recording solid increases in the number of subscribers to Remote Support Services, under which we remotely provide set-up support and troubleshooting for PC and network devices. In the future, we will work to develop services for home control centers that enhance the quality of life for our customers, such as home security, video image distribution, and the energy savings. Upper layer services are growing Fiber-Optic Video Services The fiber-optic video services Hikari TV and FLET S TV have contributed to the growth in FLET S Hikari sales as these services provide a fiber-optic usage scenario other than Internet connectivity and they are also effective customer retention tools. With Hikari TV, customers can view video-on-demand (VOD) and multichannel broadcast content, and they can also use IP-based services, such as Hikari TV Shopping and Hikari TV Dokodemo, which offers on-demand viewing on such devices as smartphones. With FLET S TV, on the other hand, customers can view terrestrial digital broadcasts at reasonable prices without a special tuner. In the areas where demand is concentrated, such as the Tokyo and Kansai metropolitan areas, we are increasing the choices available to customers by Home ICT In August 211, we launched FLET S JOINT. This service uses FLET S Hikari Next to deliver service providers software, which is stored on software distribution servers, to customer equipment, such as home gateways. For the service providers, the provision of remote control services for consumer electronics had previously required specialized equipment and individualized settings, but now these services can be provided with less equipment. In addition, the customers using the services are also free from the troublesome equipment settings that had previously been required for each service. Moving forward, we will continue working to realize abundant, convenient lifestyles through the provision of services in cooperation with a variety of service providers. providing both Hikari TV and FLET S TV. In this way, we are working to expand the market for fiber-optic video services. Number of subscriptions Hikari TV Shopping Remote setting of program recording by mobile phones 3D compliant content Customers Worry-free, convenient lifestyles through life support services Controlling home electronics from outside the home Visualization of energy usage Transmission of health care data Checking locks from outside the home Sharing among devices, such as video Hikari TV Dokodemo Home ICT platform NGN Recorded programs can be viewed in multiple rooms Viewing on smartphones/ tablet devices About 1.41 million subscriptions About.59 million subscriptions As of the end of March Partners Home electronics manufacturers Housing related manufacturers Electric/ gas utilities 24

27 In cloud computing services, we are drawing on the strengths of the NTT Group as we target the realization of secure and safe cloud services as social infrastructure. Accordingly, we are developing end-to-end total service that will include ensuring compatibility with multiple devices, such as smartphones; providing highly reliable networks and platforms, such as data centers; and offering applications in cooperation with partners. The creation of these types of services is made possible by R&D, which is the source of the NTT Group s growth and competitiveness and plays a crucially important role in our management strategy. NTT R&D Laboratory Group is conducting R&D in a wide range of fields, such as the enhancement of networks, and the development of new services and new business fields. Our laboratories are also focused on fields that will drive the NTT Group over the medium to long term. These fields include fiber-optic transmission technologies to support high-capacity and low power consumption transmission, quantum information processing technologies, and human science. In addition to fixed-line and mobile communications businesses, the NTT Group has an extensive presence in a wide range of other businesses, including upper layer services, solutions, construction, and electric power. Moving forward, we will leverage these comprehensive strengths and continue striving to create appealing new services and foster technical innovation. e-learning In November 29, the NTT Group launched N-Academy, a network based school. The content is provided through lecture videos and SNS, and the teachers at N-Academy are well known experts who are active in various fields. Since the service was launched, the number of lectures has steadily expanded. As of the end of August 211, about 1 programs were available and there were approximately 11, registered members. Also, in July 21, we launched Virtual English Conversation Lessons in cooperation with ALC Press, Inc. By providing an English learning environment that draws on the strengths of online communications and the language lesson know-how of the ALC Group, which has a strong track record in the field, we are providing an efficient and effective English teaching service. Net School (NTT Knowledge Square) Magic Script Coaching Sweets decoration Make-up Golf Collaboration with partners Virtual English Conversation Lesons Students Lesson plans Teachers Collaboration with partners ANNUAL REPORT

28 SPECIAL FEATURE Ongoing Progress Upper layer services are growing Safe, Secure, Highly Reliable Cloud Computing Services from the NTT Group The NTT Group s high-quality infrastructure includes neworks and software vendors through the FLET S Software Delivery Service. data centers in Japan and overseas, and we can utilize that infrastructure to provide safe, highly reliable cloud computing services. Moving in cooperation with Group companies. The principal target is local Furthermore, NTT West launched Biz Hikari Cloud in March 211 forward, we will combine applications, platforms, networks, and terminal devices to offer one-stop, total ICT solution services, from system communities. governments, companies, and medical, educational, and other integration to operation and troubleshooting. NTT DOCOMO offers Mobile Secure Desktop, which makes it NTT DATA provides BIZXAAS, comprehensive cloud computing possible to conduct work on PCs and tablet devices even when services for public agencies, local government offices, and large outside the office. This is principally targeted at individuals and mobile companies that provides a total response to corporate customer business persons. NTT DOCOMO also offers the Mobile Groupware needs, from public clouds to private clouds. BIZXAAS draws on the service, which facilitates the easy use of internal company information system development and operation experience and the consulting using such devices as smartphones in an effective manner. capabilities that have been cultivated by NTT DATA. The NTT Group will combine the strengths of Group companies, NTT Communications provides BizCity, a cloud computing services such as data centers, middleware, networks, authentication and that make use of its own networks as a telecommunications carrier. It payment collection, and operations capabilities, and strive to realize is principally targeted at large and medium-sized companies and cloud computing services as social infrastructure, with one-stop software vendors offering SaaS services. solutions from the NTT Group. NTT East and NTT West offer SaaS services utilizing NGNs. For a monthly fee, customers can use a variety of applications offered by Cloud development as a systems integrator PaaS/IaaS provided to independent software vendors (ISVs) Software delivery to the small and medium-sized company / SOHO market IT asset management SaaS PaaS IaaS Web mail Middleware / authentication / payment collection Green data centers ERP Commercial tie-ups Web mail Storage Meetings via the web Authentication / payment collection / collection service Data center hosting Accounting Software delivery service Software delivery infrastructure Data center hosting New Year s card production software Security Data backup OFFICE MARUGOTO SUPPORT Remote problem troubleshooting support Head offices of large companies Branches Work sites Arcstar Universal One, Internet Small and medium-sized companies mobile NGN / mobile network cooperation Multifunction equipment LAN and peripherals PC NW Voice equipment SOHO / mass market NGN Support OFFICE MARUGOTO SUPPORT for small and medium-sized companies 26

29 Research and Development Supports the Growth of the NTT Group NTT is aiming for the realization of a richer future through R&D focused on the value of technology to society as a whole. The Group s R&D system, which is widely regarded as world class, has about 6, researchers and is the source of NTT s competitive strength and growth potential. NTT R&D Laboratory Group creates technologies that support the future of secure, safe communications. For example, we have had excellent results in our research in the fiber-optic transmission technologies that support the broadband and ubiquitous society. Using hybrid integration technology, which can fabricate junctions of heterogeneous materials, we have developed optical components for multilevel transmission, enabling ultra-high-speed transmission of more than 1 Gbit/s per wavelength. We also developed the Gigabit Ethernet-Passive Optical Network (GE-PON), which can be used in NGNs. GE-PON allows a single optical fiber to be shared among multiple customers and contributes to the economical realization of fiber-optic broadband access. NTT s R&D activities extend over a wide range of other fields as well. We conduct research into energy technologies that contribute to reduced CO2 emissions, such as fuel cells and a high-voltage direct current power feeding system. Another focus is communication science, where we approach the true nature of communications through supplementation of deep information, which tends to be lacking in virtual communications. NTT Musashino Research and Development Center NTT technologies are also used overseas. For example, we provided video transmission equipment for the 21 FIFA World Cup, which was held in South Africa. This video equipment was used by more than 2 broadcasting stations from around the world to deliver highquality video to more than 6 countries. Moreover, at the rescue site for the mining accident that occurred at a mine in Chile, the videophones that were used to confirm the situation underground used NTT transmission technology. Moving forward, NTT R&D will continue to support endless service development while focusing on the global environment. Videophone conversation between miners trapped below ground and people on the surface. ANNUAL REPORT

30 SPECIAL FEATURE Ongoing Progress Hiroo Unoura Representative Director and Senior Executive Vice President In charge of business strategy; Strategic Business Development Division; Global Business Office; and Chief Financial Officer Global businesses play a central role in NTT s growth strategies, and in the field of ICT services for corporate customers, the NTT Group has continually worked to enhance its service lineup and expand its service areas. The December 21 acquisition of Dimension Data, which became a wholly owned subsidiary of NTT, was an event that facilitated dramatic further progress in the initiatives that have been implemented to date. Going forward, we will provide total solutions combining IT infrastructure, applications, and managed ICT services. Moreover, we will provide those solutions globally, from system installation to maintenance and troubleshooting, on a one-stop basis. In addition, the entire NTT Group will work to respond to the trend toward cloud computing services, which are expanding rapidly on a global level. NTT can meet customer needs by leveraging its strengths as a group, including a robust lineup of services and seamless maintenance structure, including networks. As a Global ICT Leader, we will make the most of each company s strengths, such as Dimension Data s customer base and business development capabilities; NTT Communications strengths in IP backbone, data centers, and other IT infrastructure; and NTT Data s system integration capabilities to offer new cloud computing services aggressively. Borderless businesses are expanding Business in Asia Against a background of robust investment in Asia, the Asian region has become an indispensable market for NTT customers who are developing global businesses. Especially, Singapore and Hong Kong have emerged as economic and ICT hubs in the region. NTT Communications has established advanced data centers in the Tokyo, Singapore, and Hong Kong hubs. This Asian Triangle, which is linked with high-speed networks, will be the base for the provision of high-quality cloud computing services in Asia. To meet demand for increased traffic and for highly reliable, lowlatency services in this Asian Triangle, NTT Communications and other major telecommunications carriers are participating in the construction of the Asia Submarine-cable Express (ASE), a new, large-capacity submarine cable in Asia. ASE, which is scheduled to start operations in June 212, will link Asian economic hubs, where multinational corporations and financial institutions are concentrated, with rapidly growing Asian countries, and will meet needs for higher-speed, largercapacity communications. Hong Kong Construction of TKO data center (scheduled to open in 213) New Delhi Neemrana Mumbai Vietnam Provision of international Internet connectivity service (June 211) Chennai Bangalore Shanghai Launched Biz Hosting Global (January 211) Ayutthaya Bangkok Beijing Tianjin Dalian Seoul Shanghai Wuhan Suzhou Guangzhou Taipei Hanoi Hong Kong Manila Ho Chi Minh City Phnom Pénh Tokyo Asia Submarine-cable Express Cable construction (start of operation planned for 212) Cambodia Provision of international Internet connectivity service for corporations (March 211) Singapore Serangoon Data Center construction (scheduled to open in 212) Cyberjaya Kuala Lumpur Singapore Jakarta Australia Acquisition of shares of Frontline Systems Australia Pty Ltd, an ICT service provider (June 211) Office Locations 28

