Nippon Telegraph and Telephone Corp
TSE:9432

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TSE:9432
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Earnings Call Transcript

Earnings Call Transcript
2018-Q3

from 0
T
Takashi Ameshima
executive

I would now like to start the briefing of NTT's financial results for the 9 months ended December 31, 2017. Thank you very much for attending despite your busy schedules today. I am Ameshima from the IR office, and will be facilitating today's briefing.

First of all, I would like to introduce today's attending members: Representative Director, Senior Executive Vice President, Sawada; Member of the Board, Senior Vice President, Head of Finance and Accounting Department, Hiroi; Member of the Board, Senior Vice President, Head of Corporate Strategy Planning Department, Sakamoto; Presidents from Corporate Strategy Planning, Finance and Accounting, NTT East, West and NTT Communications are also attending.

Today's briefing will be based on the presentation material that is posted on our company website. On Page 1 of the presentation material, disclaimer is stated. So please go through them.

Today's briefing will be streamed real time on our company website. The briefing will also be available on a later date through on-demand streaming. We seek your understanding on this beforehand.

Today schedule, at the beginning, outline of the results will be explained by Senior Executive Vice President, Sawada, and later receive questions. Mr. Sawada, please?

J
Jun Sawada
executive

Thank you very much. Ladies and gentlemen, thank you for joining us despite your busy and demanding schedule.

I would now like to provide my presentation based on the materials. So let's start from Page 3. This shows you the highlights of the third quarter of this fiscal year, and briefly are 2 points here. First is that, as was the case with the second quarter, we continue on to have increase in both operating revenue and operating income. And we've been able to realize a progress as expected and we are making very favorable progress towards achieving the annual plan.

So let me start by explaining through the operating revenue, which is described here. As for operating revenue, there was increase in overseas sales centered on data and also increased domestic revenue due to upswing in DOCOMO's mobile communication service revenue. So as a result, operating revenue increased 4.3% year-on-year by JPY 361.5 billion and reached JPY 8,722,000,000,000.

Turning now to operating income. Well, in the regional communication segment, there was a retirement of the fixed assets with a disposal for the copper wire, and this reached JPY 125 billion. On the other hand, there was increase in revenues among our group companies. And also, on top of that, in the fiscal year, we had impairment for Dimension Data and NTT Security the previous year; but this fiscal year, there is no such impact. So as a result, operating income increased JPY 1 billion and reached JPY 1,319,600,000,000. As far as the net income is concerned, with the arbitration award from Tata Sons, net income increased 10.1% year-on-year, increasing by JPY 67.9 billion and reached JPY 736.6 billion.

So as far as the third quarter results are concerned, in terms of operating revenue, operating income and net income, they all achieved record highs. As for overseas sales and operating income, it is increasing in a steadfast manner and realized increase in both operating revenue and operating income on a year-on-year basis. As for cross-selling order volume, there was order from a European energy-related industry. It is expanding very favorably and reached $660 million.

Now please turn to Page 4. This shows you contributing factors by segment. Let me start with the regional communication business segment. As future cost minimization effort for copper cable, we implemented retirement of fixed assets with our disposal in the third quarter, as we announced our -- when we announced our first half results. So this -- so operating income in this communication segment decreased JPY 74.8 billion year-on-year, or 22.6% and went down to JPY 255.7 billion. With regard to the retirement of copper cable, there will be JPY 6 billion decline in depreciation from the following year as a result of this retirement. Now, in terms of NTT East and West on a non-consolidated basis, NTT East and West have reflected the retirement of copper cable without disposal as special loss now. Although in the previous years, they used to reflect this as operating expense. So on a non-consolidated basis, NTT East operating income increased by JPY 38.4 billion and [ NTT East ] increased by JPY 39.3 billion.

Turning now to Long Distance and International Communication business segment. With regard to NTT America, reflecting the prevailing market situation, they decided to review the medium term outlook in a more conservative fashion. So JPY 18.9 billion, an impairment of goodwill was reflected as a result of this review. So NTT Communications group experienced decline in operating income. But then, this was already factored in as a potential risk in our annual plan to begin with. On the other hand, there is improvement and recovery in the operating income for Dimension Data in the order of JPY 16.3 billion. And also in the previous year, we had impairment of the assets at Dimension Data and NTT Security in the previous year; but this year, there is no such impact. So there was a positive impact of -- so the operating income rather increased JPY 58 billion and reached JPY 76.6 billion.

