(Attachment)

About the New Subscription Fees
 


1. Subscription Rights and Subscription Fees (See references 1, 2, and 3)

A subscription right is "the right of the person entering into the contract to receive telephone subscriber service as per the telephone service contract," (Telephone Service Contract Conditions Article 21).

In contrast, the subscription fee is money payable to NTT when it accepts a new contract for services, such as telephone subscriber service. The fee for telephone subscriber service (single line) is currently 72,000 yen (75,600 including tax).

This subscription fee is levied as an advance payment on the basic fee, and is used to cover part of the cost of installing a subscriber line from the central office to the customer's premises when providing telephone subscriber service. The subscription fee goes towards the cost of installing subscriber line equipment, which allows NTT to keep the basic monthly fee at a lower level and thus pass the benefit back to the customer. As a result, the subscription fee is not returned when a contract is cancelled.

Thus, the subscriber fee does not guarantee the value of the subscription right as an asset, although in reality a subscription rights resale market has developed. In addition, the right of pledge has been recognized, and subscription rights have been included in many systems, for instance as a non-depreciable asset in corporate tax law.


2. Market Changes Affecting Subscription Fees (See references 4,5,6 and 7)

Subscription fees were a method of raising capital to quickly spread telephone services by paying for infrastructure, and was instrumental in building a robust telephone network. However, as the number of telephone subscribers declines, so does the role of subscription fees.

To reduce the initial burden of acquiring telephone service on our customers, we developed the Lite Plan, in which the subscription fee is built into the basic monthly fee and thus is paid over time. This option was made available to new subscribers of the INS-Net 64 service starting in July 1997, and to new subscribers of the telephone subscriber service starting in February 2002. Today, the vast majority of new customers opt for the Lite Plan.

The market has been changing in recent years due to several factors, particularly the number of competing carriers offering telephone services that do not levy an initial subscription fee. In response, we must re-evaluate the subscription fee.


3. Subscription Fee Re-evaluation (See references 8 and 9)

In response to these market shifts that affect the subscription fee, the Telecommunications Council of the Ministry of Internal Affairs and Communications issued the following statement about the subscription fee: "If, while giving full consideration to existing subscribers, the subscription rights resale market, and other factors, NTT East and NTT West desire to re-evaluate or abolish [the fee], we should permit it." (Final draft of Connectivity Charges from 2005 Onward)

Based on the content of this report and after considering the effects from all angles, we have decided to reduce the subscription fee (and the Lite Plan), but not to such an extent that would directly impact the selling price in the subscription rights resale market. This change will take effect from March 1, 2005, to give sufficient prior notice to our customers while coming into force before the peak new-subscriber season in the spring, when many working people are transferred and the new school year starts.

Moving forward, we will continue to keep our customers informed in order to gain their understanding, monitor the trends in the subscription rights resale market, and keep track of changes in related systems.


4. Customer Notification

As we prepare to change the subscription fees, we will continue to provide our customers with the information presented here to clarify the situation. We will also publish notices in the Hello Information newsletter that goes out with the telephone bills, take out advertisements in newspapers, and make other efforts to keep customers well informed.


(Reference 1) The History of the Subscriber Telephone Subscription Fee
(Reference 2) Determining Subscription Fees
(Reference 3) Relationship between Subscription Fee and Basic Fee (Recovering the cost of subscriber line equipment)
(Reference 4) Fixed-line Telephones and Subscriber Fees
(Reference 5) Determining the Lite Plan Fee
(Reference 6) Five-Year Trend in Applications for New Fixed-Line Telephone Service (Subscriber Telephone + INS-Net 64)
(Reference 7) Subscription Fees and Transfer Fees: An International Comparison
(Reference 8) Market Price of Subscription Rights
(Reference 9) Summary of the Report by the Telecommunications Council of MIC (Excerpts on the subscription fee)


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