[NTT WEST]1. Summary of Results for the Fiscal Year Ended March 31, 2010@1005 - Telecommunications and ICT Services and Solutions

1. Summary of Results for the Fiscal Year Ended March 31, 2010

In the fiscal year ended March 31, 2010, against a backdrop of improvements in the global economy, particularly in Asia, and the positive effects of large scale economic stimulus measures, the Japanese economy showed signs of recovery, mainly in the form of export increases and consumer spending. The economic climate continued to be difficult, however, with excessive capacity and inventories and a high unemployment rate.

In the information and telecommunications sector, in addition to the expansion of Internet usage following upon rapid advances in the use of IP and broadband networks, Nippon Telegraph and Telephone West Corporation (“NTT West”) is implementing dynamic structural changes through the integration of communications and broadcasting, as well as of fixed-line and mobile communications and the expansion of new network services that utilize SaaS^*1, cloud computing^*2, CGM^*3 and other services.

In the broadband market, in addition to facility competition from other businesses and increasing service competition, the market environment is undergoing major change as a result of the expansion of triple play service offerings, including video distribution, and the appearance of new services for information devices other than personal computers. In the fixed-line telephone market, the shift from conventional fixed-line telephony to optical IP telephony advanced. In addition, competition with direct subscriber telephone services provided by competitors using dry copper lines and telephone services provided by cable television operators continued.

In this difficult and changing business environment, NTT West endeavors to be a “customer-oriented corporate group” that meets customer expectations, contributes to society and provides high quality, stable universal service. In line with the NTT Group’s new Medium-Term Management Strategy “Road to Service Creation Business Group - full-scale rollout of broadband and ubiquitous service” adopted by Nippon Telegraph and Telephone Corporation (“NTT”) in May 2008, NTT West has devoted its energy to promoting and expanding safe, secure, reliable, and appealing broadband services that meet customers’ needs, through new services and products that utilize the framework of NGN^*4 and its networks.

(1) Efforts to Promote Fiber-optic and IP Services

In line with the NTT Group Medium-Term Management Strategy, “Road to Service Creation Business Group - full-scale rollout of broadband and ubiquitous service”, NTT West’s area coverage rate^*5 for FLET’S Hikari^*6 expanded to over 80%, and the service coverage area for FLET’S Hikari Next, a fiber-optic access service that uses the NGN, expanded to approximately 80% of FLET’S Hikari service coverage area.

FLET’S Hikari achieved an increase in subscriptions, which topped 5.7 million. Of this figure, subscriptions for FLET’S Hikari Next exceeded 560,000. Business Ether Wide, a VPN-type service that utilizes the NGN and is tailored for large group of users, is also seeing an increase in subscriptions. In addition, NTT West worked to expand its service offerings, launching for FLET’S Cast subscribers the FLET’S line ID subscriber notification service, which provides enhanced security, and Hikari Denwa Office A (Ace), an optical IP telephony service which is tailored to large offices and is compatible with FLET’S Hikari Next.

NTT West will continue to develop and offer new, highly convenient services that take full advantage of the wide bandwidth, high quality and high security characteristics of the NGN and will seek to further enhance the appeal of the NGN. NTT West will also move forward with efforts aimed at creating a rich communication environment and new business opportunities.

To increase the use of FLET’S Hikari, NTT West introduced discounts on monthly charges, installation charges and other fees. NTT West strengthened efforts to encourage continued customer use of the FLET’S Hikari service, such as revising the CLUB NTT-West^*7 point-earning program and improving Internet support information on its website for club members. Moreover, NTT West collaborated with businesses in a broad range of fields, such as expanding the service area for FLET’S TEREBI^*8, which is offered in cooperation with Opticast Inc., launching the Wii/Nintendo DSi Connection Set-up Package in cooperation with Nintendo Co., Ltd., and introducing Synergy! on FLET’S, a high quality, SaaS-type comprehensive customer management system that users can use with peace of mind, in cooperation with Synergy Marketing, Inc.

Further, NTT West sought to increase usage scenarios and expand high value-added services, releasing the living room PC “Hikari BOX”, part of the Hikari LINK series of information devices that help create a convenient, safe and comfortable lifestyle through FLET’S Hikari.