31 In May 211, the Global Strategy Committee and the Global HR Committee were established with the objective of formulating unified growth strategies within the Group and utilizing human resources in a flexible manner. The work of these committees will help us to further strengthen mutual ties, pursue cross-selling opportunities among the Group, and market new customers. Through these initiatives, we will strive to achieve sales from global businesses of US$8. billion or more in the fiscal year ending 212, and US$1. billion or more in the fiscal year ending 213. In the future, we will continue working to strengthen the NTT Group s global businesses as ongoing drivers of higher revenues and profit for the Group as a whole. M&As Accelerate Growth of Global Business Targeting global development of ICT services for corporate customers, NTT acquired Dimension Data Holdings plc in October 21. In this way, NTT further solidified its position as an end-to-end, global onestep provider of high-quality total ICT services. Dimension Data and the NTT Group have ideal complementary profiles in terms of geographic coverage, service lineups, and customer bases. Dimension Data provides IT facility infrastructure, operation, and maintenance in Asia, Europe, North America, Africa, the Middle East, and Australia, while the NTT Group provides networks and data centers in Asia, Europe, and North America. In addition, in December 21 NTT DATA acquired Keane International Inc., a U.S.-based IT service company. This acquisition will enable NTT DATA to provide fully integrated IT services in the United States in addition to the strong global SAP service capabilities it has built to date. Moreover, as a member of the NTT Group, Keane will be able to support its customers on an even more global basis through cooperation with the NTT Group s European and Asian operations. Furthermore, we are aiming to strengthen service capabilities to meet the cloud computing needs of customers by bolstering the synergy effect of global management resources. Global IP-VPN Provision of equipment and maintenance at customer worksites ANNUAL REPORT

32 SPECIAL FEATURE Ongoing Progress The NTT Group s capabilities are contributing to society Education X ( by ) ICT The NTT Group is implementing forward-looking initiatives to develop know-how about the use of ICT in the field of education and to make use of that know-how in our future operational development. For example, in the first quarter of the fiscal year ending 212, we launched field trials of Education Square X ( by ) ICT. These trials involve 1 public elementary and junior high schools in five local government districts in Japan. In the elementary schools, the trial subjects are arithmetic, science, and social studies for students in the fifth grade, while in the junior high schools, the trial subject is English for students in the eighth grade. The trials involve the provision of a new type of total educational environment with ICT, including content, applications, networks, and terminal devices. This environment is expected to provide students with a secure, safe environment where they can enjoy studying deeply and teachers with the chance to save time through the use of ICT and allocate that time to the education of students. Over the next two to three years, we will strive to ensure that these initiatives are widely adopted and well established in a way that contributes to the use of ICT that provides true value on the educational front lines. School portal website (for teachers and students) Home Close contact with parents Self learning Devices for students that can be used in the classroom or at home Library for digital learning materials Educational Cloud Classrooms School Electronic blackboards Tablet devices School LAN Instructional applications for teachers Staff office Provide tools which may be easily used by the teachers with a sense of reassurance (Instructional methods and support) Learning management system Interactive classes with other schools in Japan or overseas Network connection within schools (classrooms/staff offices), between schools/homes and schools/schools A B C D Classroom Environment at Schools Participating in Field Trials Mizusawa Elementary School in Happo Town, Akita Prefecture Tsubue Elementary School in Kurashiki City, Okayama Prefecture 3

33 Increasing the Convenience of Government Services In the government services field, the use of ICT makes it possible to provide one-stop services from the viewpoint of the users of these services. Local governments can efficiently provide government services through the use of the NTT Group s cloud computing platform, which offers high levels of security and reliability. At the same time, this platform facilitates operational continuity measures in times of disaster or power outages. Inhabitants, meanwhile, can utilize fixed-line or mobile broadband to access secure, safe services at any time and from any location. National government/ ministries Prefectural governments Local governments Public administration network Push-type services Resident records Home Social security Government services One-stop portal Electronic application While out Citizen ID Taxes Convenience store Telephone billing Interwork Various applications, etc. Water, electricity, gas billing Private-sector services Stations, etc. Online banking Provision of easy-to-understand government information One-stop service easily accessible by anyone from anywhere Easy-to-use authentication and protection of personal information Using ICT on the Medical Front-Lines Through the use of cloud computing services, the NTT Group is supporting the efficient management and use of medical and health information, such as electronic medical records and examination images. We are also supporting smooth interaction between key regional hospitals and clinics and working to promote advances in remote diagnosis. For example, in Tono City in Iwate Prefecture, NTT East has used ICT to develop a remote health consultation system. With the objective of sustaining and improving the health of residents in an area where there is a shortage of doctors, this system facilitates cooperation between specialists in urban areas and the doctors and nurses on the medical front-lines. In addition, the digitization of medical information and broadbandbased secure information sharing contribute to enhancing the quality of medical care. Specifically, they facilitate such improvements as shorter waiting times for diagnosis and treatment, accurate communication of prescription information, reduced medical errors, and rapid emergency treatments for critically ill people. Electronic medical records Insurance Payment Examination institution Shared Service Platform for Medicine and Health Key regional hospitals Clinics Home Electronic medical records Medical community relations Online examination image interpretation Examination images Personal medical information My Hospital Everywhere * NGN/Mobile Electronic medical records Medical community relations Remote health consultation Appointments for outpatient services Cases Remote health consultation Positive health cards Municipality Prevention of conditions requiring long-term nursing care * My Hospital Everywhere is the concept that each individual could access their own personal medical and health information from any medical institutions and enable to manage and use those electronically anywhere in the country. ANNUAL REPORT

34 Damage Caused by the Great East Japan Earthquake Restoration Measures and Future Initiatives The Great East Japan Earthquake, which occurred on March 11, 211, caused unprecedented damage to the NTT Group s communications networks, including both fixed-line and mobile phone services. Immediately after the earthquake, the NTT Group moved quickly to meet the needs of customers in the disaster-stricken areas for the rapid restoration of communications. The Group dispatched more than 1, employees to conduct emergency restoration work. In tandem with the pace of progress in reconstruction efforts in the disaster-stricken areas, the NTT Group will continue to implement initiatives targeting full-scale recovery of the facility and increase reliability in communications infrastructure. Restoration of Communications Networks The earthquake and following tsunamis caused damage to communications facilities, including physical damage, submersion, and destruction by floods. The damaged facilities included exchange offices that housed fixed-line communications facilities; base stations with wireless communications facilities for mobile communications; and relay transmission lines that connected those communications facilities. Certain communications facilities ceased to function as result of the loss of electric power, including power from backup storage batteries due to the prolonged disruption of the power supply. In response to this damage, which affected 385 exchange offices and 6,72 base stations equipment, the status of damages at individual facilities was verified and the fastest methods to restore service were considered and determined. The entire NTT Group worked on these emergency restoration activities. In the case that exchange offices had been swept away by the tsunamis, box telephone exchanges which are the containers with telephone exchange, transmission equipment, and power supply, were chosen to install. In this way, early restoration of communications became possible. To secure transmission lines for the mobile communica- Left: Restoration of facilities through the use of satellite circuits Right: Installing cables on telephone poles tions network, all available mobile communications base station vehicles from around the country were deployed, and also satellite circuits were used. As a result of these initiatives, by the end of March facilities and services were back to 9% of pre-earthquake levels, and by the end of April we had basically completed this restoration work. Restoration Initiatives in the Area Surrounding the Nuclear Power Plant To restore services which used to be provided by six exchange offices covering an area within 2 kilometers to 3 kilometers radius of the Fukushima Daiichi Nuclear Power Plant, NTT East and others worked on restoring the Iwaki-Tomioka exchange office, which is the parent exchange office for the six damaged exchange offices and is located approximately 1 kilometers from the Fukushima Daiichi Nuclear Power Plant. NTT DOCOMO also implemented other measures in the area around the nuclear power plant. These measures included setting up satellite mobile communications base station vehicles in J-Village, which housed NTT East NTT Docomo Restoration of the Iwaki-Tomioka exchange office, which is located about 1 kilometers from the Fukushima Daiichi Nuclear Power Plant. the people working to restore the Fukushima Nuclear Power Plant, and installing high-performance antennas that emitted radio waves toward the vicinity of the power plant. The people who carried out this restoration work wore protective clothing and were accompanied by radiation technologists. Installation of high-performance antennas (approximately 4m) covering the area around the Fukushima Daiichi Nuclear Power Plant Installation of satellite mobile communications base station vehicles in J-Village Switchover work for transmission lines connecting fiber-optic cable to mobile communications base stations Financial Impact of the Great East Japan Earthquake 211 Year ending 212 (Forecast) Profit/loss Profit/loss Capital Investment NTT East Approx. 2 billion yen Approx. 2 billion yen *1 Approx. 2 billion yen *2 NTT DOCOMO Approx. 6 billion yen Approx. 1 billion yen Approx. 1 billion yen NTT Consolidated Approx. 3 billion yen Approx. 3 billion yen Approx. 3 billion yen *1 Includes special losses of approximately 1 billion yen. *2 The total capital investment for the fiscal year ending 212 and onwards is approximately 4 billion yen. 32

35 Support for People Affected by the Disaster The NTT Group offered a range of support for people in the disasterstricken area, such as providing the Disaster Emergency Broadband Message Dial service, which is a voice message storage/retrieval system available for fixed-line telephones, and the Disaster Emergency Message Board service, which is a selected message uplink/downlink system for mobile phone users; lending out about 9 satellite mobile phones for free; deploying about 3 Screen capture of NTT DOCOMO s Restoration Area Maps mobile communications base station vehicles; and installing approximately 3,6 ad-hoc public telephones. Further, in addition to the status of service restoration and the restoration schedule, NTT DOCOMO also provided restoration area maps on its website. These maps enabled people to confirm locations where free satellite mobile phones and free battery charging services were available. Lending out satellite mobile phones for free Installation of ad-hoc public telephones Deployment of mobile communications base station vehicles Future actions in Light of Damage from the Great East Japan Earthquake With the Great East Japan Earthquake, telecommunication facilities resources (batteries) from widespread and long-term scheduled power were impacted in unprecedented ways. Being the fourth strongest outages. The increased variety of means for information exchange with earthquake ever recorded in history, the Great East Japan Earthquake the advancement of mobile phones and the Internet was remarkable. and the related tsunamis caused the destruction and submersion of NTT Group reconfirmed the vitality of communication services in communication facilities, the failure of communications equipment society, and in light of the above events, will advance its efforts as resulting from power outages and the depletion of emergency power stated below. 1. Development of disaster-resilient networks and prompt restoration methods Distribute key functions across regions and implement multiple routes in preparation against wide area disasters Improve power capacity to withstand widespread and long-term power outages 2. Secure prompt reconnection for local relief sites Increase the use of satellite and wireless communications, etc. 3. Secure means of information distribution after disasters Greater responsiveness to communication needs directly following a disaster, such as safety confirmation (countermeasure against communication traffic congestion) Consider measures to correspond to the diversification of customer needs, which are shifting from using voice communications to and the Internet 4. Provide services and solutions useful during a disaster and during recovery Support for local governments, medical care, schools, and others ANNUAL REPORT

