Value Partner. ANNUAL REPORT 2014 For the year ended March 31, 2014 NIPPON TELEGRAPH AND TELEPHONE CORPORATION. Value for Shareholders

Transcription

1 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 214 For the year ended March 31, 214 Value for Shareholders Value Partner Value for Society

2 Increasing Value for Shareholders Steady Increases in Corporate Value Under the Medium-Term Management Strategy, Towards the Next Stage, the key strategic initiatives of the NTT Group are Global Cloud Services and Comprehensively Strengthen Network Service Competitiveness. NTT has taken steps to achieve its medium-term financial target of EPS growth of 6% or more in comparison with the fiscal year ended March 31, 212. We aim to achieve this target by the fiscal year ending March 31, 216, and to that end we have taken steps to transform our business model. Now, the NTT Group is ready to take the next step with transformation initiatives targeting steady increases in corporate value. Value for Society ANNUAL REPORT 214 1

3 Value for Shareholders Creating Value for Society Creating Value through Solutions to Social Issues Contributing to the solution of social issues through ICT, that is the mission of the NTT Group. We will do more than simply take responsibility for the impact of our business activities on the environment and society. We believe that issues for which society expects solutions also contain business opportunities, and as a leading company in the field of ICT, which contains unlimited potential, we will make full use of our strengths, create new value, and contribute to the realization of a sustainable society. 2 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 214 3

4 Contents 6 Performance Highlights 4 Operations in Review 86 Corporate Governance 6 Financial Data 8 Operational Data 1 Message from the President 12 Interview with the President 22 Special Feature 1 Strong Growth in Global Cloud Services 24 Full Lineup of Cloud Services from the NTT Group 25 Further Bolstering the Scope and Depth of Our Business Operations 26 The Unique Strengths of the NTT Group 28 Overseas Sales Leading Growth in the Group s Top Line 3 Steps Taken to Strengthen Scope and Depth in the Past Year 32 Special Feature 2 Contributing to Solutions for Social Issues through ICT 34 Establishing Business Models to Resolve Social Issues 36 Contributing to the Smooth Operation of Emergency Medical Care through ICT 38 Reducing Environmental Impacts through ICT 42 NTT Group in Brief 44 Regional Communications Business 48 Long Distance and International Communications Business 52 Mobile Communications Business 56 Data Communications Business 6 Other Businesses 62 Research and Development 64 NTT Group CSR 64 NTT Group CSR Charter 68 Dialogue with Stakeholders 7 Communication between People and Their Communities 72 Communication between People and the Global Environment 76 Safe and Secure Communication 8 Team NTT Communication 82 Human Rights Awareness 84 Supply Chain Management 94 Directors and Audit & Supervisory Board Members 97 Financial Section 98 1-Year Financial Summary 12 Operating and Financial Review and Prospects 118 Consolidated Balance Sheets 12 Consolidated Statements of Income and Consolidated Statements of Comprehensive Income 121 Consolidated Statements of Changes in Equity 122 Consolidated Statements of Cash Flows 123 Reference Information 125 Consolidated Subsidiaries 128 Glossary of Terms 131 Stock Information Editorial Policy Annual Report 214 is an integrated report that combines information that is important to shareholders and investors, such as financial results, operational reviews, and future strategies, with non-financial information, such as environmental (E), social (S), and governance (G) information. The NTT Group will strive to reinforce the competitiveness of Japanese industry and contribute to the solution of social issues by accelerating the transformation of its business models and increasing its corporate value. We hope that it proves useful to a wide range of stakeholders. Other Information Shareholders Newsletter NTTis Presentation Materials Shareholders Meeting Materials Financial Results 2-F CSR Report To help readers broaden their understanding Glossary of Terms To help readers broaden their understanding of the content of this report, this section provides explanations of general IT-related terms and terms related to NTT Group services that are used in the report and may be difficult to understand. See page 128 To analyze the Company s results Fact Sheet Fact sheets that provide an overview of financial and operating data are available on the Company s website. See website Forward-Looking Statements The forward-looking statements and projected fi gures concerning the future performance of NTT and its subsidiaries and affi liates contained or referred to herein are based on a series of assumptions, projections, estimates, judgments, and beliefs of the management of NTT in light of information currently available to it regarding the economy, the telecommunications industry in Japan, and other factors. These projections and estimates may be affected by the future business operations of NTT and its subsidiaries and affi liates, the state of the economy in Japan and abroad, possible fl uctuations in the securities markets, the pricing of services, the effects of competition, the performance of new products, services and new businesses, changes to laws and regulations affecting the telecommunications industry in Japan and elsewhere and other changes in circumstances that could cause actual results to differ materially from the forecasts contained or referred to herein. 4 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 214 5