With regard to mobile communications segment and data communications segment, NTT DOCOMO and DATA have already made their financial presentations, but let me briefly give you a highlight. In the mobile communications segment, DOCOMO realized future cost minimization efforts from the first half this year. So as a result, operating income went down JPY 5.7 billion year-on-year, down to JPY 833.6 billion. In the data communications segment, operating revenue increased due to expanded impact of consolidation of Dell Services, which was acquired last year, and also expanded domestic business. Also, in the previous fiscal year, there was temporary acquisition-related expenses, but there is no such impact this fiscal year. So as a result, operating income increased JPY 22.1 billion year-on-year, went up to JPY 89.1 billion. So both segments are showing progress as was initially expected. It is in line -- it is on track.

So, in a nutshell, as we head toward the next -- head toward the end of this fiscal year, we will work so that each operating companies will continue to increase their revenue and reduce their cost. And we will likely exceed the operating income guidance of JPY 1.59 trillion and we'll probably reach JPY 1.6 trillion at the end of this fiscal year. As we head toward the next fiscal year, we'll continue to make efforts to realize both increasing operating income and operating revenue.

Please turn to Page 5. This shows you some of our major initiatives. So let me talk about the Network Services first. Starting with the mobile services, there was net increase of 800,000 and subscription reached to 75.68 million. As for subscription for Kake-hodai & Pake-aeru, they continue to expand as well. So the net increase was 3.53 million and reached 40.6 million subscriptions altogether. So the subscription has already exceeded 40 million for this particular service. With regard to FTTH, fiber-to-the-home, the net addition was 400,000 and total subscription reached 20.46 million. Now, the annual target of 800,000 in terms of net additions, or net increase might be somewhat challenging to achieve. But going forward, we will continue to make efforts to increase new connections and also to prevent churns; and with this, we will look to further expand our net increase. And NTT East and West hopefully will make such efforts. As for fiber -- as for wholesale fiber [ collab Hikari ] -- fiber -- wholesale fiber, which is [ collab Hikari ], net increase was 1.91 million, accounting for roughly half of the fiber subscriber base, which is 10.66 million. So subscriptions for this particular business continue to expand.

Let me now talk about the Wi-Fi area owners. Companies and local governments, who are customer base for the service, are actively pursuing this Wi-Fi service. So the number of area owners with whom our group is cooperating has increased by 124 on a year-on-year basis and has now reached 681 owners, that is the cumulative number. Also, although not to mention on the slide, in terms of our medium term financial target, we focus on increased efficiency in domestic network CapEx and also focus on cost -- we are aiming for JPY 20 billion compared against fiscal 2014, that is the reduction target. And also in terms of cost reduction in fixed and mobile access network, which is [ JPY 800 billion ] against fiscal year 2014. As far these financial targets are concerned, again, we are on track in terms of achieving these targets.

Please look at Slide 6, regarding promotion of the B2B2X model. As for the efforts based in the B2B2X model, we are continuing to expand the collaboration with corporations and local governments by supporting their digital transformation in various fields, such as sports, transportation and manufacturing, and efforts towards creating new value and solving social issues and challenges. Page 7 shows the major B2B2X initiatives in fiscal year 2017 third quarter, so please take a look at it. As for the B2B2X model initiatives, we will be introducing them together with the latest research outcomes at the NTT R&D Forum 2018 that will be held in February 22 and 23. And also for the first time, as the whole NTT Group, we will be exhibiting at the Mobile World Congress 2018 that will be held in Barcelona from February 26, because till now, conventionally, DOCOMO was the one that was exhibiting; but as I said, this year, for the first time, we will be exhibiting as the whole group and we will be showcasing AI, IoT, 5G and other technologies following the CEBIT of last year that was held in Hanover. The outline is on Page 8 and 9.