36 AT A GLANCE NTT Group Percentage of Operating Revenues Percentage of the simple sum of all segments (including intersegment transactions) * Figures are for the fiscal year ended 211 Data Communications Business 9.8% Other Businesses 9.5% 11,867.7 billion Regional Communications Business 33.9% Regional Communications Business Percentage of Operating Revenues 33.9% Long Distance and International Communications Business Percentage of Operating Revenues 11.2% Mobile Communications Business 35.6% Long Distance and International Communications Business 11.2% Percentage of Operating Income Percentage of the simple sum of all segments (including intersegment transactions) Principal Subsidiaries Principal Subsidiaries 3.8% Data Communications Business 6.5% Other Businesses 1,185.4 billion Regional Communications Business 1.7% Long Distance and International Communications Business 8.2% Principal Services Domestic intra-prefectural communication services and related ancillary services Principal Services Domestic inter-prefectural communication services, international communication services, and related ancillary services Mobile Communications Business 7.8% Operating Revenues / Operating Income Operating Revenues / Operating Income (Billions of yen) (Billions of yen) Percentage of Capital Investment 5, 15 1,5 15 4, 12 1,2 12 Data Communications Business 7.4% Other Businesses 6.5% Regional Communications Business 43.2% 1,87.1 billion 3, 2, 1, Years ended March 31 Operating Revenues (left scale) Operating Income (right scale) Years ended March 31 Operating Revenues (left scale) Operating Income (right scale) Mobile Communications Business 35.7% Long Distance and International Communications Business 7.2% Capital Investment (Billions of yen) 1, Capital Investment (Billions of yen) Years ended March Years ended March 31 SEE PAGE 36 SEE PAGE 4 34

37 Mobile Communications Business Data Communications Business Other Businesses Percentage of Operating Revenues 35.6% Percentage of Operating Revenues 9.8% Percentage of Operating Revenues 9.5% Principal Subsidiary Principal Subsidiary Principal Services Mobile phone services and related ancillary services in Japan and overseas Principal Services System integration and network system services in Japan and overseas Principal Services Real estate, finance, engineering, system integration and data processing, and development of leading-edge technologies and shared operations * Also includes the operations of NTT (holding company) Operating Revenues / Operating Income Operating Revenues / Operating Income Operating Revenues / Operating Income (Billions of yen) (Billions of yen) (Billions of yen) 5, 1, 1,5 1 1,5 5 4, 8 1,2 8 1,2 4 3, , , Years ended March Years ended March Years ended March 31 Operating Revenues (left scale) Operating Revenues (left scale) Operating Revenues (left scale) Operating Income (right scale) Operating Income (right scale) Operating Income (right scale) Capital Investment Capital Investment Capital Investment (Billions of yen) (Billions of yen) (Billions of yen) Years ended March Years ended March Years ended March 31 SEE PAGE 44 SEE PAGE 48 SEE PAGE 52 ANNUAL REPORT

38 Regional Communications Business Segment Share of Operating Revenues % % Number of Subscriptions for Major Services FLET S Hikari: 15.6 million subscriptions (an increase of 1.81 million subscriptions from the previous fiscal year) Hikari Denwa: million channels (an increase of 1.97 million channels from the previous fiscal year) FLET S TV:.59 million subscriptions (an increase of.32 million subscriptions from the previous fiscal year) Results in the Fiscal Year Ended 211 Operating revenues in the Regional Communications Business segment were up 1.6%, to 4,27.2 billion. Voice-related revenues decreased as a result of a decline in the number of telephone subscriptions. On the other hand, IP-related revenues rose due to an increase in the number of FLET S Hikari subscriptions and other factors. In addition, a contribution to higher revenues was also made by fiber-optic facility installations that were contracted by local governments. In expenses, personnel expenses and depreciation and amortization declined, but higher expenses accompanied the increase in commissioned revenues. As a result, operating expenses rose.5%, to 3,9. billion. Consequently, operating income in the fiscal year ended 211, was billion, an increase of 55.% from the previous fiscal year. Market Environment Number of Fixed-Line Broadband Service Subscriptions in Japan (Millions of subscribers) (%) FTTH DSL *Sources: MIC, TCA CATV FTTH market share: NTT East and NTT West (right) Operating Revenues Operating Expenses Operating Income Capital Investments (Billions of yen) (Billions of yen) (Billions of yen) (Billions of yen) 5, 3, , 4,27.2 5, 4, 3, , , , +1.6% 3, +.5% % 2, 2, % 4 1, 1,

39 Overview and Highlights Initiatives to Promote the Use of Fiber-Optic and IP Services The number of FLET S Hikari subscriptions was 15.6 million as of 211. That total included 4.6 million subscriptions to FLET S Hikari Next, which now accounts for the majority of newly opened connections. The number of Hikari Denwa, an IP telephony service, subscriptions reached million. To expand the usage of FLET S Hikari, NTT East and NTT West began to provide Hikari Portable (IT device), a mobile Wi-Fi router that creates a wireless LAN link when customers are at home as well as at many other locations. The monthly usage fees were reduced for certain options for the FLET S SPOT public wireless LAN service. Furthermore, NTT East took steps to attract new groups of customers and expand usage scenarios. One example was the launch of the Hikari i-frame, a touch-panel tablet device that is easy to operate and enables customers to access the Internet, even if they are not accustomed to PCs. NTT East also started FLET S Market, a content distribution platform that enables customers to enjoy a wide range of applications. *In addition to a FLET S Hikari contract, Internet usage requires a contract with an ISP. (There is a separate monthly usage charge, etc.) Number of FLET S Hikari Subscriptions: NTT East and NTT West (Thousands of subscribers) Year ending 212 (Forecast) 6,76 8,777 11,134 13,251 15,59 17,159 Cooperative Initiatives Targeting Expanded Usage Scenarios for FLET S Hikari With the aim of further expansion of FLET S Hikari, cooperative alliances with a wide range of business entities have been advanced. For example, under a joint initiative with supermarkets and convenience stores, various steps have been taken to realize services that support customers daily lifestyles. These include content services, such as online shopping services that can be comfortably used at home, as well as services to resolve issues with the aging population which are becoming prominent urban areas. Initiatives to Increase Customer Satisfaction The total number of subscriptions to members-only programs NTT East s FLET S Hikari Members Club and NTT West s CLUB NTT-West surpassed 5.7 million in February 211. NTT East and NTT West worked to enhance membership benefits such as the expansion of point conversion option menu, to which music downloads and electronic book purchases were added. In addition, NTT East opened the HIKARI HOUSE in Tokyo. This showroom offers customers hands-on experience with the latest fiber-optic broadband services in the home and in daily life to enhance customers understanding of the innovativeness, convenience, and safety of fiber-optic broadband services. ANNUAL REPORT

40 Initiatives to Increase ARPU The FLET S Hikari ARPU has increased due to the expansion of value-added services, such as Hikari Denwa, FLET S TV, and Remote Support Services. In the fiscal year ending 212, NTT East and NTT West will continue working to increase sales of value-added services. * FLET S TV is a service where terrestrial and BS (Broadcast Satelite) broadcasts can be received with a subscription to NTT East s and NTT West s FLET S Hikari, FLET S TV Transmission Service, and Opticast Facility Usage Service, a broadcasting service offered by OptiCast Inc. (A compatible TV set or tuner is also required.) Receipt of CS (Communication Satelite) broadcasts requires a subscription with another broadcaster and a compatible tuner, etc. Hikari Denwa (Tens of Thousands of Subscribers) 2, ,436 1, 1,211 1,14 525/month (including tax)~ (%) 1 5 FLET S Hikari ARPU NTT East (Yen) 6, 4, 4,24 2, (Billions of yen) FLET S Hikari Hikari Denwa ,4 5,64 NTT West (Yen) 6, 4, 1,4 4,28 2, 1,44 1,48 1,49 1,52 1,55 1,58 1,61 4,29 4,3 4,31 4,3 4,35 4,32 4, Improvement of 65.3 billion yen Improvement of 71.5 billion yen Value-added services 211 1,57 4,31 Basic monthly charges 5,73 5,78 5,8 5,82 5,9 5,9 5,88 5,88 5,96 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Full-year results for year ended 211 5,68 1,44 1,49 1,51 1,54 1,57 1,59 1,61 4,34 4,33 4,33 4,29 4,32 4,32 4,32 1,58 4,31 1,68 4,28 Full-year forecasts for year ending 212 5,78 5,82 5,84 5,83 5,89 5,91 5,93 5,89 6, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Full-year results for year ended 211 1,69 4,31 Full-year forecasts for year ending 212 * FLET S Hikari includes FLET S Hikari Light, FLET S Hikari Next, and B FLET S provided by NTT East and B FLET S, FLET S Hikari Premium, FLET S Hikari Mytown, and FLET S Hikari Next provided by NTT West. Please see page 129 regarding the calculation of ARPU. Improved Profitability in Fiber-Optic Access Services Profitability in fiber-optic access services has steadily improved. For instance, a year-on-year improvement of 71.5 billion was recorded in the fiscal year ended 211. NTT East and NTT West are working not only to increase the number of subscriptions and ARPU but also to curb sales promotion expenses and to reduce maintenance and operational expenses. Therefore, we expect to be able to achieve the medium-term management objective of a net profit in fiber-optic access services on a single-year basis in the fiscal year ending 212. Profitability of FLET S Hikari and Hikari Denwa: Results and Forecasts Achievement of profitability on a single-year basis Year ending FLET S TV (Tens of Thousands of Subscribers) /month (including tax)~ 211 Number of subscriptions Year ending 212 (Forecast) (Tens of Thousands of Subscribers) Number of channels /month (including tax)~ 211 Number of subscriptions Year ending 212 (Forecast) Percentage of FLET S Hikari users Remote Support Services Year ending 212 (Forecast) (Notes) FLET S Hikari: Figures for the fiscal years ended 28, and 29, are for designated telecommunications services (excluding voice transmission services) except specified telecommunications services. Figures for the fiscal year ended 21, are for designated telecommunications services (FTTH access services) except specified telecommunications services. Hikari Denwa: Figures for the fiscal year ended 29, are for designated telecommunications services (voice transmission services) except specified telecommunications services. Figures for the fiscal year ended 21, are for designated telecommunications services (other services) except specified telecommunications services. (For the fiscal year ended 28, FTTH balances were not calculated, since Hikari Denwa was not part of designated telecommunications services.) 38