To improve customer service NTT West took steps to reduce the time it takes to commence optical access services, including increasing the number of applications where installation work dates can be determined immediately and increasing the use of remote installation. NTT West reached an agreement with the six NTT West Home Techno firms, Sharp Corporation and others to build a cooperative framework for providing one-stop customer support during breakdowns or problems involving home information appliances. Further, NTT West introduced Office Network Omakase Support Service, a service for small and medium-sized businesses (office users) that provides comprehensive support for operation and management of an internal ICT^*9 environment, including LAN wiring, system operation and management and troubleshooting of network devices. In the home user market, NTT West also launched on a trial basis Home Network Omakase Support Service, which provides comprehensive support for IP-TV and digital terrestrial television compatibility and setup and troubleshooting for videogame consoles and a variety of other network-connected devices.

(2) Measures Relating to the Solutions Business

With respect to its efforts aimed at large businesses, NTT West engaged in efficient and effective ICT-based marketing activities tailored to regional customers. NTT West focused on industry-specific solutions that incorporate industry characteristics and trends in such areas as local government, disaster prevention, police and fire departments, education, agriculture, finance and healthcare.

As a result of understanding the need for improving business efficiency, cutting costs and actively promoting the contact center business in collaboration with NTT Marketing Act Corporation, NTT West increased revenue through such work as accepting orders for renewal of the order entry center system at a food company’s mail-order division and renewal of a telephone banking system at a regional bank, operation and related systems for customer support center reception at a major co-operative, collection of overdue automobile tax, inquiries on economic stimulus payments, inquiries on income tax return filings and others.

NTT West moved ahead with its data center business by opening a new urban data center in the Osaka area, in preparation for the full-scale penetration of cloud computing, and is developing high value-added data centers, including promoting deployment of services that have the same high reliability but with greater speed and flexibility.

NTT West also endeavored to expand and improve its corporate VPN service. A 10G product was added to the existing lineup of 10M, 100M and 1G products of the corporate VPN service “FLET’S VPN Gate” and the service was made compatible with FLET’S Hikari Next Business Type as an access line.

Moreover, with the aim of eliminating the digital divide and providing a broadband service environment that meets regional needs, NTT West partnered with individual local governments to improve the broadband environment.

For small and medium-sized businesses, NTT West introduced “Group Talk Flat-Rate”, a flat-rate service for the optical IP telephony service Hikari Denwa Office Type service, among other services. NTT West also started offering “Information Security Select Diagnosis Service” which diagnoses and proposes improvement measures for information security at medium-sized businesses, “FLET’S Software Distribution Service,” which allows software companies to distribute packaged software to users via FLET’S Hikari, and “FLET’S Matomete Shiharai (combined payments)”, a service that performs billing and collection of fee-based information service charges for subscribers to “FLET’S Software Distribution Service” and “FLET’S Cast.”

(3) Status of Business Operation Structures

In addition, to achieve flexible business operations that can promptly respond to changes in the business environment, NTT West worked to raise efficiency and endeavored to stabilize and strengthen its management base by improving its systems and BPR^*10, including those of its construction contractors, and other measures such as shortening order processing time for FLET’S Hikari.

In addition, enhancement of the training structure for increasing the number of optical professionals and carrying out practical training resulted in achieving NTT West’s initial goal to “train approximately 2,400 advanced IP engineers by the end of fiscal year ending March 31, 2011” at the end of September 2009. NTT West further promoted the establishment of a framework for steady maintenance of NGN services through the early training of advanced IP engineers.

Last fall, following the discovery that an NTT West group company employee improperly provided to certain sales agencies information on customers using other services, NTT West received on February 4, 2010 a business practice improvement order under the Telecommunications Business Act, Article 29 from the Ministry of Internal Affairs and Communications, and on February 26, 2010 submitted a business practice improvement plan to the Ministry of Internal Affairs and Communications. NTT West deeply regrets, and offers its sincere apologies for, any concerns and inconvenience caused to our customers and others.

NTT West solemnly accepts the business practice improvement order and will ensure the implementation of the business practice improvement plan. In addition, NTT West will endeavor to thoroughly strengthen its management and appropriate handling of information received from customers and other businesses. To bolster these efforts, in April 2010, NTT West formed the Information Security Promotion Department, which is tasked with drafting company-wide policies on information security, improving related structure and rules, and planning, implementing and inspecting security measures.