Regarding the expansion of global cloud service, an announcement has been already made by NTT Communications in November. However, we would like to share that necessary procedures are moving forward based on the basic agreement towards the acquisition of Secure-24, which is a major provider of managed services in the U.S. By bringing in them to the NTT Group, mainly to NTT Communications and Dimension Data, the efficient and high quality managed service of Secure-24, through this acquisition, it will largely expand the overall group's ability to provide managed services, and we expect this to largely contribute to the promotion of further growth strategy of our global businesses.

Now regarding shareholder returns. This has already been shared with you, so I just like to touch upon the result that the accumulated aggregated amount of fiscal year 2017 up to now and the total fiscal year [indiscernible] share buyback is JPY 193.2 billion.

Next, I would like to talk about the Tokyo 2020 Medal Project: Towards an Innovative Future for All. The number of used mobile phones and other devices collected as of end of second quarter was 1.54 million devices. And in the third quarter, we were able to collect additional 860,000 devices. Therefore, the accumulated number of collected device is approximately 2.4 million devices. The target for the fiscal year is 3 million, and we are progressing in a satisfactory manner towards this achieving target, while we are looking for continuing cooperation from all of you.

That is all from my side.

T
Takashi Ameshima
executive

We would now like to take your questions. As we have already information you beforehand, we will take questions from those who are connected to the telephone system and who have registered beforehand. As far as the procedures to accept your questions are concerned, the operator will now explain how you can ask questions.

Operator

[Operator Instructions] From Mitsubishi UFJ Morgan Stanley Securities, Mr. Tanaka.

H
Hideaki Tanaka
analyst

Tanaka is my name. I would like to have few questions, if I could ask one by one. Let me start with my first question. It's about the -- in the -- it's in the supplementary data, I'm looking at Page 5 of the supplementary, and there's about the performance of Dimension Data and IFRS data is provided. When you take a look at the second quarter and third quarter, operating revenue is actually increasing on a quarterly basis. However, when it comes to operating income, it is still flat, and the margin seems to be worsening at first glance. Can you tell us why that is the case and also share with us how you see the trajectory going forward?

J
Jun Sawada
executive

Yes. So let me start with the numbers. In the second quarter, it's JPY 3.2 billion and JPY 6.5 billion. Is it the number or column you are observing?

H
Hideaki Tanaka
analyst

No, actually JPY 3.3 billion from -- up until January, and also JPY 3.3 billion from October through December. So the sales are expanding. So why is so far is the backdrop?

J
Jun Sawada
executive

Well, first of all, I suppose we should -- well, this fiscal year -- Dimension Data, their financial year starts from October through September, that is the accounting year. And from next fiscal year, they will switch from -- to a start from April. But in terms of annual plan, so they're making a 6-month plan, which starts from October. That is [indiscernible] right now. So in an average year, the third quarter is equivalent to the start of their accounting year. So compared against other quarters, it's very difficult to increase their sales. That is the trend, which we have seen in the previous years, because it is the start of their fiscal year. Of course, we would naturally like to see more impetus, because the target is JPY 9 billion for this fiscal year. We want to see growth naturally. But their third quarter was somewhat conservative, I believe. They were somewhat, if you will, inactive.

H
Hideaki Tanaka
analyst

Well, from October through December, the revenue seems to be very large. So did you spend more cost to drive up their revenue? So the margin is very low, but it is also very large. Why is that?

J
Jun Sawada
executive

They just spend cost for marketing, well, as far as the cost is concerned. In order to improve their service efficiency, we decided to concentrate our centers into locations for Dimension Data. So that cost was actually somewhat larger than we had initially planned.

H
Hideaki Tanaka
analyst

I see. My second question then. Earlier, you mentioned that this factor was already factored in, but that the impairment, JPY 18.9 billion at NTT America, what is the backdrop? Is there a worsening of the competitive landscape? Can you please elaborate on NTT America, please?

