During the six months ended September 30, 2006, the Japanese economy continued to exhibit an overall recovery, with improved corporate earnings and increased capital expenditure.
The telecommunications market is undergoing drastic environmental changes. As customer needs grow more sophisticated and diverse, the market becomes more global and optical fiber broadband access services proliferate, the development of "Triple Play" services that integrate Internet, IP phone, and video capabilities all in one and the convergence of fixed-line communications with mobile communications and telecommunications with broadcasting are accelerating rapidly.
In the dramatically growing broadband market, the first quarterly net decrease in the number of ADSL contracts ever was one of the indications that optical fiber broadband networks are becoming more widespread, and many users are switching from ADSL to the optical fiber broadband access services that deliver large volumes of content at high speeds.
Meanwhile, the business environment in the fixed-line telephone market has become harsher than ever before. Traffic continues to decrease due to the ongoing shift toward mobile phones, the use of optical fiber IP phones has increased significantly, and major developments occur in direct subscriber phone services using dry copper lines.
Against the backdrop of drastic changes in the market and the competitive environment, Nippon Telegraph and Telephone West Corporation (NTT West) has designated fiscal 2006 as a critical year for achieving the NTT West Group Medium-Term Vision, with the goal of "providing optical access services to 15 million users in 2010." The businesses of NTT West and its subsidiaries ("NTT West Group") have been restructured to position optical fiber broadband as NTT West's core business. In an effort to further expand optical fiber broadband services, NTT West has been enhancing the lineup of access line services, developing attractive applications services and content, expanding solution businesses aimed at contributing to the revitalization and development of local communities, and expanding the operations of the entire NTT West Group. In order to facilitate these reforms, NTT West has implemented the following specific measures: |
1. Development of the Broadband Business |
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(1) Expansion of Broadband Access Services |
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NTT West started its full-scale optical fiber access services in August 2001 with the launch of B-FLET'S. In March 2005, NTT West began offering "FLET'S HIKARI PREMIUM", a service that provides high-quality video-telephony using IPv6 technology and security protection as its basic functions. Since then, NTT West has been marketing its Triple Play service, which combines "HIKARI DENWA " with video capabilities, in an effort to boost sales.
In order to offer FLET'S services to a wider variety of customers, NTT West has made proactive efforts to expand its lineup of services, including launching "FLET'S HIKARI PREMIUM Enterprise Type" in a limited area of Osaka Prefecture. This service, geared toward institutional clients such as corporations, not only responds to user demands for handling increasingly large volumes of data at high speeds but also enables stress-free use of high quality broadband applications.
In addition, NTT West has implemented a variety of discount programs such as "HIKARI GUTTO (significant) DISCOUNT"*, which offers a special rate for a maximum of one year, and a campaign which offers a free month of service for new customers who sign up for "FLET'S HIKARI PREMIUM" or B-FLET'S. Also, customers who sign up for FLET'S ADSL are offered a discount of up to 50% for their first year of service.
To facilitate the connection of large numbers of lines, NTT West has also made efforts to enhance and strengthen its installation system to achieve shorter lead time (from application to line connection) by using the Administrative Quick Response for Optical Service (AQROS) system.
As a result of these efforts, together with increasing demand for security features and video content that can be viewed using "FLET'S HIKARI PREMIUM", the number of FLET'S HIKARI (a generic term for FLET'S HIKARI PREMIUM and B-FLET'S) subscriber lines installed since the service was launched in western Japan exceeded two million. This milestone was achieved just one year after the one million mark had been reached, and five years since the service was launched.
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"FLET'S HIKARI PREMIUM Family Type" is available in Shizuoka, Aichi, Kyoto, Osaka, Hyogo, Hiroshima, and Fukuoka Prefectures. |
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(2) Expansion of Broadband Application Services |
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(i) Optical IP Phone Services |
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NTT West has launched "HIKARI DENWA Office Type", the newest addition to its existing service lineup of "HIKARI DENWA" and "HIKARI DENWA Business Type". This service, geared toward small and medium sized offices, offers the use of up to 8 channels and 32 phone numbers.
