Summary of Results for Fiscal Year Ended March 31, 2003
During the fiscal year ended March 31, 2003, the Japanese economy started to show scattered signs of recovery, partially owing to a pick up in exports and a rebound in production, as corporate earnings improved and private sector capital investment ended its downward slide. Towards the end of the term, however, uncertainty over the future of the global economy and plunging equity prices put downward pressure on final demand, leaving private consumption almost flat, and making this another difficult year for the domestic economy.
In the telecommunications market, the pace of competition has been accelerating in step with the integration of the Internet into everyday life and the growth, to nearly 10 million, of subscribers to broadband services like ADSL (asymmetrical digital subscriber line), CATV and optical fiber, with providers feverishly trying to satisfy the ever more sophisticated and varied demands of users.
Because of their ability to supersede the 'constraints of time and distance,' advances in telecommunications technology promise major contributions to the revitalization and increased efficiency of socio-economic operations, by realizing a safer and more affluent society, by bolstering productivity and competitiveness in the corporate sector, and by helping to resolve several key social challenges, such as the declining birth rate, the graying population and the decaying environment.
Meanwhile, the regional communications market - our primary arena -- saw the switch from telephones to IP communications accelerate, in tune with the rapid proliferation of broadband services and the ongoing shift from fixed to mobile telecommunications. Added to this is the rapid spread of IP (Internet protocol) phone service based on VoIP (Voice over IP) technology. Such an operating environment has meant continued contraction of the fixed-line telephone market. In the broadband market, a new source of revenue for the Company, diversification, greater speed and lower cost of access lines are fueling competition in both services and prices. All in all, the market environment changed faster than we had expected.
Against this backdrop, Nippon Telegraph and Telephone West Corporation (NTT West) has been aggressive in its efforts to boost profitability through a drastic review of its operations, with the focus on management innovation and new services pinpointed to customer demand. It hopes that these measures will help the Company reach the goal set at its establishment of achieving a balanced budget by the fiscal year ending March 31, 2003, and a stable surplus thereafter.
a. Management Reform through a Radical Review of Operations
On May 1, 2002, we launched an organizational restructuring that paves the way for rapid decisions and greater cost competitiveness through the effective application of our technological prowess, know-how and manpower. The primary objective of the reform is to build on our established reputation as a "stable, safe and reliable" provider of "advanced engineering and services" in order to outstrip the competition in the fast-growing business domain brought about by progress in broadband technology.
The backbone of this reform is a new corporate setup wherein NTT West specializes in the basic operations necessary to fulfill our responsibility to serve our customers, in addition to planning, strategy formulation and service development, while outsourcing other operations -- including day-to-day customer service, facilities operations, SOHO and mass marketing, and shared operations -- to newly-established group companies. At the same time, we introduced a program to re-employ retired employees aged 51 and over in order to form and firmly position a new group with the agility to respond to changes in the market and the competitive panorama. These measures advance our initiatives to address the imperative to buttress our financial resilience through a reduction in personnel costs, and achieve management independence.
Under the new organizational setup, we have moved aggressively into new businesses that link effectively with our accumulated business know-how and make the most of our cost-competitive organizations and management resources, including NTT NEOMEIT CORPORATION and NTT MARKETING ACT CORPORATION. These have included a build up of our marketing for full-service PC support, data centers directed at regional needs, and a variety of telemarketing ventures.
b. Increased Profitability through Services that Meet Customer Demands
In anticipation of a full-fledged broadband era, we have expedited a strategy to revamp our infrastructures for optical and other networks in order to boost our competitive edge in broadband access services, while expanding business in content distribution over the network and promoting the solutions business based on that expansion.
i. Boosted Competitiveness in Broadband Access Services
In response to customer needs for higher throughput and lower rates for B-FLET'S and FLETS'S ADSL - our high-speed, flat-rate Internet access services -- we added B-FLET'S "FAMILY 100" and "FLET'S ADSL MORE" to our existing line of services and lowered the rates for FLET'S ADSL. We remained aggressive in expanding the service areas for B-FLET'S, pinpointing them according to customer needs. To increase the user population by facilitating broadband Internet access, we offered a series of special time-limited discount plans, including "IMAPIKA" for B-FLET'S and "IMATOKU" and "IMATADA" for FLET'S ADSL.
Furthermore, we strove to enhance the advantages for FLET'S subscribers by launching a number of new services, including: "FLET'S COMMUNICATION," a broadband communications service for users of the FLET'S series, now available in expanded service areas; "FLET'S SPOT," a wireless LAN service providing FLET'S series subscribers with high-speed, flat-rate Internet and other access services even when they are away from their homes or offices; "FLET'S GROUP," which allows intra-group communications among groups of subscribers to FLET'S access lines; and terminals that support IP phone service through Internet service providers.
ii. Expanded Broadband Content Market
In April 2002, we established NTT SOLMARE CORPORATION to distribute content over broadband networks. In June 2002, this subsidiary started providing "Foobio", a content distribution service using terminals connected to optical networks and installed in public places.