J
Jun Sawada
executive

Yes As far as NTT America is concerned, well, the American market per se it's not just limited to our company, but the general trend of the U.S. market is this: at least there are 2 distinct characteristics of the general U.S. market. Of course, the asset backdrop is the digital transformation. And SEER report at Oxford, this came up last month in December, I believe. When you take a look at this report, you find that 70% of global CEOs respond that it is now -- they are now in the midst of a major transformation period. So as digital transformation process is accelerating, you want to able to outsource to one party, but then on the other hand, there are people who want to do this not on outsourced base, but they want to do this in-house. So there are 2 distinct characteristics. The people who want to do this inside their company, if they -- naturally overall, people who -- if they are players who want to do things in-house, then the order volume from those companies will have to decline, that is a general trend. So [ cloud first and also digital transformation, these trends actually could help to push up -- push down, rather, the market. So that is why we decided to be very conservative in the outlook for the marketplace and that's why we decided to realize the impairment for goodwill. So that's a backdrop. So it's not that the recent situation is really deteriorating, that's not the case. You're simply saying that, as far as your reading outlook is concerned, you have to be more conservative. Yes, exactly. That is exactly the case. We decided -- it's simply about the future outlook.

H
Hideaki Tanaka
analyst

I see. NTT DATA has already commented on this matter and NTT Communications group is also in a similar situation. Is my interpretation correct?

J
Jun Sawada
executive

Well, the recognition and the understanding of the basic market, I believe, is the same for these 2 groups.

Operator

Next question will be SMBC Nikko Securities, Mr. Kikuchi.

S
Satoru Kikuchi
analyst

I'm Kikuchi. Regarding the copper line retirement, amount wise, is the same as what you mentioned in the second quarter. And at that time, from next fiscal year onward, I'm sure there's half that remains. So I believe the retirement of that will be conducted next fiscal year and that was also commented. How is that going to come out? Well, 50%, it's JPY 120 billion plus is what I think. Can you comment on that, please?

J
Jun Sawada
executive

Well, 50% plus, the reason we said that or what we mean by that is, it's already mentioned to you, this copper cable or copper lines, because a lot of phones and subscribers are going down, but the decline happens in various lines, so ensure that we should actually have the status quo survey and say, this cable is 30%, this cable is 80%, or this cable is 50%, and it will depend on the area or the region. And that is the most detailed way of doing this. However, in a macro view, the direction is all the same, and depending the area or the district, even though there is an unbalance between the type of cables, however, we felt that it is okay that 50% of retirement is enough, after the consultation with the accountants, and that's why we have done it that way this year. So, as you mentioned, 50% will remain, and that means that we will be having a thorough status survey. As a result of that, how much will be subjected to the retirement disposal -- excuse me, disposal will be something that we will be discussing and determining for the depreciation.

S
Satoru Kikuchi
analyst

So the impairment or what you have to depreciate, it has ended with this one and next fiscal year, you're going to rethink it from scratch or from 0, or you're going to resurvey from 0?

J
Jun Sawada
executive

No, no, no. That 50% from the macro perspective, it's fine. We will like to review it and examine it and see how much more additional can be done is what we will be reviewing.

S
Satoru Kikuchi
analyst

Okay, understood. And this JPY 124.8 billion, next year the cost reduction factor is JPY 6 billion, is that correct?

J
Jun Sawada
executive

It's not next fiscal year, but moving forward, the depreciation will be accelerated -- I mean, the asset will be depreciated -- accelerated -- depreciation is accelerated. So the depreciation of every year will be that amount, because we are in the straight-line method of depreciation already.

Operator

Next question from JP Morgan, Mr. Tanabe.

J
Jun Tanabe
analyst

Jun Tanabe from JP Morgan Securities. I like to start with my first question. It's about cross-selling order volume. This quarter alone, it's $308 million, right? If I do -- if the calculation is not right, please tell me. But I think it is increasing for this third quarter. And also you mentioned that there was a order from European energy firm. Can you elaborate, please, as to what this order entails? And also, NTT Communications and Dimension Data, and so there was an impact for the currency, but they are actually trending toward an upwards trend in terms of their revenue. Is this related, or is it due to other factors? So if you could please address each of these situations, please?

J
Jun Sawada
executive

Well, yes, cross-selling, especially in the second quarter is really enjoying a surge. Well, last year, we had [ $139 million ]. We closed at a very high level last year. And also another equivalent, it is not actually that distant from that trend we saw in the previous year. So, yes, we're enjoying a very strong trend at this moment. Yes, the European firm that you referred to, they -- we cannot disclose our transaction with this company. I'm afraid, we cannot divulge this transaction, we simply cannot disclose this transaction. Our apologies. We would appreciate your kind understanding.