41 FOCUS ON PROGRESS Expanding the Base of Broadband Service Usage Launch of the FLET S Hikari Light Two-Tier Fixed-Rate Service In June 211, NTT East launched FLET S Hikari Light, a two-tiered fixed-rate service. FLET S Hikari Light starts from 2,94 a month (including tax), and the monthly fee does not go above 6,9 a month (including tax), no matter how much the service is used, so customers can use it without any concern for cost. Through the introduction of FLET S Hikari Light, NTT East is extending the base of Internet users to include customers who have never previously used the Internet or have used it only occasionally. As a result, new groups of customers are expected to utilize this service. This service is also expected to help prevent cancellations by customers who are currently using the fixed-rate FLET S Hikari Next ( 5,46 a month, including tax) but are thinking of cancelling because they do not have many opportunities to use the Internet. Although the transition of certain customers from FLET S Hikari Next to FLET S Hikari Light will have the effect of decreasing revenues, growth in demand from new customers is expected to increase revenues. As a result, FLET S Hikari Light is expected to have a positive effect on revenues overall. During the fiscal year ending 212, NTT West is also making preparations to launch this service. In the fiscal year ending 212, energetic sales activities will be focused on customers who have never previously used the Internet or have used it only lightly. In addition, Wi-Fi service will be strengthened and follow-up service will be enhanced through the members-only programs. In this way, a net increase of 2.1 million FLET S Hikari contracts will be targeted. Fee Structure Monthly fee (Yen) Upper limit 6,9 FLET S Hikari Light 6,9 5,46 Usage charges based on data traffic volume 31.5/1MB* 2,3,4 FLET S Hikari Next (Family Type) 2,94 Months with light usage base rate: 2,94* 1 2MB 1,MB 1,2MB Amount of usage/month *1 Can be used with no usage charges (base rate only) up to 2MB per month per subscriber line. *2 Usage charges are based on data traffic volume while connected to the Internet. *3 Traffic volume and following monthly usage charges can be confirmed on invoices sent by NTT East or on a special website *4 Traffic volume less than 1MB is rounded up to the next 1MB. * Does not include ISP charges and initial costs. * When FLET S Hikari Light is used in multiple dwelling units, service is provided through the direct fiber cabling method. * There are certain limitations on available options. * In some cases, traffic exchange automatically occurs and communication charges are incurred even when the customer cannot use the Internet due to the device or software in use. ANNUAL REPORT

42 Long Distance and International Communications Business Segment Share of Operating Revenues % % Number of Subscriptions for Major Services OCN: 8.23 million subscriptions (an increase of.34 million subscriptions from the previous fiscal year) Area Coverage Plala: 3.1 million subscriptions (an increase of.5 million subscriptions from the previous fiscal year Hikari TV: 1.41 million subscriptions (an increase of.4 million subscriptions from the previous fiscal year) Europe Japan North America Asia Results in the Fiscal Year Ended 211 Operating revenues in the Long Distance and International Communications Business segment were up 5.8%, to 1,332.7 billion. Fixed-line voice-related revenues and IP-related revenues declined, but revenues resulting from the acquisition of Dimension Data Holdings plc. and other companies were the major factor leading to the increase in operating revenues. On the other hand, due in part to higher expenses resulting from the increase in the number of consolidated subsidiaries, operating expenses were 1,235.6 billion, an increase of 6.4%. Consequently, operating income was 97.1 billion, down 1.2% from the previous fiscal year. Africa / Middle East Australia Major coverage area of NTT prior to the acquisition of Dimension Data Major coverage area of Dimension Data South America Operating Revenues Operating Expenses Operating Income Capital Investments (Billions of yen) 1,5 1, ,332.7 (Billions of yen) 1,5 1, ,235.6 (Billions of yen) % 8 (Billions of yen) % 1, +6.4% %

43 Overview and Highlights NTT Communications is the main subsidiary in the Long Distance and International Communications Business segment. NTT Communications strives to be the choice of customers around the world as a true global leader, and in the provision of services its activities are guided by the slogan: Global ICT Partner Innovative. Reliable. Seamless. In December 21, NTT acquired Dimension Data, which became a wholly owned subsidiary of NTT. In this way, the NTT Group expanded both its area coverage and its ICT services lineup at the global level. Global Businesses In global businesses, NTT Communications has worked to enhance global ICT services that combine network integration to provide one-stop services, from network consulting to design, construction, operation, and maintenance, with data center, security, and server management services. << Network Expansion >> We also made progress in network expansion. NTT Communications worked to expand the IP backbone between Japan and the United States and achieved performance of 5 Gbps, one of the highest levels in the industry. In response to the rapid growth in Internet traffic in the Asian region and as one facet of measures to strengthen initiatives focused on Asia, which is recording rapid economic growth, the construction of the Asia Submarine-cable Express has been started. This large-capacity submarine cable will connect Asian business hubs where large numbers of multinational corporations and financial institutions are concentrated Tokyo, Hong Kong, Singapore with growing Asian countries. << Expansion of Data Centers >> NTT Communications took steps to expand its data centers, which are the bases for networks and ICT platforms. NTT Communications began operations at the Tokyo No. 5 Data Center, which demonstrated a high level of earthquake resistance in the Great East Japan Earthquake. In addition, construction was also started on new data centers in Singapore, Hong Kong, and Malaysia. These data centers also reflect consideration for Green ICT, and they have advanced energy-saving designs that support the efficient use of electricity. << Strengthening of Operation and Maintenance, and Security Service Systems >> In 29, NTT Communications invested in Integralis AG, a provider of IT security services based in Germany, and in the fiscal year ended 211, NTT Communications acquired Secode AB, a provider of managed-security and security-consulting services in northern Europe. This acquisition enhanced our framework for providing seamless security services at the global level. We also strengthened the framework for providing one-stop, comprehensive, high-quality ICT services by investing in Singapore-based Emerio GlobeSoft Pte Ltd, which provides IT outsourcing Asian Triangle Concept Europe Hong Kong PC-1, etc.: large-capacity, low-latency submarine cable systems connecting Japan and the U.S. Japan America Singapore Asia Submarine-cable Express: New submarine cable in Asia ANNUAL REPORT

44 services with a focus on Asia, and Frontline Systems Australia Pty Ltd., which provides ICT services, such as IT consulting, data center, and managed services, principally in Australia. OCN/Plala Services for Individual Customers We worked to expand the customer base for OCN and Plala, our ISP services, by enhancing their services. As a result of these efforts, there were a total of million subscriptions to OCN and Plala as of 211 (including corporate customers). In addition, the number of subscriptions of Hikari TV, a video distribution service provided by NTT Plala, reached the initial target of 1.4 million due to taking steps to enhance the video content including 3D content. Moving forward, we will continue to provide advanced services suitable for the broadband and ubiquitous age, and will propose the optimal Internet lifestyle for each customer. Services for Corporate Customers NTT Communications worked to help customers solve their management issues by providing one-stop ICT services, from consulting to operation/maintenance, that are aligned with the industries and specific circumstances of corporate customers. For BizCITY cloud services which feature high levels of quality and security, a new service menu was introduced in April. One of the new services is a hybrid cloud that is linked with Microsoft s Windows Azure TM. Another is Biz Hosting Mail & Web Economy, which is an inexpensive hosting service for SOHO and other small businesses. Moving forward, NTT Communications will take steps to further expand the BizCITY lineup, such as smartphone compatibility and global cloud services. In addition, a specialized unit for cloud services will be established, and the company will work to develop and provide the optimal cloud services for each customer. (Tens of Thousands of Subscribers) 1, (Tens of Thousands of Subscribers) OCN Hikari TV Plala 211 Number of subscriptions Year ending 212 (Forecast) Year ending 212 (Forecast) BizCITY BizCITY is a lineup of services through which we provide ICT environments enabling work to be done securely and conveniently anytime, anywhere. These services also help customers to raise their productivity and resolve their management issues. Biz Hosting Virtual server Hosting (Private/public) Biz Mail High-capacity web mail Biz Storage High-capacity file servers Biz Desktop Virtual desktop Biz Security Global SOC* * Security Operation Center Biz Marketing Multilayer marketing solutions SaaS Applications CRM/SFA, etc. Cloud Platform Arcstar Universal One Internet Biz Communicator Remote business environment Biz Remote Access Secure remote access Overseas offices Domestic offices 42

45 FOCUS ON PROGRESS Dimension Data s Acquisition of OpSource of the United States In July 211, Dimension Data acquired 1% of the shares of OpSource, Inc., which provides advanced cloud computing solutions related to automation of installation, operation, restoration orchestration, from IT infrastructure to applications. The acquisition of OpSource by Dimension Data is one element of the NTT Group s initiatives to consolidate its global management resources and thereby strengthen its service capabilities to meet the cloud computing needs of its clients. Dimension Data places a high priority on supporting its customers in their migration to cloud computing, and through the cultivation of cloud-related technologies and know-how, Dimension Data is working to create new businesses effectively using cloud services. Moving forward, the technologies and know-how cultivated by OpSource in such fields as orchestration will be used by Dimension Data to provide a flexible response to the needs of its customers as those customers shift from ownership to use. Specifically, for enterprise and public sector clients, Dimension Data will design and operate private cloud infrastructures, and for telecommunications carriers and SaaS vendors, Dimension Data will provide consultation, installation, and operation of advanced orchestration functions. In addition to the core competencies of OpSource, Dimension Data, and NTT Communications, the NTT Group will also draw on its comprehensive strengths in such areas as application development, provision of mobile solutions, and R&D in order to create global cloud computing services. Strengthening Service Capabilities in Global Business Operations through the Acquisition of OpSource (Prior to acquisition) Consolidation of servers through virtualization (After acquisition) Automation of installation, operation, restoration Hybrid clouds SaaS Applications Managed ICT services Applications Managed ICT services Automation of application installation, operation, restoration, etc. / coordination among applications Cost reductions through server consolidation Setting, classification, and restoration operations done manually, therefore operations become complex and there is a huge accompanying increase in equipment. Operation and maintenance center Automation of installation, operation, restoration (orchestration) Acquisition of OpSource Automation of installation, operation, restoration of virtualization equipment PaaS IaaS IT infrastructure IT infrastructure ANNUAL REPORT

46 Mobile Communications Business Segment Share of Operating Revenues % % Number of Subscriptions for Major Services Number of mobile phone services subscriptions: 58.1 million (an increase of 1.93 million subscriptions from the previous fiscal year). Number of FOMA service subscriptions: million (an increase of 3.54 million subscriptions from the previous fiscal year). Number of Xi subscriptions: 26, Number of flat-rate packet service subscriptions: million (an increase of 6.15 million from the previous fiscal year) * The number of subscriptions to mobile phone services and FOMA services include communication module service subscriptions. Results in the Fiscal Year Ended 211 Operating revenues in the Mobile Communications Business segment were down 1.4%, to 4,224.3 billion. Packet communications revenues increased due to such factors as the penetration and expansion of smartphones. However, voice-related revenues declined as a result of the greater uptake of the Value Plan, and handset sales revenues decreased on account of a fall in wholesale unit prices. Operating expenses declined 2.%, to 3,385.2 billion due to increased efficiency in capital investment and ongoing efforts to reduce expenses. Consequently, operating income was billion, an increase of 1.3% from the previous fiscal year. Market Environment Number of Mobile Phone and PHS Subscriptions in Japan (Millions of Subscribers) (%) Mobile phone 27 * Sources: MIC, TCA PHS NTT DOCOMO s Market Share NTT DOCOMO: Number of Mobile Phone and PHS Subscriptions (Millions of Subscribers) Operating Revenues Operating Expenses Operating Income Capital Investments (Billions of yen) (Billions of yen) (Billions of yen) (Billions of yen) 5, 5, 1, 1, 4, , , 3, 1.4% 4, 3,456. 3, 3, % , 2, 2.% % 1, 1,

