SUMMARY OF RESULTS
1. Overall Business Conditions
During the interim period ended September 30, 2005, the Japanese economy continued a steady recovery. Corporate profits improved, and capital investment gradually expanded. The employment situation, while still harsh, continued to improve, and personal consumption showed a gradual increase.
In the information and communications sector, consumer demands have become increasingly complex, diversified and global in scale, as society's expectations for ubiquitous networks--the ability to send and receive a wide range of information anytime and anywhere have increased. With a surge in demand for mobile and Internet communications, the telecommunications market has been undergoing drastic structural changes, leading to intensified service competition for customers. Within the broadband market, IP telephony is becoming widely available and the number of new optical access service subscribers has exceeded that of new DSL service subscribers, as the demand for optical access services has continued to rise rapidly.
In the fixed-line market, the direct subscriber telephone service using dry copper went into full swing, bringing about a full-scale competition for subscribers to metal, optical, and other types of access line services.
Within this business environment, Nippon Telegraph and Telephone East Corporation (NTT East) has worked hard to achieve the goal defined in the NTT Group's Medium-Term Management Strategy, which was announced in November 2004 of shifting 30 million customers to optical fiber access services by 2010. To this end, NTT East has devoted its energy on meeting increased customer needs for broadband communications to attract one million new subscribers to FLET'S Hikari services by the end of this fiscal year. Specific measures include the full-scale promotion of optical IP telephone services and the development and provision of safe, reliable and high value-added services. NTT East has also worked to build a stable and enhanced management infrastructure and to reduce property expenses and streamline its assets to increase operational efficiency, and has implemented internal reorganization in order to accelerate decision making and further boost its sales. With measures such as these, NTT East has strove to achieve more flexible business operations that are more responsive to changes in the business environment.
2. Promotion of Optical IP-Based Services
In the rapidly expanding broadband market, NTT East has worked to further upgrade its services to respond to its customers' diverse needs, while continuing to lower rates. The company actively promoted the "Hikari Denwa" IP telephony service that permits subscribers to make and receive calls to and from conventional phone lines and within the IP phone network, using the conventional phone-line number with no prefix, and introduced a new monthly rate plan for the service in April 2005. In addition, the company changed the service name of "Corporate IP Telephone Service" to "Hikari Denwa Business Type" and modified its service terms by lowering basic fees and introducing a new call rate plan to attract more corporate customers. NTT East also augmented its B FLELT'S service, which offers flat-rate high-speed Internet connections via a fiber optic network, to add a new menu item enabling the combined use of B FLET'S with Hikari Denwa Business Type.
NTT East introduced various optional services to increase convenience for Hikari Denwa users. NTT East has devoted its efforts on launching such value-added services as the "Free Access" reverse charge call service (for Hikari Denwa Business Type only) in April 2005 and the "171" disaster message service in May. The company has also worked to reduce rates by lowering monthly charges for the "Nuisance Call Blocking Service" in June.
In keeping with the ongoing development of the ubiquitous broadband society, NTT East has been promoting the increase "FLET'S SPOT" access points where subscribers to the FLET'S SPOT service can connect to high-speed flat-rate Internet via access points near stations, cafes, hotels, and other locations, using their own wireless LAN-compatible laptop PCs that are used in the office or at home. Additionally, in order to provide subscribers with enhanced and convenient Internet connections, NTT East, jointly with NTT West, has begun providing mutual roaming services to give both FLET'S SPOT users access to the Internet via access points in the NTT East and NTT West FLET'S SPOT service areas and to enhance service functions of FLET'S SPOT to enable subscribers to have Internet access using different types of wireless LAN equipment.
With respect to measures taken by NTT East to promote sales of FLET'S services, NTT East launched in May 2005 the "FLET'S Summer Campaign" to waive monthly fees for B FLET'S services for two months. Through such promotional activities,
NTT East has actively committed itself to meeting customers' diversified needs and to developing a user-friendly environment for broadband communications.
In an effort to expand its offerings of high value-added content exploiting the broadband environment, NTT East formed partnerships with various content providers in distributing content. Examples include the "Korean Drama Theater
'Brokore (Broadband Korea)' on FLET'S" that offers popular Korean dramas, as well as Korean entertainment news, and "Toei Tokusatsu Anime Archives on FLET'S" that features very popular Japanese animations and live-action superhero (tokusatsu) programs that were broadcast on TV in the past.