J
Jun Tanabe
analyst

Well, you cannot comment on the share volume. If you will descale the type of scale that this transaction entails over above the period, for example, can you not even comment on the periods either?

J
Jun Sawada
executive

I'm afraid, it will be very difficult to respond.

J
Jun Tanabe
analyst

Point taken. And then my second question. Well, it relates to the question presented by Mr. Tanaka, so it's a follow up question. Dimension Data. Well, on a U.S. GAAP basis, I think we are already in the positive territory as far as profit is concerned. But by adjusting to IFRS, I suppose they are now getting into the negative territory. But in the past, it was in the positive territory, but it's now in the negative territory. So can you share with us what has happened?

J
Jun Sawada
executive

Well, third quarter U.S. GAAP is about $8.2 billion based on U.S. GAAP for the third quarter. So it was seen as though the income has went -- come down by $2 billion. However, in the second quarter, it was $4.3 billion, it is based on U.S. GAAP basis. So that being the case, the trend is actually, if you do this on a apple-to-apple comparison, the third quarter, as far as operating income is concerned, is actually in line with the level in the second quarter.

Operator

Next Morgan Stanley MUFG Securities, Tsusaka.

T
Tetsuro Tsusaka
analyst

I only have 1 question -- well, actually I'll make it 2. First of all, NTT East and West, the profit trend, it's very technical, are you going to do extraordinary loss? Are you going to do retirement? It's just a change of that. But after the change, the OP of East is JPY 250 billion and West is JPY 160 billion. So the structure itself is fine, or how you're doing it is fine. However, when we think about the future, this East and West, the plan after these revisions, is that going to be the normal situation operating income of NTT East and West? Should I think it -- is it right to think it that way, because the net went to the extraordinary loss, so accounting wise, this is a temporary thing. Therefore, it's just a one-time thing and that's why it's considered to be extraordinary loss. So normally thinking, East is JPY 250 billion, West is JPY 160 billion operating Income. We should think that it's the normal level. And in that way, moving forward, can we maintain that outlook?

J
Jun Sawada
executive

Well, basically there's JPY 250 billion and JPY 160 billion, what is structuring the base of these 2 numbers, there is a depreciation, the calculation change, the positive effect is still working. So, in a way, it's kind of pushed up or boosted up. Therefore, whether -- when we exclude the one-time impact, can we maintain it? That is not the fact. Meaning, maintain the numbers that you've mentioned, will not be able to be continued. So we are getting close to the approval of the business plan and we are actually structuring the numbers right now. So I think after you look at that, you can make your decision.

T
Tetsuro Tsusaka
analyst

Okay, understood. So I'm sure the boosted upward, it's not going to go down that immediately. So in that sense, this is a starting point. And the depreciations change up and down will occur, is that the correct image I can have?

J
Jun Sawada
executive

Well, I think it's a bit lower than that. As already announced to you, the depreciation method change, the first year the positive effect was the largest. And as the years go by, that profit effect is going to go down, that is the fact. And so there is that trend that exists. So this JPY 250 billion is a slightly higher view in terms of numbers.

T
Tetsuro Tsusaka
analyst

Okay, understood. The second question is shareholders' return -- is related to shareholder returns. KDDI, their share price is very low. Therefore, they are being active in the shareholder returns. And NTT DOCOMO, for DOCOMO, they are steadily conducting share buybacks. And in your case, this fiscal year, you still have unused capacity for share buyback. End of fiscal year, you do have the gains from DOCOMO selling their -- selling shares to DOCOMO. So I believe that the dividend from group companies, where you can expect a higher number. So when we think about all those factors, why are you going to carry it over? And this is just a really simple question. You have the capacity to conduct it and the share price is low, what's the reason you made the decision of not doing it more?