NTT West has also begun offering a new service called "FAX Notification Email" to "HIKARI DENWA" and "HIKARI DENWA Office Type" subscribers which notifies subscribers of incoming faxes at their previously designated email addresses and allows them to download and view the faxed content over the Internet. This is a special feature of the IP phone service that takes advantage of the convergence of IP and telephony which would not have been possible using fixed-line telephones.
For "HIKARI DENWA Business Type" subscribers, NTT West has launched a service called "Message Recording Function" which operates like an answering machine, allowing callers to leave messages when their calls are not answered. These recorded messages are then sent to the subscriber's email address. |
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(ii) IPv6-enabled Application Services |
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NTT West has introduced the Group Communications Function as a part of the videophone feature of "FLET'S HIKARI PREMIUM" and "FLET'S v6 Appli." With this function, the number of possible videophone sites has increased from a maximum of two to four, enabling videophone conferencing across multiple locations.
In response to the growing threat by computer viruses and spyware, NTT West has also stepped up the security features of "FLET'S HIKARI PREMIUM" and "FLET'S v6 Appli", and taken other measures to ensure that users can enjoy the use of their broadband environments with peace of mind. |
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(iii) Broadband Content Services |
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In the field of broadband content distribution, NTT West has continued to make efforts to deliver appealing content exclusive to FLET'S services on its "FLET'S SQUARE" website, in collaboration with entertainment companies such as the Takarazuka Revue Company, The Walt Disney Company Japan, Ltd., and The Pokemon Company.
NTT West has also worked at expanding its Triple Play Service for "FLET'S HIKARI PREMIUM" subscribers by forming ongoing alliances with companies such as OptiCast Marketing Inc., which markets a multichannel broadcasting service called "HIKARI PerfecTV!", and On Demand TV, Inc., which offers a video distribution service called "On Demand TV". |
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(3) Efforts to Improve Optical Fiber Broadband Service Quality |
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NTT West has set up the "Optical Fiber Broadband Service Quality Improvement Project" at its head office with the objectives of increasing reliability and decreasing response time for troubleshooting of its FLET'S services to ensure that its customers can enjoy the use of optical fiber broadband services with peace of mind. This project involves implementing measures such as installing additional servers and other equipment in order to decentralize the processing function and deliver information to customers in a timely manner. |
2. Development of the Solution Business |
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NTT West has made efforts to further develop its solution business for small and medium sized businesses, in which IT investment is expected to grow rapidly in the future. Many small and medium sized businesses today are concerned about issues such as reducing their communications costs and reinforcing their information security systems. In addition, they face difficulties in setting up and operating information systems due to lack of personnel with adequate IT skills and knowledge. To address these issues, NTT West has begun offering a "Business Solution Package" and set up a "Solution Business Promotion System" at its head and branch offices in order to carry out more proactive development of the solution business.
Thus far, solutions for ensuring business continuity in unforeseen circumstances such as natural disasters or exposure to computer viruses have been developed on an individual basis. In response to the growing interest in BCP (Business Continuity Planning) among corporations and local governments in recent years, NTT West has begun offering a "BCP Total Solution" service for corporations and local governments, in which it sets up an entire system from planning BCP efforts, to implementing systems to managing operations. In addition, NTT West has set up a "BCP Solution Business Promotion System" at its head and branch offices in order to respond to customer needs with higher quality service.
NTT West has also formed an alliance with Tokio Marine & Nichido Fire Insurance Co., Ltd. to offer "Data Center Solution" service which addresses customer needs related to information systems outsourcing and security measures for corporations, local governments and other organizations. The alliance has also launched "Housing Service with Risk Compensation" for clients utilizing housing services at the data centers. This service compensates clients for repair expenses in the event their information systems (hardware) are damaged, and is the first of its kind in the industry.