47 Overview and Highlights Continued Focus on Change and Challenge In line with its medium-term action plan: Change and Challenge, NTT DOCOMO promoted a range of initiatives aimed at improving customer satisfaction, such as expanding its product lineup, improving billing plans, and enhancing after-sales support. Consequently, a third party organization rated NTT DOCOMO the number one in customer satisfaction in consumer, enterprise, and data communications services. In addition, the churn rate remained at a low level.47% in the fiscal year ended 211. In the future, in response to the rapid growth in smartphone users, NTT DOCOMO will endeavor to further increase satisfaction among smartphone users and to maintain its number one ranking in overall customer satisfaction. Mobile Phone Churn Rate (Xi + FOMA + mova) (%) Churn rate:.5% 21 Churn rate:.46% 211 Churn rate:.47% A B docomo Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Growing Use of Smartphones Smartphones enable users to easily enjoy the Internet, music, and video on large-screens and to add a wide range of applications developed around the world. As the uptake of packet flat-rate services increases, the use of smartphones is growing rapidly. NTT DOCOMO took steps to expand its smartphone lineup and implemented the following initiatives. First, in April 21 the company opened docomo Market, a portal site for smartphones. This site provides appealing content and applications that can be used with DOCOMO s smartphones. In addition, to increase customer convenience, in September 21 we launched sp-mode, an ISP service for smartphones, which enables customers to carry over the same mail address that they previously used Smartphone Sales (Tens of Thousands) Market Share in Smartphone Sales at Major Mass Retailers * (based on survey by GfK Japan) (%) Year ending 212 (Target) Xperia TM launched sp-mode started Handset lineup expanded with GalaxyS and other models DOCOMO B A C * Unit sales share by carrier in the mobile phone category for handsets with one of four operating systems (Android / ios / Windows Mobile / Blackberry) Data from GfK Japan, total sales results for leading consumer electronics retailers in Japan (does not include tablet devices). ANNUAL REPORT

48 on i-mode. Furthermore, NTT DOCOMO began to offer smartphone versions of popular i-mode services, such as Osaifu-Keitai (e-wallet) service for FeliCa-equipped smartphones and the docomo map navi service. In addition, in March 211, NTT DOCOMO introduced the Monthly Support program. For up to 24 months, this program provides certain levels of discounts from the monthly usage fees, with the discounts varying in accordance with the model of phone purchased. As a result of these efforts, unit sales of smartphones showed a significant increase, surpassing 2.5 million handsets in the fiscal year ended 211. The number of sp-mode subscriptions at the end of the fiscal year reached 2.9 million. NTT DOCOMO will continue to take steps to further enhance its smartphone handsets and services. For example, smartphones will comprise more than half of the new handsets for the fiscal year ending 212. NTT DOCOMO will aim for sales of more than 6 million handsets for the fiscal year. To achieve that target, NTT DOCOMO will restructure and optimize its internal organizations and work to strengthen its customer contact. LTE Service Xi (read crossy ) NTT DOCOMO launched Xi in certain area of Tokyo, Nagoya, and Osaka. This service is based on the new communication standard, Long Term Evolution (LTE), which offers high-speed, large-capacity, and low-latency features. Moving forward, NTT DOCOMO will work to surpass one million Xi subscriptions in the fiscal year ending 212 by enhancing the handset lineup and further expanding the service coverage. Expanding Use of Packet Communications Packet flat-rate services, which had previously been different on feature phones and smartphones, were unified into Pake-hodai double, making these services simpler and easier to understand. In addition, NTT DOCOMO introduced Pake-hodai Double2, a two-tiered packet flat-rate service that allows more packets up to the upper limit, and Pake-hodai flat, a packet flat-rate service that offers a lessexpensive upper limit on smartphone usage. In content side, measures to encourage packet use included enhancing the content for such services as BeeTV and E everystar and making these services available on smartphones. In this way, NTT DOCOMO promoted packet usage among medium and light users. In addition, we began to offer an Packet ARPU surpasses voice ARPU (excluding revenue-reducing effect of monthly support) ARPU Growth Targets for Fiscal Year ending March 213 Aggregate ARPU (1+2) Renewed aggregate ARPU growth End of aggregate ARPU downturn in fiscal year ending 212 Transition to growth from fiscal year ending 213 (1) Voice ARPU 2,54 End of aggregate ARPU downturn Advancing Smartphones Unit sales in fiscal year ending March : 6 million Unit sales in fiscal year ending 213: Aiming for more than 5% of total unit sales. (2) Packet ARPU 2,53 Packet ARPU surpasses voice ARPU Promoting Packet Usage Packet flat-rate service subscription rate: 7% Year ending 212 Year ending 213 ** Includes Pake-hodai, Pake-hodai full, Pake-hodai double, Pake-hodai simple, Pake-hodai double 2, Pake-hodai flat, Flat-rate Data Plan, and Xi Data Plan. * Packet flat-rate service subscription rate = Packet flat-rate service subscriptions / (FOMA i-mode subscriptions + flat-rate communications subscriptions with no i-mode subscription + data plan subscriptions + Xi data plan subscriptions ) 46

49 e-book service at 2Dfacto. This e-book store is operated by 2Dfacto Co., Ltd., which was established as a joint venture between NTT DOCOMO, Dai Nippon Printing Co., Ltd. (DNP), and Maruzen CHI Holdings Co., Ltd. As a result of these initiatives, NTT DOCOMO achieved packet ARPU higher than voice ARPU. Moving forward, by accelerating growth in packet ARPU, NTT DOCOMO will work to halt the decline in aggregate ARPU and return total ARPU to a course of growth. FOCUS ON PROGRESS Growing Use of Smartphones NTT DOCOMO worked to offer enhanced functionality with its summer 211 smartphone models. All Android handsets are with Android 2.3 OS, and are compatible with Osaifu-Keitai (e-wallet), One-Seg terrestrial digital television, and infrared communications has been expanded. Other advances include downlink speeds up to the FOMA theoretical maximum of 14 Mbps and adoption of tethering functionality for certain models of regular smartphones. For summer 211, NTT DOCOMO offered advanced models that are popular around the world, such as Xperia and GALAXY. In addition, the lineup also includes easy-to-use models for customers using a smartphone for the first time as well as the world s first smartphone that can be charged wirelessly. AQUOS PHONE f SH-13C and wireless charger Summer 211 models F-12C P-7C AQUOS PHONE f Blackberry Bold 978 ray * From IEC-member/Taiwanese makers as of May 15, 211. FOCUS ON PROGRESS Overseas Business Development Overseas, NTT DOCOMO worked to develop services through companies in which it has invested or with which it has a tie-up, and to build new cooperative relationships. In India, the combined subscription count of NTT DOCOMO s capital alliance partners TTSL *1 and TTML *2, has grown to more than 89 million following the launch of GSM service under the TATA DOCOMO brand. Working in cooperation with NTT DOCOMO, TTSL became the first Indian private telecom operator to launch commercial 3G service. *1 Tata Teleservices Limited *2 Tata Teleservices (Maharashtra) Limited Launch of 3D Service Following Tie-Up with TTSL/TTML, of India Punjab Haryana Mumbai Karnataka Jammu & Kashmir Rajasthan Gujarat Kerala Himachal Pradesh UP(W) Maharashtra Andhra Pradesh Tamil Nadu Delhi UP(E) Madhya Pradesh Chennai Bihar Orissa West Bengal Assam, North East Kolkata ANNUAL REPORT

50 Data Communications Business Segment Share of Operating Revenues % % Results in the Fiscal Year Ended 211 Operating revenues in the Data Communications Business segment were up 2.7%, to 1,163.2 billion. Expansion in consolidated subsidiaries was one of the principal reasons for this growth. On the other hand, this expansion in consolidated subsidiary led to an increase in consolidated operating expenses, which were up 1.7%, to 1,86.2 billion. As a result, operating income was 77. billion yen, an increase of 18.7% from the previous fiscal year. Market Environment Global IT Service Vendors by Sales (Million US dollar) Ranking *1 Vendor Growth (29-21) 1 (1) IBM 55, 56, % 2 (2) Hewlett-Packard 35,252 35,346.3% 3 (3) Fujitsu 23,34 24, % 4 (4) Accenture 2,939 22, % 5 (5) CSC 16,4 16,16.6% 6 (6) Lockheed Martin 13,12 13, % 7 (27) Xerox *2 5,79 12, % 8 (9) NTT DATA *3 11,111 12,63 8.6% 9 (8) NEC 11,372 11, % 1 (7) Capgemini 11,634 11,525.9% Source: Gartner Market Share IT Services, 21 March 211 *1. Rankings in parentheses are for 29. *2. Sales of Xerox in 21 include sales of U.S. Affiliated Computer Services, the acquisition of which was announced to have been completed on February 8, 21. *3. Sales of Keane that NTT Data completed acquisition on December 31, 21 are not included in sales of NTT Data in 21. The Gartner Reports(s) described herein, (the Gartner Report(s) ) represent(s) data, research opinion or viewpoints published, as part of a syndicate subscription service, by Gartner, Inc. ( Gartner ), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this annual report) and the opinions expressed in the Gartner Report(s) are subject to change without notice. Operating Revenues Operating Expenses Operating Income Capital Investments (Billions of yen) (Billions of yen) (Billions of yen) (Billions of yen) 1,5 1, , , , +2.7% 5 1,67.6 1,86.2 1, +1.7% % %

51 Highlights of the Past Fiscal Year Management Overview NTT DATA, the main subsidiary in the Data Communications Business segment, is aiming at sustained business development and higher corporate value under the current trend of customers limiting their IT investment. To that end, NTT DATA is accelerating the implementation of structural reforms and growth strategies through the medium-term management policy that calls for quantitative expansion through quality. In particular, NTT DATA has worked to implement the key elements of its medium-term management policy Strengthening service provision capabilities, Enhancing and expanding Group businesses, and Promoting environment-oriented management. As a leading-edge innovator, NTT DATA strives to be ranked No. 1 in customer satisfaction. << Strengthening of Service Provision Capabilities >> In the past year, NTT DATA established a specialized organization to realize more-advanced and globalized project management methods. It will further reinforce NTT DATA s key strengths in the management of system development projects and will undertake R&D and wide-ranging adoption of those advanced project management methods. << Enhancement and Expansion of Group Business >> To further strengthen its service provisioning capabilities, NTT DATA is aggressively expanding the business coverage of the Group. In particular, by expanding its own global business foundation, NTT DATA is strengthening its ability to accommodate customer requirements that have arisen due to the globalized competitive environments customers are facing. As for the business of SAP, a leading ERP software product, NTT DATA has worked to expand its coverage on a global scale and to strengthen its resources. In terms of both quantity and quality, NTT DATA has earned recognition as a world-class SAP services company. Moreover, NTT DATA has forged an alliance with six overseas and five domestic subsidiaries to establish the SAP Global One Team. SAP Global One Team System Framework leverages the core competencies of NTT DATA Group companies around the world to provide integrated, high-quality services. Number of employees involved in SAP business Europe 2, APAC 1,5 Japan 8 U.S. 7 Countries with SAP support bases Countries with SAP project experience (As of February 211; the number of employees has been rounded off.) ANNUAL REPORT