J
Jun Sawada
executive

Well, there are various discussions internally. And this week, this very rapid decline overall in the market, I think, we are facing -- whether we're facing declining trend or not, we would like to keep a close eye to make that determination. So even though we come up with measures for the share price, I'd -- we probably think that we cannot stop the situation was one way of looking at it. Therefore, as you said, at the source or capacity we have, we do have capacity to conduct various things, but as of February 9, we held off on these decisions, or reserved the decisions.

Operator

Next question from UBS Securities, Mr. Takashi.

U
Unknown Analyst

Takashi is my name. I would like to ask 2 questions, if I may. It's not directly related to the financial results, but my first question is this, at MIC, they are having discussions to secure fair competition in the mobile marketplace, that discussion is taking place on you. And I suppose, if there are unfair aspects, they need to be rectified. But on the other hand, when you listen to the direction -- the discussions that are ongoing, they're actually neglecting the users' interests, and at the same time, it seems that they're trying to undermine the flexibility of the freedom of the telecom operators business. [ It's a very interesting ] question that I have listening into these discussions, and that is probably one of the reasons why people are shying away from investing in telecom stocks at this moment. So as far as the preventive discussion is concerned, as the leader of the U.S. -- as the leader of the Japanese telecom industry, a correction, what are your thoughts? I would appreciate your insight.

J
Jun Sawada
executive

Well, the ministry MIC, the current discussions ongoing at MIC are based on [indiscernible] some relevant parties. If you took a look at the history and the past discussions, it's actually one versus many. So many people actually made these discussions targeted towards NTT, one party. However, now it's MNO versus MVNO, and also this discussion is actually MVNO versus MVNO, and also MNO versus MNO. So the structure is now much more complicated. And the interest of these different parties are now coming to the floor. As far as the ministry MIC is concern and also as far as we're concerned, I think we need to really work this through. And it's exactly as you pointed out, it's important that we reflect the customer perspective and stir the direction of the discussion going forward, so that is our view. And there are various discussions emerging, but for example, removal of SIM lock discussion, that was a case in point. But we will proactively take -- we'll proactively make a decision and we will proactively take a lead in relation to contractual periods. That was the case in the past. And performance did not decline as a result of -- as we were taking initiative. We have the track record of improving our performance, but even though we took proactive initiatives. So we hope, Mr. Takashi, we'll continue to observe our performance going forward.

U
Unknown Analyst

I see. My second question. Mr. Unoura, the President, has been talking about the common additional -- common usage of 5G facilities in the past. And in the -- well, there are now talks about possible new entrants into the marketplace. So if such a new entrant is to come into the marketplace, will this lead into or tie into the discussions about possible common usage of 5G's common facilities?

J
Jun Sawada
executive

Yes, thank you for your question. Yes, various considerations are being made. So when it comes to tower or antenna, for example, the rooftop space, sharing the rooftop space or also in remote areas or antennas sharing of towers, there is already an organization in place and there are already agreements in place to address that. So if any new entrants were to enter the marketplace, they will actually follow the rules set forth by the current structure. And then will the tower or the antenna itself be shared? With regard to 5G, I think all three companies have -- already have their own towers. So the structure, I don't think will be in time to have a software based sharing of the antennas in a flexible manner. So it is very difficult to move towards a freestyle [indiscernible] based type of sharing or 5G antenna. But then, in relation to fiber, having 3 separate networks for fiber, how can we address the situation? Can we not do a construction at the same time, for example? On these issues, operating working groups are now taking place, so various companies as well as NTT and some of us, we have created a specific team and understand the discussion is already ongoing. So for the new entrant, if they're interested in engaging in discussion for sharing of antennas, then I think a working team needs to be established to consider that matter. So I don't think, as far as 5G is concerned, we're in a situation where we can talk about readily sharing the antenna from the get-go.

Operator

[Operator Instructions] Next Citigroup Securities, Mr. Tsuruo.

M
Mitsunobu Tsuruo
analyst

I'm Tsuruo from Citigroup Securities. I have just 1 question. It's regarding the outlook of next fiscal year. You have mentioned at the beginning that you're going to aim for both increase in revenue and income, and you talked about the mobile business and there is some unclarities for the North American business. But in the possible range, can you touch upon what kind of businesses, or what kind of cost reductions will be increasing or leading the improvement in profitability? If you can give me some thoughts, I will appreciate it greatly.