As part of the factory data center (FDC) business, in December 2002 NTT NEOMEIT launched its "AQStage PF Remote Agent Service," a remote engineering service over broadband networks for machine and other tools.
We teamed with Kadokawa Shoten Publishing Co., Ltd. and Nippon Telegraph and Telephone Corporation in an experiment to distribute broadband-only "web cinema." Dubbed "Vi! Click," it takes advantage of interactivity -- one of the greatest features of optical broadband technology -- and won the 8th AMD Award for Digital Contents of the Year '02 in the engineering category in February 2003.
In May 2002, we teamed with Sony Marketing (Japan) Inc. to develop a virtual showroom. Drawing on the advantages of both real and virtual technologies, this project was a trial for a new form of business promotion for the optical network era.
iii. Expanded Solution Business
We created systems according to categories such as industry for various solutions in order to provide customized "prosol Series" services. We added "C prosol," a total solution for optimizing non-physical distribution (commercial transaction cycles), and "E prosol," a total learning solution for grades 1-12, to our prosol Series lineup. On top of this, we developed applied systems for local governments that use digital authentication technology for electronic applications, bidding and voting, constructed the digital authentication infrastructures necessary for these services, and started offering digital authentication solutions, a total consulting service for the smooth introduction and operation of our services.
To improve total solutions for groups and organizations in the agricultural sector, we augmented the lineup of the "@recolte " agricultural information processing system series, including: a farming information management system that compiles basic information on farming businesses into a database for management; a market information system that distributes market information to farmers via the Internet; and a fresh-from-the-farm sales system (multiple store version) that automates sales and inventory management and transmits regular preliminary sales reports to farming businesses.
Thanks to the superior expandability, reliability, flexibility and safety of our network, we were successful in our bid for Kyoto Prefecture's telecommunications infrastructure development project, which has been proposed as part of the Digital Canal Network Concept, in which administrative organs and schools in the Prefecture are connected via a broadband network. The network went into temporary operation in March 2003 to serve as an educational intra-net connecting some 70 prefectural high schools, with full-scale operation planned during fiscal 2003.
We joined with NTT Data Corporation and other concerns to establish a company responsible for the management and operation of the Osaka Prefectural Internet Data Center, an initiative by the Osaka Prefectural Government to promote a model project that we hope will contribute to the pioneering of electronic government in the IPv6 (Internet Protocol Version 6) era. Our Group companies have made a concerted effort through the Internet data center business to help municipalities in Osaka Prefecture introduce electronic government and create advanced IT cities, thereby fostering the creation of new industries and providing stable, low-cost IT services.
These days, the establishment of solid business ethics has taken on a new urgency, to the degree that it can determine the very survival of a company. To address this all-too-important issue, we distributed copies of the NTT Group Business Ethics Charter, elaborated chiefly by Nippon Telegraph and Telephone Corporation, to all directors and employees at NTT West and its Group companies, in order to ensure compliance. Our striving for a solid ethical posture has also spurred the establishment of new internal organizations, including a Business Ethics Committee and a section dedicated specifically to the advancement of business ethics.
In programs for environmental protection, we see to compliance with all new or amended environmental laws, and have set annual numerical targets for the issues essential for reducing environmental impact from our business operations, including measures to conserve paper resources by reducing the consumption of pure pulp used in the paper for telephone directories, measures to combat global warming, such as conserving electric power used in communications, and the reduction of industrial waste. We aim in this way to lessen risks to the environment and achieve sustainable improvements in environmental protection. Following the implementation of our restructuring, we amended the NTT West Group Global Environmental Charter to emphasize our backing for concerted efforts to protect the environment, in line with the need in the NTT MARKETING ACT Group and NTT NEOMEIT Group to continue to strive in such areas as reduced environmental load and compliance with environmental laws. In September 2002, we produced a follow-up to the previous year's publication of our first environmental report. In it, we provide an overview of our environmental measures, asserting our conviction in the need for disclosure as a responsible corporate citizen of activities in favor of the environment.
As a result of the above, operating revenues amounted to 2,215.0 billion yen (down 8.0% from the previous year), and ordinary income to 44.9 billion yen (compared to 170.4 billion yen in ordinary losses in the previous year). Net profit totaled 19.3 billion yen (compared to 355.3 billion yen in net losses in the previous year), achieving our goal of ascending to profitability.