52 This intra-group company collaborative framework makes full use of the strengths and locations of each company. Moving forward, NTT DATA will work to establish another Global One Team to accumulate expertise and know-how for each specific customer industry, such as telecommunications and insurance/finance. << Promotion of Environment-Oriented Management >> NTT DATA is working to promote environment-oriented management initiatives. These include Green by IT, where CO2 emissions are reduced through the use of IT, such as in smart cities, to control residences and facilities and Green of IT, which focuses on the development of such facilities as green data centers to reduce power consumption and the deployment of energy-saving cloud servers. Business Activities NTT DATA continues to conduct aggressive marketing activities targeting the receipt of new orders as well as service provisioning. Further, it worked hard and will continue to provide stable services to systems in operation, and at the same time to promote efficient systems development. << Public & Financial IT Services >> NTT DATA continued working to expand the use of its Regional Bank Integrated Services Center and to increase the number of participating banks. Further, NTT DATA and ITOCHU Corporation were commissioned by the National Coordinating Agency for Surveys and Mapping of Indonesia to create the National Geo-spatial Data Infrastructure Networking System. Moving forward, plans call for the horizontal expansion of solutions for other countries in Southeast Asia, which is expected to record further economic growth. << Global IT Services >> In order to facilitate quick, low-cost system installation, NTT DATA launched Lindacloud, a verticallyintegrated appliance server composed of energy-conserving, low-heat-generating hardware and software tailored to specific needs. Gross Operating Revenues (Billions of yen) 1,5 1, 1, , , Year ending 212 (Forecast) Public & Financial IT Services Global IT Services Solutions & Technologies Other * From the fiscal year ending 212, the operations of Kean and Cirquent will be allocated to segments by customer, in the same manner as domestic operations. Segment figures include inter-segment transactions. 5

53 << Solutions & Technologies >> NTT DATA has taken steps to expand its solutions lineup, launching the complete BIZXAAS comprehensive cloud computing service menu, which comprises BIZXAAS Platform Services and BIZXAAS Construction/Operation Services. As a result of these initiatives, the company received an award for best brand in both the first and second cloud computing rankings sponsored by Nikkei Business Publications, Inc. Moving forward, the NTT Data Group, which is expanding rapidly to succeed in global competition, will work on worldwide basis as One Team, focusing on three key areas: (1) globalization, (2) a shift toward services and (3) environment-oriented management. In this way, NTT DATA will strive to generate group synergies and to become one of the global top five IT service companies. FOCUS ON PROGRESS BIZXAAS Cloud Computing Service Cloud computing has drawn attention to overcome challenges which many business entities are facing, including cost reductions through the streamlining and strategic utilization of IT assets. Cloud computing can be classified broadly into private clouds, which offer IT services customized exclusively for a limited number of users, and public clouds, which offer IT services that are shared by large numbers of users. Through the BIZXAAS Platform Services and the BIZXAAS Construction/Operation Services, BIZXAAS represents a total cloud solution for enterprises, offering both private and public clouds in line with specific customer needs. BIZXAAS Provisioning and Operation Services Optimization consulting Migration Cloud provisioning Operations administration Supporting the realization of a private-cloud that is tailored to the business environment of each customer. Supports optimization conceptual planning, determination of system implementation method, and vendor selection process Realizes data migration from existing systems, system migration, and linking with business system Provides a common platform system environment, and provides virtual or physical environments based on system requirements Offers service desk, provisioning, performance/capacity management, patch application, and other operations administration services BIZXAAS Platform Services Meeting needs for fast, economical cloud computing services Applications Provides front office and back office applications as a service (SaaS) Platforms Provides a full set of resources including application development environment, database, middleware, operating system, and IT infrastructure (PaaS) Data centers Provides server machine resource infrastructure (IaaS) ANNUAL REPORT

54 Other Businesses Segment Share of Operating Revenues % % Results in the Fiscal Year Ended 211 In other businesses, operating revenues were down 1.1%, to 1,12.3 billion. This decline was primarily attributable to a decrease in revenues at NTT Comware and other businesses, which offset higher revenues at NTT Facilities. Operating expenses declined 3.9%, to 1,75.4 billion due in part to the decrease of credit loss at NTT Finance. As a result, operating income was 44.9 billion, an increase of 236.6% from the previous fiscal year. Real Estate Businesses NTT Urban Development Corporation Finance Businesses NTT FINANCE CORPORATION Engineering Businesses NTT FACILITIES, INC. Advanced Technology Development Businesses NTT Electronics Corporation Others NTT BUSINESS ASSOCIE Co., Ltd. NTT ADVANCED TECHNOLOGY InfoCom Research, Inc. CORPORATION NTT LOGISCO Inc. NTT Software Corporation NTT ADVERTISING, INC. SI and Information Processing Businesses NTT COMWARE CORPORATION company/profile.html NTT LEARNING SYSTEMS CORPORATION NTT Human Solutions Corporation Operating Revenues Operating Expenses Operating Income Capital Investments (Billions of yen) (Billions of yen) (Billions of yen) (Billions of yen) 1,5 1, ,12.3 1,5 1, , , 1.1% 1, 3.9% % 9 1.9%

55 FOCUS ON PROGRESS NTT Software Corporation Top share for the fourth consecutive year in the domestic market for software to prevent the mistaken transmission of s In 23, NTT Software launched the CipherCraft/Mail package to enable corporate customers to prevent the mistaken transmission of s. The company has since sold 23, licenses and has cornered the top share* of the domestic market for four consecutive years, with a market share of 4% which is much higher than the closest competing product. The encryption engine used in CipherCraft/Mail is Camellia, which is recognized as an official standard cipher by the Internet Engineering Task Force (IETF). Camellia is also an ISO/IEC international standard cipher and is the only 1% Japanese cipher technology approved by the EU. Source: Information Security Solutions Market 211, Solution for Compromise Prevention and Information Leakage Prevention, published by MIC Research Institute. NTT Urban Development Corporation Urbannet Tenjin Building Project Rendering of RESOLA Tenjin Building, which is scheduled to open in fall 211. NTT Urban Development began to develop the Urbannet Tenjin Building after concluding fixed-term site leases with NTT West and NTT Communications. This project had merits for NTT West and NTT Communications, which want to make effective use of their assets, as well as for NTT Urban Development, which seeks to develop properties in prime locations while holding down investment. In addition, the area around the development site includes multiple buildings owned by the NTT Group, and the plan will keep a beautiful environment with its surroundings. As the only real estate development company in the NTT Group, NTT Urban Development will leverage its advanced development capabilities to create comfortable urban spaces that are in harmony with people, living places, and the environment. NTT COMWARE CORPORATION Expanding Business Continuity/Power-Saving Solutions Companies in Japan are reevaluating their BCP/BCM strategies for coping with emergencies, such as large-scale power failures or problems with public transportation, and they are taking steps to save energy in response to the electric power shortages. These situations lead to a growing trend toward reconsideration of the ICT environment. NTT Comware has provided a range of services, including SmartCloud Data Center, to support the business continuity initiatives of its customers. As one facet of those services, NTT Comware has offered SmartCloud Mail and SmartCloud Desktop (Advance). In addition, in May 211 the company began to offer SmartCloud Desktop (Basic) and AdminITy Ver.5.. Through combinations of these services, NTT Comware provides secure telecommuting solutions. ANNUAL REPORT

56 CSR NTT Group has put in place structures and guidelines to support and ensure sound corporate conduct with the view to meeting the expectations and interests of our stakeholders. The entire Group is working as one to carry out CSR activities. NTT Group Stakeholders and CSR NTT Group is promoting CSR activities across the Group to address the expectations of its stakeholders. NTT Group carries out its CSR activities based on the NTT Group CSR Charter adopted in 26. Furthermore, in November 28, NTT newly established NTT Group CSR Priority Activities to define common areas of each of the CSR activities for each of NTT Group companies. (Please see the column below.) The CSR Charter consists of a CSR Commitment and four CSR Goals. The Activities consist of eight areas corresponding to the above four Goals of the CSR Charter. At the same time, starting from the fiscal year ended March 21, NTT and its group companies choose and adopt their own action plan and review the status of each action stipulated in the above action plan based on the PDCA level. Guided by this plan, each company will proceed with CSR activities autonomously and proactively. Business partners Customers (businesses/ individuals) Industry peers and organizations Shareholders/ investors Group Local communities Government organizations Employees (employees, their families, former employees) NTT Group CSR Charter (The Eight Key Areas of CSR Activity are shown in the colored boxes below) Our Commitment As a leader of the information and telecommunications industry, the NTT Group is committed to providing reliable, high-quality services that contribute to the creation of a safe, secure and prosperous society through communications that serve people, communities, and the global environment. Our CSR Goals Communication between people and their communities 1. We shall strive to create a richer and more convenient communications environment, and utilize our technology to contribute to the resolution of the various issues faced by societies with aging and declining populations. 1. Activities that contribute to the further evolution of ubiquitous communications Communication between people and the global environment 2. We shall strive both to reduce our own environmental impacts and build environment-friendly forms of communications, and to provide information and communications services that help to reduce the impact of society as a whole on the global environment. 2. Creating a low carbon society 3. Implementing closed loop recycling 4. Conserving biodiversity Safe and secure communication 3. While striving earnestly to ensure information security and resolve telecommunications-related social issues, we shall do our utmost to provide a safe and secure user environment and contribute to the creation and future development of communication culture. 4. Fully recognizing the role that telecommunications plays as critical infrastructure supporting society and protecting our livelihoods, we shall strive to offer secure and reliable telecommunications services fortified to withstand disasters and capable of connecting people irrespective of time, location and other circumstances. 5. Ensuring information security 6. Ensuring stable and reliable services as critical infrastructure Team NTT communication 5. As Team NTT, we pledge to apply the highest ethical standards and awareness of human rights to our business duties, striving to fulfill our mission to society by working for the creation of pleasant workplaces, personal growth, and respect for diversity, and for the further development of a flourishing and vibrant community. 7. Activities that contribute to respect for diversity and equal opportunity 8. Corporate citizenship activities * Team NTT comprises all NTT Group employees, including temporary employees, contract employees, employees of our corporate partners, and also former employees who endorse the NTT Group s CSR activities. 54