J
Jun Sawada
executive

Thank you very much. Regarding next fiscal year, we're still in the process of discussion internally. So there is nothing that I can probably share with you at this point. However, we are reviewing various things, discussing various things. And this is mentioned -- or related to Mr. Tsusaka's question before. The reexamination of the change of the depreciation method that boost positive effect still remains and the Hikari Collaboration, currently we have 400,000 new or net addition in terms of subscribers and it is possible to further increase that number. Therefore, the boosting up effect process, we have several factors that will realize that. And in mobile business, we are still under the discussions of how much we'll return to the users or subscribers. But for the new businesses, when we think about the Wi-Fi in probably 2019, so in 2018 -- fiscal year 2018, it's not going to come in yet. And from the global perspective, procurement, well, we are showing data for procurement, and at each region that is already cascaded down to the practical level in order to accelerate the cost reduction efforts. And if we can continue to lead that, we will be able to realize further cost reduction. And also, I'm not sure if it was Mr. Tanaka or Mr. Kikuchi, was asking about the Dimension Data, and I was saying that the Dimension Data is operating, our centers are now being concentrated or consolidated. And for that this year, it is generating costs; but for next year, it is going to have a positive effect in terms of cost reduction. And for IT, finally, the network, the Dell -- excluding Dell Service, are able to centralize at the network and the global side, and that positive effect is also there. So if we include all the detailed factors and effects, we have many things that we can still review and consider. So internally, for the next fiscal year, we would like to continue an increase in both revenue and income, and we actually made clear that intention.

M
Mitsunobu Tsuruo
analyst

Okay. A follow-up question. You have various measures for cost reduction and the level of cost reduction assignments of this year or anything that you can mention as a summary for the cost reduction coming back and show us a direction that you're thinking of, I would appreciate it.

J
Jun Sawada
executive

Very sorry. We have not summarized any numbers at all at this point, so it's difficult for me to convey that to you today.

Operator

Next question from Nomura Securities. Mr. Masuno.

D
Daisaku Masuno
analyst

Masuno from Nomura Securities. I have several questions, if I may. The first question is this, it's about mobile business and the competitive landscape there. How do you intend to respond to that? That's my question. For the -- for putting a sort of question of what will happen to the potential new entrant, we will continue to monitor the situation, but as far as the medium term outlook is concerned, even despite the change in the outside environment, it's improved your operating income. What measures can you implement in order to strengthen your competitiveness going forward in the next 2 to 3 years, for example? In what areas would you like to strengthen your competitiveness? If you could please share with us a sense of directionality, if you will, as to how you intend to enhance your competitiveness on the mobile side? So that's my first question.

J
Jun Sawada
executive

Yes, thank you. Well, I believe yesterday at the Japan System User Association meeting, they announced the results of their survey. And 70% of large companies of large companies with more than JPY 1 trillion of revenue have responded that they're pursuing digitalization. And as a matter of fact, we have been launching various trials in relation to digital transformation in different areas. But I believe that it will be most effective to strengthen our competitiveness with NTT to be -- to really drive digital transformation. We need to be more leaner and accelerate our efforts to become more leaner organization. In terms of what we can actually project, in terms of the corporate market, management related services for the corporate sector needs to be accelerated. I mentioned earlier that there are customers who actually want to do things in-house. On the other hand, there are customers who want to outsource everything. So therefore, what can we present to these customers? We need to present and provide the products managed services, inclusively artificial intelligence to accommodate these different requirements. So how we boost up that ability, that's very important. And what are required? These are partly in relation to B2B2X model. In other words, we need to create structures with very strong partners and then enhance our solutions. And of course, the premise of this is the cost reduction. I think that is the way to go, but this is in generality here. But with regard to mobile, naturally, we have to pursue cost reduction, but at the same time, it's not so much about management per se. The focus on -- the focus should be on this so-called smart life business and also the upper layer services, how we expand that, that's the point for the mobile business. For example, 2-dimensional bar code payment was already introduced recently, the usage of [indiscernible] using the payment services. So smart life business and services, how to expand that, that's the key for the mobile communication segment.