3. Measures for Fixed-Line Telephone Services
In the fixed-line market, the introduction of direct subscriber telephone service using dry copper line has brought about an era of full-scale competition for customers. Under such circumstances, in May 2005, in an effort to reduce monthly charges for fixed-line telephone services, NTT East began offering discounts on basic connection fees to subscribers who have multiple telephone lines under a single billing address.
4. Development of Solutions Business
In its corporate service sector, under NTT East's "Team M@rketing Solutions" business concept for tackling issues and developing new businesses in partnership with its corporate customers, the company has been working actively to provide "total solutions" that combine its network integration and systems integration technologies. In doing so, NTT East drew on its network services for business users, including "Mega Data Netz," "Flat Ether," "Super
Wide LAN," and "Metro Ether," as well as its information systems services, including security data centers. In its total solutions business, NTT East launched "Mobile Presence Solutions" and "Network Quarantine Solution." The Mobile Presence Solutions service reduces overall management costs by minimizing operational losses arising from unnecessary callbacks and call-handling time in daily operations. The Network Quarantine Solution service, designed to accommodate corporate security needs, prevents information leakage and virus infection by enhancing security measures for business computers used in public and private institutions. In addition, active efforts have been made in the e-Japan Strategic Sales Promotion Division of the Corporate Business Headquarters and the e-Japan Strategic Sales Promotion Office of the Business Communications Department of each branch, to provide e-government solutions in response to opportunities presented by the e-Japan Priority Plans of local governments within the NTT East area.
5. Reorganization of Business Operation Structure
As for business management structure, NTT East has been committed to enhancing its customer services, increasing profitability and cost competitiveness to respond to the full-scale development of optical IP networks, and enhancing efficiency by introducing a flow-through operation system. To this end, NTT East integrated each prefecture's three outsourcing subsidiaries (those responsible for sales, facilities and common back-office functions)* into a single prefectural outsourcing subsidiary. The new outsourcing companies are in charge of corporate service operations previously conducted by NTT East branches. With respect to the Tokyo area, it has been divided into five blocks and each block has a new outsourcing
subsidiary to provide more fine-tuned customer services and increase operational efficiency.
* Sales subsidiary: NTT Service [prefecture name] Corporation; Facility subsidiary: NTT ME [prefecture or region name] Corporation; Back-office subsidiary: NTT Business Associe [prefecture name] Co., Ltd.
Following the full enforcement of the Personal Information Protection Act, in April 2005, NTT East established the Personal Information Protection Promotion Office that formulates and organizes policies for promoting the protection of personal data and that conducts activities to raise its employees' privacy awareness. As a corporate citizen, NTT East has also been promoting initiatives that give serious consideration not only to economic aspects but also to social aspects, such as corporate ethics and philanthropy, and environmental aspects, thereby contributing to the sustainable development of society. In supporting these endeavors, in August 2005, NTT East set up the CSR (corporate social responsibility) Committee.
With regard to disaster countermeasures, NTT East provided support as an information and communications provider to the victims of the flood in the Niigata region in June 2005 and of the earthquake in the Miyagi region in August 2005, by operating the "171" disaster message service that enables people to confirm the safety of their families, relatives and friends in disaster areas.
6. Sales Performance
As a result of these efforts, sales performance in NTT East major areas of service was as follows during the interim period under review.
With respect to NTT East's broadband access services, as of the end of September 2005, there were 1,301,000 B FLET'S subscribers, an increase of 416,000 from the end of March 2005, and 2,971,000 FLET'S ADSL subscribers, an increase of
138,000 from the end of March 2005.
The number of channels for the "Hikari Denwa" IP telephony service grew to 101,000 channels as of the end of September 2005.
With respect to NTT East's subscriber telephone services, the total number of lines installed was 24.25 million as of the end of September 2005, a decrease of 640,000 from the end of March 2005, while the total number of INS-Net 64 lines fell by 140,000 from the end of March 2005 to 3.92 million as a result of the shift to broadband access services.
During the interim period under review, operating revenue totaled 1,049.9 billion yen (down 2.0 % from the same period of the previous year); recurring profit came to 56.4 billion yen (up 5.5% from the same period of the previous year); and net profit totaled 34.0 billion yen (up 8.5% from the same period of the previous year).