57 CSR Promotion Framework NTT organized a CSR Committee chaired by a Senior Executive Vice President in June 25 for the purpose of conducting continuous and appropriate CSR management. To unify CSR initiatives across the Group, regular Group CSR Liaison Meetings are held at which member companies discuss issues and share information on examples of the CSR activities of individual Group companies. Board of Directors President (Executive Officers Meeting) Committees CSR Committee Global Environmental Protection Promotion Committee Group CSR Liaison Meetings CSR promotion working groups Social Contribution Promotion Committee Corporate Ethics Committee Business Risk Management Committee Recognition From Socially Responsible Investment (SRI) Indexes in Japan and Overseas NTT has been highly rated by SRI evaluation organizations. As of April 1, 211, NTT was included in international global SRI indexes such as Ethibel Sustainability Index (ESI) EXCELLENCE Global of Belgium, as well as the Morningstar Socially Responsible Investment Index of Japan. Kaoru Kanazawa Representative Director and Senior Executive Vice President In charge of risk management and international standardization; and Chief Compliance Officer In June 26, the NTT Group formulated the NTT Group CSR Charter, which comprises the Group s fundamental CSR philosophy and guidelines, and announced the Charter inside and outside the NTT Group. The charter calls for the realization of a safe, secure, and prosperous society through communications, i.e. ICT as the NTT Group s nature of business, to connect people, communities, and the world. Since the establishment of the charter, we have worked to raise awareness of and steadily implement that philosophy. We established working groups that extended across organizational boundaries and have taken steps to steadily enhance management. In the fiscal year ended 29, we established the NTT Group CSR Priority Activities so that all Group companies could follow common themes in the implementation of CSR activities in accordance with the CSR Charter. Each fiscal year, Group companies prepare CSR activity objectives for each priority activity and work to achieve those objectives through PDCA cycle management. Moving forward, we will strive to further enhance CSR on a unified Groupwide basis through the steady implementation of these initiatives. ISO 26, an international standard providing guidelines for social responsibility (SR), was published in November 21. In the fiscal year ended 211, the NTT Group, which is driving ahead with the globalization of its business activities, reviewed the NTT Group CSR Charter to enhance its CSR management in line with international standards. As a result of this review, we partially revised the charter to more clearly reflect two central topics that are core subjects in ISO 26, human rights and labor practices. In accordance with this approach, we are also revising our fundamental policy on human rights. As a member of international society, the NTT Group including both individual employees and the organization as a whole will do its utmost to fulfill its social responsibilities in the years ahead. ANNUAL REPORT

58 CSR Topics Communication between People and their Communities Joint operation testing of Health Enhancement Assist Service [NTT Communications] NTT Communications began operation testing of its Health Enhancement Assist Service, which it jointly developed with NTT Resonant Inc. and foo.log Inc., on February 17, 211. The services offered by this experimental service for smartphones and personal computers include the provisions of the world s first calorie counter that automatically calculates calories using a photograph of the meal, estimation of distances traveled and calories burned while taking a walk using the GPS location function and walking speed acceleration sensors in the user s smartphone, and more than 5, recipe suggestions from professional chefs. These tests will identify issues related to the service, which is being offered free to the general public as a smartphone application, and has already had more than 1, downloads. The service has been well received, as useful for dieting and maintaining health, and making dieting seem natural by being sure to keep a record of meals. Going forward, we will evaluate and optimize the service for practicality and effectiveness, with the aim of a commercial launch from the fiscal year ending 213. User Aggressively dieting or addressing metabolic syndrome Wanting to maintain body strength and health Internet or mobile phone network Meals, snacks, drinks Exercise record Bar code on food packages Body composition (height, weight) Personal preferences Input Measuring device with telecommunications functionality Intake and progress management charts Graph of vital data Target schedule Search/compare with other users Advice Word-of-mouth information Concierge for meals and exercise Alerts, encouragement Links to Twitter, Facebook Website Center Downloaded images Image analysis Text analysis Voice analysis Tags attached Registration, analysis Personal information database Processing/ output Links Calculation of calories, nutritional values Determination of balance Checking, updating of personal information Evaluation and judgment of current condition Related information search Exercise and meal planning Progress management Advice Collection of various data Human analysis (Certain cases) Recipes, fitness Related sites Communication between People and the Global Environment Promoting Green NTT with aim of expanding use of solar power systems [NTT Group] The NTT Group has been promoting Green NTT since May 28, with the aim of popularizing environmentally friendly, natural energies. This has involved measures to expand the use of solar power generation systems, which symbolize a low-carbon society, and a plan to install systems with a total capacity of 5MW within the NTT Group by the end of March 213. NTT Green LLP ( LLP ) was established in August 28 as the primary vehicle for promoting Green NTT. LLP promotes the effective installation of solar power generation systems, focusing on real estate Japan s first environmental business that combines the introduction of solar power generation systems with Green Power Certificates. Three Group-owned solar power generation facilities built by LLP commenced operations during the fiscal NTT LOGISCO/Solar panel at Nagoya Logistics Center owned by NTT group companies, and through their investment and participation in LLP, various NTT group companies are able to contribute to the increased use of natural energies. LLP also issues Green Power Certificates when designated levels of power are generated, and these certificates are given to the investing companies in proportion to each company s investment, which promotes the use of natural energy and assists the power generation operators. NTT Group s LLP is year ended 211, with total capacity of 1,7kW. Adding to the systems installed individually by various Group companies, the NTT Group had roughly 16 power generation facilities nationwide, with total capacity of roughly 3.8MW, at the end of March 211. Going forward, the NTT Group will take the initiative in contributing to the increased use of natural energy in Japan for the realization of a low-carbon society. 56

59 Safe and Secure Communication Activities for security, so that customers are able to use ICT safely and securely [NTT Group] The NTT Group is developing various measures and technologies to maintain and improve information security in the ubiquitous broadband society, which is continuously undergoing major changes. With the spread of various ICT services like cloud computing and the sophistication of cyber attacks aiming at companies, security measures in the ICT area therefore need to become more complex and wide-ranging. Furthemore, NTT coordinates the use of technologies developed in laboratories for services provided to customers by Group companies. Along with exchanging information among R&D Laborato- Given this situation, the NTT Group is taking a multilayered approach Meeting to discuss information security that involves cooperation across various organizations. As a part of an approach, NTT Information Sharing Platform Laboratories is pursuing research in encryption and other related base technologies in the area ries and Group companies that provide security platform outsourcing maintenance with representatives from NTT, R&D Laboratories, and Group companies of security. The Laboratories also operates NTT-CERT as the Group s CSIRT (Computer Security Incident Response Team) organization for collecting information, investigating, and responding to threats related to computer security. During the fiscal year ended 211, NTT- CERT supported with response to cyber attacks to penetrate into IP telephone system to make international phone calls, and provided services to customers, NTT works on creating beneficial services for customers from various perspectives. Going forward, we aim at aggressive use of ICT to address social issues in the area of security by quickly developing advanced, industryleading security technologies through integral cooperation among NTT, R&D Laboratories, and Group companies. 24-hour support during the APEC summit held in Yokohama. Team NTT Communication Promoting diversity management to utilize diversity and to innovate continuously [NTT Group] The NTT Group works to create a workplace environment in which During the fiscal year ending 212, a conference held with employees with a variety of experiences and values can realize their outside experts and employees, and issues related to the current state maximum potential to meet various customers needs in a timely of diversity promotion within the NTT Group were discussed. The manner. results of this conference and discussions were summarized in the CSR To promote these activities organizationally, NTT established a Diversity Office in October 27, and by April 28 staff responsible for The NTT Group views diversity management as an important factor Report, which is distributed externally and internally. diversity promotion had been assigned at major Group companies. for maintaining and strengthening corporate competitiveness, and Since then, the Diversity Office and diversity promotion staff have strives to be a company that fully allows each individual employee to worked together to support employees work-life balance, support utilize their unique capabilities, and is a continuous source of innovation. career development for an increasingly diverse range of employees, As of the end of March 211, women accounted for 17.1% of employees, and 2.9% of management, at NTT and its five major Group compa- and promote educational activities to breathe new life into NTT s corporate culture. nies *, and the percentage of women in management is increasing Specific activities include easy-to-understand explanations of NTT s every year. childcare and nursing care systems via booklets and intranet, presentations on maintaining a healthy work-life balance by senior employees, accelerating innovation from a global perspective. We are also striving In addition, we hire and employ non-japanese staff as a means of seminars with presentations by outside experts, training programs for to globalize our workforce through staff exchanges with overseas career advancement, and support for returning to work through consultations with employees on childcare leave. Group companies. * NTT East, NTT West, NTT Communications, NTT DOCOMO, NTT DATA ANNUAL REPORT

60 CORPORATE GOVERNANCE NTT is committed to supporting the sound development of its Group companies and establishing a foundation of trust. To fulfill that commitment, NTT continues to enhance its management systems. Strengthening Corporate Governance and the Internal Control System Basic Philosophy As the holding company of the NTT Group, NTT believes that raising the effectiveness of corporate governance is an important management issue for meeting the expectations of various stakeholders, including shareholders and other investors, as well as customers, business partners, and employees, and for maximizing corporate value. Accordingly, the NTT Group is working to strengthen corporate governance based on its fundamental policies of ensuring sound management, conducting appropriate decision-making and business activities, clarifying accountability, and maintaining thorough compliance. Executive Officers Meeting and Committees The important corporate matters to be decided are, in principle and in advance, discussed by NTT s Executive Officers Meeting. The Executive Officers Meeting comprises the President, Senior Executive Vice Presidents, directors with management responsibilities and the heads of staff organizations, and meets around once a week, with a total of 26 meetings held in the fiscal year ended March 211. In addition, committees have been created under the Executive Officers Meeting to discuss specific issues related to the management strategies of NTT Group companies. These committees are in principle chaired by the President or a Senior Executive Vice President, and meetings are attended by Board of Directors and Board of Corporate Auditors relevant directors and other personnel as necessary. NTT maintains a Board of Directors with 12 members, including two outside directors. In principle, the Board of Directors meets once per month to make decisions and report on important management issues. NTT also maintained a Corporate Auditor system and maintains a Board of Corporate Auditors with five members, three of whom are outside corporate auditors. Audits by Corporate Auditors NTT s corporate auditors audit the performance of directors duties from the viewpoint of appropriateness. The corporate auditors are working with the Independent Auditor periodically to exchange information on audit plans and audit results to bolster the audit system, in addition to conducting audits in partnership with the corporate auditors of group companies. Corporate Governance Structure (Including an Outline of the Internal Control System) General Meeting of Shareholders Election/removal Election/removal Board of Directors Appointment and Compensation Committee Audit Board of Corporate Auditors Group companies Election/removal and supervision President (Executive Officers Meeting) Instruction, reporting Cooperation NTT Committee CSR Committee Corporate Ethics Committee Technology Strategy Committee Accounting Audit Independent Auditor Instruction, reporting, etc. Investment Strategy Committee Finance Strategy Committee Business Risk Management Committee, etc. Business sections Internal Audit Internal Control Office 58