D
Daisaku Masuno
analyst

So the change in the outside environment, how we respond to that?

J
Jun Sawada
executive

Of course, the foundation needs to be more leaner, but at the same time, we should continue to introduce new technologies and pursue the permanent areas, which should be strengthened. So I think it's a 2-track process. That's our response.

D
Daisaku Masuno
analyst

If I could follow-up on what you just mentioned. Earlier, you mentioned that going forward how much customer return will be provided, that's the point for DOCOMO, that's what you mentioned. Well, it just so happens that when it comes to customer return, the effective customer return, how is -- it has that more tangible. In other words, even you do -- even if you pursue customer return, is it really effective? It's really up to us and the customers really put emphasis on whatever customer returns that are being provided. And the billing system for the industry as a whole, we need to monitor what the trend will be going forward. So how do you see the ideal customer return and also the effect of the customer return? What are your thoughts about customer return in general?

J
Jun Sawada
executive

Well, for more than 20 years, it's been said the theoretical elasticity no longer functions, that's been said for the past 20 years. No matter how you reduce your price, you cannot benefit from economy of scale. That's a structure that is out there, and I believe that is now recognized as a fact. As you pointed out, Mr. Masuno, the effect of customer return, not just in ordinary terms but also in terms of customer retention is their benefit, and also in terms of boosting ARPU. I think customer returns can really manifest in different ways and I think we have the measure based on different aspects, that's for in-house purposes. But as far as the investors are concerned, they simply focus on operating income. So customer return naturally will be conducted, but at the same time, the benefits and effects of that needs to be reflected as shareholder return. And for that purpose, we need to maintain and expand operating income. So actually any benefits of customer return is actual properly embedded in these numbers.

D
Daisaku Masuno
analyst

I see. My last question is this. Some accounting number question. Earlier you talked about the depreciation method change and the impact thereof. Now, going forward, the future cost minimization efforts, what type of measures can you consider? You talk about copper wire this time around. But in the past, I think you've already done this type of initiative. So in terms of accounting as far as you are concerned, what areas remain whereby in preparation for the future, you will be able to actually take measures now in order to reduce future cost burdens and prepare the way for future. So what areas are you going to be focusing upon? Can you give us some sort of directionality, please?

U
Unknown Executive

Sorry. [indiscernible] here, I would like to respond to the question. Well, in principal, what have we done to date? For NTT East and West epicenter, we have pursued these initiatives. For example, last fiscal year, we had to close accelerated depreciation legacy facilities. In this fiscal year, what we're doing is to carry out retirement of these copper cables. So, therefore, facilities with less efficiency, we are taking accounting measures such as these facilities in order to lessen our future burdens. And also, this is a cash-based initiative, but for example, let's say that we want to make sure that we can maintain certain facilities over longer term, we will be spending cash so that we'll be able to maintain facilities over the longer term in cases where we believe they will be effective. But, in principle, we've already done major part of these tasks, but at the same time though, in terms of fixed-line facilities and if we -- investment -- we need to make investments and maintain fixed-line facilities. So that will be done to a certain extent in next fiscal year, with regard to cables. To the extent we know that we decided to realize the retirement of fixed assets without disposal by gauging the percentage of the use, but then the usage situation may vary going forward. So we want to do a more precise and more accurate survey of the state of usage. If things are to change, then these initiatives could take place next fiscal year as well. And also, now the -- as for DOCOMO, as you're aware, handset revenues, mobile profitability, you're probably aware of the change in the relationship between the two. Well, the -- so revenues from handsets, they are now on a downward trend, but they're making efforts to create a more sound profit structure. So that's up. And we're now aware of fairly clear outlook as to where we're going with this. So therefore -- so DOCOMO -- we also [indiscernible] transform their profit structure, but they have already carried out with the first round of improvement of profit structure. It's also further efficiencies in their facilities are going to be pursued. So we hope that we're able to pursue this down the road as well.

Operator

[Operator Instructions] It seems that there are no other questions. Therefore, with this, we would like to conclude the briefing of NTT's financial results for the 9 months ended December 31, 2017. Thank you very much.

T
Takashi Ameshima
executive

Thank you very much.

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