In addition, NTT West has implemented efforts to help bridge the digital divide. While there are still many areas where demand for optical fiber access services is low, particularly in mountainous areas and remote islands, NTT West has been actively involved in national and local government activities. For example, NTT West has helped to introduce IT in local areas and has proposed ways to utilize IRU* and subsidies.
In order to create a broadband and ubiquitous society with infinite possibilities to make people's lives and business more convenient, NTT West has set up the "V6 Premium Forum". This forum aims to encourage interaction among IT industry businesses and academic institutions in order to develop services of superior quality using IPv6 networks and to establish new markets. Through the forum, NTT West plans to work on creating new business models and markets that utilize the IPv6 network with the aim of contributing to the revitalization and development of western Japan.
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IRU (Indefeasible Right of User): a long-term usage right which cannot be nullified or terminated without the agreement of the parties involved in the contract or agreement. |
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3. Expansion of NTT West Group Operations |
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NTT NEOMEIT CORPORATION has begun selling recycled computers on its direct sales website, NEOSTYLE SHOP. The idea behind this business is to prevent data leakage by deleting all data remaining in the hard disks of previously used computers using the "Neo'z NEODELETE" service, and to promote global environmental protection by recycling computers.
NTT NEOMEIT also established its third PC Security Center in western Japan, the Okinawa PC Security Center, in a joint project with NTT-DO (renamed to NTT WEST-OKINAWA CORPORATION). At the PC Security Centers, two of which are already open and operating in Osaka and Shizuoka Prefectures, the complete process of deleting data remaining in IT equipment such as previously leased computers and recycling used computers is carried out in a high security environment.
Meanwhile, NTT MARKETING ACT CORPORATION has formed a business alliance with Japan Staff Leasing Co., Ltd. and Aso Humaney Center Corporation to expand the service area of the job placement support service for members of the business-based SNS (social networking site) called "CA-RA-REER". Up until now, the service was only available in the Tokyo metropolitan area and Osaka Prefecture, but it has been extended to include all areas of western Japan in response to requests from members located outside the service areas.
NTT SOLMARE CORPORATION has provided services such as a mobile phone comic distribution site called "Comic I", which allows users to view comics published in weekly and monthly magazines on their mobile phones. Since the introduction of packet flat-rate services for 3G* phones, the number of paid content downloads has increased dramatically, reaching 50 million downloads in September 2006, approximately two years after the service was launched.
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3G phones:Third generation mobile phones which feature improved sound quality, global roaming, and high-speed data communications capabilities. |
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4. Review of Business Operations Structure |
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Anticipating the full-fledged arrival of the age of optical fiber broadband, NTT West conducted a review of its business operations structure from the perspectives of achieving complete market orientation and upgrading service quality. Based on the current trend toward service and network integration in the telecommunications market, the head office has been reorganized according to a function-based business promotion structure that is appropriate for the full-fledged optical fiber and IP era and can handle the optical fiber broadband market in a specialized manner. In addition, organization-wide projects headed up by the Strategy Project Promotion Headquarters were established in order to deal with critical issues flexibly and promptly. At the branch level, a review of the current branch office structure consisting of 16 branches was conducted in order for branches to promote community-based business operations aimed at the further proliferation of optical fiber services. As a result, the number of branches was increased to 30 branches-one for every prefectural zone in the west Japan region. In order to deal with issues related to the dispersed multiple market structure unique to western Japan, Regional Headquarters were also established in Kansai, Tokai, Hokuriku, Chugoku, Shikoku, and Kyushu to carry out appropriate strategies and make adjustments for each area block. In addition, the three local companies (for sales, equipment, and administration) that were located at each of the original 16 branches were integrated into one new local company in order to further improve customer service, including the implementation of flow-through operation for optical fiber-related services.