61 Policies Concerning the Compensation of Directors and Auditors, and its Total Policies In regard to matters concerning the compensation of directors, in order to improve objectivity and transparency, NTT established the Appointment and Compensation Committee, comprised of four directors, including two outside directors, and such matters are decided by the Board of Directors after deliberation by this committee. Compensation of directors (excluding outside directors) consists of a base salary and a bonus. The base salary is paid monthly on the basis of the scope of each director s roles and responsibilities. The bonus is paid taking into account NTT s business results for the current term. Also, directors make monthly contributions of at least a certain amount for the purchase of NTT shares through the Director Shareholders Association, to reflect NTT s medium- and long-term business results in compensation. Purchased shares are owned by the directors during their terms of office. In order to maintain a high level of independence, compensation of outside directors consists of a base salary only, and is not linked to NTT s business results. Compensation of corporate auditors is determined by resolution of the Board of Corporate Auditors and consists of a base salary only, for the same reasons as those cited above with respect to outside directors. Establishment and Promotion of Risk Management Framework The NTT Group faces a rapidly changing business environment, including intensified competition in the information and telecommunications sector. In this context, NTT Group companies are exposed to an increasing amount of business risk. The NTT Group strives to minimize the impact of losses that could result from the materialization of risk by anticipating and preventing the occurrence of potential risks. As part of these efforts, NTT has formulated a standard manual and distributed it to all Group companies so that the entire Group can work together to conduct risk management. In addition, each Group company has formulated its own manuals and other guidelines, which reflect its specific business operations, business environment, and other factors. These materials are used to control business risks. Total Compensation of Directors and Corporate Auditors Position Number of Persons Monthly Compensation Bonuses Total Compensation Directors (Excluding outside million 96 million 528 million directors) Corporate Auditors (Excluding external 2 74 million 74 million corporate auditors) Total million 96 million 62 million Notes: 1. The upper limits on total compensation of directors and corporate auditors were set at 75 million annually for directors and 2 million annually for corporate auditors at the 21st Ordinary General Meeting of Shareholders held on June 28, In addition to the above, 12 million is to be paid to 4 directors who are also employees as bonuses for their service as employees. Internal Control Systems NTT has established a basic policy on the maintenance of an internal control system for the NTT Group through a resolution of the Board of Directors to put in place a structure for ensuring the appropriate execution of duties within each Group company, while continuing efforts to establish further rules and systems related to internal controls based on the above-mentioned basic policy. In terms of ensuring the reliability of the internal control over financial reporting based on the U.S. Sarbanes-Oxley Act and Japan s Financial Instruments and Exchange Law, the NTT Group is working to document business processes and conduct repeated tests to provide reasonable assurance as to effectiveness of internal control over financial reporting. NTT s Internal Control Office plays a primary role in monitoring the status and verifying the effectiveness of internal controls across the Group as a whole through such measures as conducting standardized audits that target all Group companies and checking the status of progress of internal audits in each Group company, as well as leading efforts to improve the Group s internal control systems. Basic Policy on the Maintenance of an Internal Control System for the NTT Group (Board of Directors Resolution) 1. NTT maintains a system of internal controls, including measures for the prevention and minimization of losses, to ensure compliance with applicable laws, appropriate risk management and proper and efficient business operations. 2. To maintain the internal control system outlined above, NTT has established an Internal Control Office to oversee the establishment and maintenance of rules and structures. This body also evaluates the effectiveness of the internal control system and makes necessary system revisions by conducting audit reviews and coordinating audits of high-risk matters common to group companies. 3. NTT also takes appropriate measures to ensure the reliability of its internal control system based on the U.S. Sarbanes-Oxley Act Sections 32 (disclosure controls) and 44 (internal control relating to financial reporting). 4. As the Chief Executive Officer, the President is responsible for ensuring the establishment, maintenance and operation of the system of internal controls. ANNUAL REPORT

62 CORPORATE GOVERNANCE Defining Accountability NTT strives to maintain appropriate, timely and fair information disclosure and is aware that obtaining proper corporate valuations in the market through such disclosure is essential. Accordingly, NTT conducts presentations on financial results, and promptly discloses information on the NTT website to clarify the NTT Group s accountability to stakeholders. NTT s IR activities are outlined below: Regular Presentations Held for Analysts and Institutional Investors NTT conducts presentations of financial results every quarter. At the presentations, the President or a senior executive vice president explains business results and other matters, and this presentation is made available via live streaming over the Internet. In addition, NTT conducts various activities, including individual meetings with analysts and institutional investors worldwide. NTT conducts earnings presentations every quarter. At the presentations, the President or a senior executive vice president explains business results and other matters. In addition to the live streaming of presentations over the Internet, NTT conducts various activities, including individual meetings with analysts and institutional Regular Presentations Held for Overseas Investors NTT explains its business results and other matters by conducting overseas road shows several times a year, wherein the President or a senior executive vice president participates. IR Materials Posted on Website NTT posts various IR-related materials on its website. Examples of these materials include annual financial results and other financial information, press releases, yuho (marketable securities reports), quarterly reports, notices of convocation for ordinary general meetings of shareholders, financial data, presentation materials (including video streaming), stock information and Q&As. investors worldwide. 211 Presentation for individual investors Shareholders Newsletter NTTis... NTT Group IR Website 6

63 Ensuring Compliance NTT Group Corporate Ethics Charter Recognizing that it is imperative to conduct business in compliance with laws and regulations, and maintain high ethical standards in order to promote sound corporate activities, NTT drew up the NTT Group Corporate Ethics Charter in November 22. The Charter, which applies to all officers and employees of the NTT Group, lays out the basic principles of corporate ethics and provides specific guidelines for ethical behavior. The stipulations in the guidelines are intended to remind everyone of their duty as members of a communications group which bears significant responsibility to society in terms of preventing dishonesty, misconduct, and the disclosure of corporate secrets, as well as refraining from exchanging excessive favors with customers and suppliers, and ensuring that they conduct themselves according to the highest ethical standards in both private and public activities. Ethics Education and Awareness Surveys To ensure the effectiveness of the NTT Group Corporate Ethics Charter, NTT Group companies offer training sessions on corporate ethics and CSR to employees, and conduct surveys to monitor employee awareness. By conducting surveys of regular employees, as well as temporary and contract staff, every year, the NTT Group is working to raise awareness of corporate ethics and CSR among its workforce. Help Line To prevent dishonesty and NTT Group Corporate Ethics Charter website misconduct, each company has in place a system for employees to report and consult on ethical issues. The NTT Group has also established a Groupwide Corporate Ethics Help Line to enable employees to go outside their company for help if required. In line with Japan s Whistleblower Protection Act, which came into force in April 26, and other laws, the NTT Group also accepts reports from companies outside the Group that do business with the NTT Group. NTT Group Corporate Ethics Charter 1. Recognizing the establishment of corporate ethics as one of its most important missions, top management shall exert its leadership to ensure that the spirit of this Charter is adopted throughout the Company, and shall assume full responsibility for solving any problems when any event inconsistent with that spirit occurs. 2. Every person with subordinate employees shall not only act in a selfdisciplined manner, but shall also always provide guidance and assistance to his/her subordinate staff to ensure that their conduct is in conformity with our corporate ethics. 3. Every officer and employee of the NTT Group shall not only comply with all laws and regulations, social standards and internal company rules whether in Japan or overseas, but officers and employees shall also hold the highest ethical philosophy within every officer and employee both in public and in any private situations. Among other things, each officer and employee, as an officer or employee of a member of a Global Information Sharing Corporate Group, shall keep himself/herself fully aware that any disclosure of customer or other internal privileged information constitutes a materially wrongful act. Also, as a member of a group of companies which holds great social responsibilities, he/she shall strictly refrain from giving or receiving from customers, business partners and other interested parties excessive gratuities. 4. Each NTT Group company, at the first opportunity, shall take initiatives to provide training programs in order to help its officers and employees enhance their awareness of our corporate ethics. 5. Every officer and employee of NTT Group shall direct his/her efforts to prevent wrongful or scandalous acts which may potentially occur as specialization and advancement of our business proceeds. Each NTT Group company shall improve its system to prevent such acts, including, for instance, the re-assignment of contract representatives who have remained with the same customers for a long period of time, and the improvement of monitoring tools to protect customer and other information. 6. Any officer or employee who may come to know of the occurrence of any wrongful act or any scandal shall promptly report the wrongful act or scandal to his/her superior or other appropriate persons. If he/she is not able to make such a report, he/she may contact the Corporate Ethics Help Line (Consulting Center). It should be noted that every officer and employee who reports the occurrence of any wrongful act or scandal shall be protected so that the reporting party shall not suffer any negative consequences due to such reporting. 7. In the event of an occurrence of any wrongful act or scandal, each NTT Group company shall be committed to the settlement of the problem by taking appropriate steps through a speedy and accurate fact finding process, and responding in a timely, suitable and transparent manner in order to fulfill its social accountability. ANNUAL REPORT

64 DIRECTORS AND CORPORATE AUDITORS (As of June 3, 211) Hiroo Unoura Representative Director and Norio Wada Director and Chairman Satoshi Miura Representative Director and Noritaka Uji Representative Director and Kaoru Kanazawa Representative Director and Senior Executive Vice President President Senior Executive Vice President Senior Executive Vice President Director and Chairman Norio Wada Chairman of Board of Directors Representative Director and President Satoshi Miura Chief Executive Officer Representative Directors and Senior Executive Vice Presidents Noritaka Uji In charge of technical strategy; Chief Technology Officer; and Chief Information Officer Hiroo Unoura In charge of business strategy; in charge of Strategic Business Development Division; in charge of Global Business Office; and Chief Financial Officer Kaoru Kanazawa In charge of risk management and international standardization; and Chief Compliance Officer Directors and Executive Vice Presidents Yasuyoshi Katayama Director of Technology Planning Department; Director of Next Generation Network Office, Technology Planning Department; and Director of NTT Comware Corporation Hiroki Watanabe Director of Corporate Strategy Planning Department; and Director of Nippon Telegraph and Telephone West Corporation Directors and Senior Vice Presidents Toshio Kobayashi Director of Finance and Accounting Department Hiromichi Shinohara Director of Research and Development Planning Department; Director of the Information Sharing Laboratory Group Tetsuya Shoji Director of General Affairs Department; Director of Internal Control Office, General Affairs Department; and Director of Nippon Telegraph and Telephone East Corporation Directors Takashi Imai Director of Japan Securities Finance Co., Ltd.; Director of Nippon Television Network Corporation; and Auditor of Nippon Life Insurance Company Yotaro Kobayashi Director of Sony Corporation Full-time Corporate Auditors Shunsuke Amiya Yoshitaka Makitani Corporate Auditors Shigeru Iwamoto Certified Public Accountant; Commissioner of National Audit Organization of Central Union of Agricultural Cooperatives; Director of Sumitomo Mitsui Financial Group, Inc.; and Director of Sumitomo Mitsui Banking Corporation Toru Motobayashi Lawyer; Director of Hitachi, Ltd.; and Corporate Auditor of Sumitomo Life Insurance Company Michiko Tomonaga Certified Public Accountant; and Corporate Auditor of Keikyu Corporation Notes: 1. Mr. Takashi Imai and Mr. Yotaro Kobayashi are outside directors assigned in accordance with Article 2, Paragraph 15 of the Japanese Corporate Law. 2. Mr. Shigeru Iwamoto, Mr. Toru Motobayashi and Ms. Michiko Tomonaga are outside corporate auditors assigned in accordance with Article 2, Paragraph 16 of the Japanese Corporate Law. 3. Terms for directors and senior vice president are 2 years from the Ordinary General Meeting of Shareholders held on June 24, Terms for corporate auditors are 4 years from the Ordinary General Meeting of Shareholders held on June 23,