(4) Corporate Social Responsibility Activities

NTT West considers Corporate Social Responsibility (“CSR”) activities to be one of the most important pillars in the management of the company. NTT West believes that it is the social responsibility of a company to contribute to the environmentally-friendly, healthy and sustainable development of society. To this end, pursuant to the NTT Group CSR Charter (adopted in June 2006), NTT West sought not only to comply with the law and address efforts towards realizing a low-carbon society, but also to maintain and gain the trust of its customers by providing a safe and secure communication infrastructure.

With respect to its efforts to achieve a low-carbon society, NTT West has made proposals for the reduction of the environmental burden caused by use of information communication services and for conversion of its network facilities to energy saving devices. In addition, under the “Green NTT”^*11 initiative, an NTT Group-wide campaign promoting the use of solar power and other types of natural energy, full operation of a photovoltaic system was commenced at the Kochi Branch, the first among NTT West companies. Other activities included efforts to reduce NTT West’s environmental burden, including deploying NGN-compatible thin clients^*12 in offices such as the NTT West Kobe Chuo Building to carry out trial programs for the creation of “eco-friendly offices (eco-offices) through work style reforms” and “eco-offices through improving the energy efficiency of systems.” In addition, for validating energy efficiency of network communication facilities, NTT West commenced evaluations and verifications of air conditioning efficiency in a machine room with the application of the aisle capping^*13 method.

Furthermore, as a part of its efforts to foster a culture that promotes the diversified use of personnel and various working styles, and in response to an increased desire to work among disabled persons and the social need for creation of employment opportunities, NTT West Lucent Corporation was established in July 2009 and began operations in September 2009. Following the certification as a “Special Subsidiary” under the Act on Employment Promotion etc. of Persons with Disabilities from the Minister of Health, Labor and Welfare, a certificate was issued in December 2009 by the head of the Osaka Higashi Public Employment Security Office. As risk management measures, NTT West established an H1N1 influenza task force, strengthened early restoration capabilities in the event of disasters, and participated in joint disaster drills held with the Japan Ground Self-Defense Forces as countermeasures for large-scale disasters.

To promote the principles of the NTT Group CSR Charter and group-wide CSR activities, NTT West enhanced its CSR management and issued the NTT West Group CSR Report 2009 to proactively disclose relevant information to its stakeholders.

(5) Financial Standing

As a result of these efforts during the fiscal year ended March 31, 2010, operating revenues totaled 1,780.8 billion yen (a decrease of 2.4% from the fiscal year ended March 31, 2009), recurring profit was 30.3 billion yen (an increase of 55.4% from the fiscal year ended March 31, 2009), and net profit totaled 24.8 billion yen (an increase of 60.9% from the fiscal year ended March 31, 2009).

*1	SaaS: Software as a Service. A system for providing software application functions to customers as needed via a network.
*2	A computing method in which software and data that were managed and used by computers that a user is actually using are utilized on demand in the form of a service via the Internet and other networks.
*3	CGM: Consumer Generated Media. Blogs, SNS and other online media created by the transmission of information by consumers themselves.
*4	NGN: Next-Generation Network.
*5	A collective name for FLET’S Hikari Next, FLET’S Hikari Premium and B FLET’S.
*6	Area coverage rate = Number of fixed telephone facilities in FLET’S Hikari service area / Number of fixed telephone facilities.
*7	A membership program offered by NTT West that offers support information for Internet use, provides support via email and phone to customers having Internet problems, and allows members to accrue points monthly that can be redeemed for rewards.
*8	A service available to subscribers of NTT West’s telecommunication services FLET’S Hikari Next, FLET’S Hikari Premium or FLET’S TEREBI Transmission Service, as well as the broadcasting service Opticast Facility Usage Service offered by Opticast Inc., that enables reception of terrestrial broadcasts (digital/analog) and BS broadcasts (digital/analog).
*9	ICT: Information and Communication Technology.
*10	BPR: Business Process Reengineering. The setting of a target (sales, profit margin, etc.) relating to corporate activities, and the analysis and optimization of operations, workflows and organizational structures with the goal of achieving that target.
*11	A measure designed to promote generation and use of natural energy, mainly with solar systems, for reducing CO2 emissions from the NTT Group’s business activities.
*12	A terminal that does not have an internal storage device but instead has only such minimal functions as display and input, or a system that utilizes such a terminal.
*13	An airflow design method whereby a door or a roof is installed at or on top of an aisle between racks in a machine room to separate and seal (cap) the air intake and exhaust sides of network communication equipment.

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