Looking ahead toward its vision of developing a next-generation network, NTT West has contracted all network business from network construction to operations and maintenance to NTT NEOMEIT CORPORATION. This will make it possible to expand and reinforce the operations and maintenance systems for IP-related services, handle diversified employment styles, and provide improved specialization. In addition, NTT West has outsourced all business related to the Broadband Concierge Center and the 104 (Directory Assistance) Center to NTT MARKETING ACT CORPORATION in order to further improve customer service. |
5. Main CSR Promotion Efforts |
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The NTT West Group places high priority on the implementation of CSR activities.The NTT West Group aims to take advantage of its technology, resources, and Knowledge in the field of telecommunications services to create "social value" for customers, the global environment, and communities; "economic value" for shareholders; and "human value" for employees. In accordance with its basic policy to enhance each of these types of value in order to contribute to the realization of a sustainable society, NTT West has forged ahead with implementing efforts in which all employees strive to raise the overall value of the NTT West Group. In order to promote and establish CSR policies, a CSR Promotion Office and CSR Promotion Committee were set up, executive seminars aimed at raising awareness of CSR as a management strategy were organized, CSR pamphlets and various CSR tools were distributed to all employees, and CSR caravan campaigns were conducted in all regions.
As part of NTT West's CSR efforts, activities aimed at achieving complete compliance and promoting business risk management were conducted. These activities included the implementation of measures to raise awareness of CSR in top management and among employees, such as training sessions for all employees including executives. The NTT West Group also implemented a full-scale campaign to eliminate drunken driving, making all-out efforts to ensure that the policy, "I'll never drive drunk and I'll never allow anyone else to drive drunk" is complied with. The campaign involved activities such as distributing warning information and leaflets to all employees, and asking them to submit pledges.
Since the Law Concerning the Protection of Personal Information went into full effect last year, the need for proper handling of customer information has become more significant than ever. NTT West Group's efforts to enhance protection of customer information have included implementing training sessions for NTT West Group companies on complete data management, checking system logs and access authorization status, conducting sweeping inspections of whether employees' personal home-use computers and other equipment contain company data, and checking employees' level of understanding of the risks of file transfer software through web-based self-evaluation tests.
Furthermore, in order to deepen stakeholders' understanding of NTT West's CSR policies and efforts as well as foster better communication with customers, NTT West Group issued the NTT WEST Group CSR Report 2006 and posted it on the NTT West official website in October 2006.
In addition to the above efforts, the Broadband Disaster Message Board (web 171), which was launched on a trial basis in August 2005 as an Internet version of the Disaster Emergency Dengon (Message) Dial (171) service, was put into full operation in October 2006 following the completion of functional improvements based on customer comments and other information obtained during the trial phase. This service is a tool to help people to confirm the safety of their families, relatives, and friends located in affected regions during major disasters.
In addition, NTT West waived the basic telephone charges per day for customers who were unable to use their telephones for over 24 hours due to building damage caused by heavy rains and for customers who had no access to their telephones for over 24 hours due to evacuation orders or advisories. NTT West also waived telephone installation charges such as reinstallation fees for customers who were forced to move from damaged buildings to temporary housing.
NTT West has provided universal service in accordance with the NTT Law [define]. Although the business conditions for fixed-line telephone services have become increasingly harsh, NTT West plans to continue to make efforts to offer fair and stable universal service in the future.
As a result of the above measures, the results of our principal services as of September 30, 2006 were as follows: the number of FLET'S HIKARI lines installed totaled 2.12 million; the number of FLET'S ADSL installations came to 2.64 million; in INS-Net services, the number of INS-Net 64 lines installed totaled 3.38 million; and the number of subscriber telephone lines installed stood at 22.84 million.
Operating revenue, recurring profit, and net profit for the first six-month of the fiscal year ended September 30, 2006 amounted to 959.8 billion yen, 19.3 billion yen, and 12.6 billion yen, respectively. |
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