5 Performance Highlights Financial Data Fiscal years ended March 31 Billions of yen 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Operating revenues* 1 1,85.9 1, ,76.6 1,68.9 1, , ,35. 1,57.4 1,7.7 1, Operating expenses 9, ,55.4 9, , ,36.6 9,63.7 9,9.1 9, , ,711.5 Operating income 1, ,19.7 1,17. 1,34.6 1,19.8 1, , ,223. 1,22. 1, Net income attributable to NTT* Total assets* 1 19,64. 18, , , , , , , , ,284.9 Shareholders equity* 1 6,74.3 6, ,12.8 7,41.8 7, , ,2.7 7, , ,511.4 Interest-bearing debt 5, , ,77.8 4, , , , ,274. 4,36. 4,2. Debt ratio (%)* 2 45.% 44.% 4.1% 38.7% 4.2% 36.6% 36.2% 35.2% 32.7% 33.% Capital investment* 3 2,57.4 2, , , , , ,87.1 1, ,97. 1, R&D expenses EBITDA* 3 3, , ,34.5 3,67. 3, ,24.8 3, , ,27.4 3,192.3 EBITDA margin (%) 32.8% 32.1% 31.% 33.8% 32.4% 31.8% 31.9% 3.6% 3.% 29.2% Operating free cash fl ow* 3 1, ,25.7 1,13.7 1, , , , , , ,299.5 ROE (%) 1.9% 7.5% 6.9% 8.7% 7.3% 6.5% 6.4% 5.9% 6.5% 7.% ROCE (%) 5.8% 5.8% 5.5% 6.4% 5.4% 5.4% 5.8% 5.8% 6.1% 6.% Capex to sales ratio (%)* 4 19.% 2.4% 2.8% 19.9% 2.6% 19.5% 18.1% 18.5% 18.4% 17.3% Cash dividends, applicable to earnings for the year (Yen) Dividend payout ratio (%) 13.% 17.1% 23.% 19.5% 27.5% 32.3% 31.2% 38.2% 37.2% 33.4% Net income attributable to NTT per share (Yen)* 1 * Operating revenues / Operating income Increase in operating revenues: billion Increase in operating income: 11.7 billion Regional Communications: Decline in voice-related revenues, decline in expenses, etc. Decrease in operating revenues: 87.5 billion Increase in operating income: 34.3 billion Long Distance and International Communications: Increase in system integration revenues, etc. Increase in operating revenues: 152. billion Increase in operating income: 6.2 billion Mobile Communications: Decline in voice-related revenues, etc. Decrease in operating revenues: 8.9 billion Decrease in operating income: 19.2 billion Data Communications: Increase in overseas revenues, infl uence of unprofi table projects, etc. Increase in operating revenues: 4.3 billion Decrease in operating income: 17.9 billion 2 Capital investment Down 77.2 billion YOY [Factors contributing to increase] Ongoing development of LTE Xi service area, etc. [Factors contributing to decrease] Reduced investment in FOMA (3G) service Effective utilization of existing facilities, etc. 3 Dividends per share Further enhancement of shareholder returns Dividends up 1 YOY, to 17 Performance Highlights Operating Revenues* 1 Operating Income / Net Income Attributable to NTT* 1 Interest-Bearing Debt / Debt Ratio Capital Investment / Capex to Sales Ratio* 4 (Billions of yen) 12, 8, 4, 1,925.2 (Billions of yen) 1,5 1, 5 1, (Billions of yen) (%) 6, 6 4, 4, , (Billions of yen) (%) 2,4 3 1, , Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Operating income Net income attributable to NTT Interest-bearing debt (left scale) Debt ratio (right scale) Capital investment (left scale) Capex to sales ratio (right scale) EBITDA / EBITDA Margin* 3 Operating Free Cash Flow* 3 Dividends per Share / Dividend Payout Ratio Ratings (Billions of yen) (%) 4, 5 3, 2, 1, 3, (Billions of yen) 1,6 1, ,299.5 (Yen) (%) Aa1/AA+ Aa2/AA Aa3/AA A1/A+ A2/A A3/A Baa1/BBB+ Baa2/BBB 27/5/21 AA AA 26/1/3 Aa2 Aa1 211/9/1 Aa1 Aa2 Aa2 AA Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Baa3/BBB Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 EBITDA (left scale) EBITDA margin (right scale) *1 In regard to affi liates that became subject to the application of the equity method in the the fi scal year ended March 31, 28, and in the fi scal year ended March 31, 214, the equity method has been applied retroactively to past years, and consequently fi gures for the period from the fi scal year ended March 31, 25, to the fi scal year ended March 31, 213, have been retroactively adjusted. *2 Debt ratio = Interest-bearing debt / (Interest-bearing debt + Shareholders equity) 1 *3 Please refer to Reconciliation of Operating free cash fl ows, EBITDA, Capital investment on page 123. Operating free cash fl ow = (Operating income + Depreciation and loss on disposal of property, plant and equipment) Capital investment EBITDA = Operating income + Depreciation and loss on disposal of property, plant and equipment Capital investment is on an accrual basis for the acquisition of property, plant and equipment. *4 Capex to sales ratio = Capital investment / Operating revenues. Excluding sales and investments related to real estate and solar power generation operations, the Capex to sales ratio was 18.4% in the fi scal year ended March 31, 212, 18.1% in the fi scal year ended March 31, 213, and 16.7% in the fi scal year ended March 31, 214. *5 With the application of the accounting pronouncement issued by the Financial Accounting Standards Board ( FASB ) in December 27, relating to noncontrolling interests in consolidated fi nancial statements, starting from the fi scal year ended March 31, 21, the name of this line item was changed. Dividends per share (left scale) Dividend payout ratio (right scale) Moody s S&P 6 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 214 7

6 Performance Highlights Operational Data End of year / month Thousands of subscriptions Number of subscriptions* 1, etc. 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Fixed-line communications services Telephone subscriber line* 2 + INS-Net* 3 58,788 54,77 5,495 46,34 42,85 38,33 34,884 31,672 28,766 26,366 Fixed-line broadband services FLET S ADSL 5,28 5,682 5,323 4,656 3,992 3,381 2,858 2,322 1,848 1,483 FLET S Hikari* 4 (FTTH) 1,665 3,419 6,76 8,777 11,134 13,251 15,59 16,564 17,3 18,5 1 Hikari Denwa* ,174 5,725 8,11 1,142 12,113 13,9 15,169 16,256 Video services Hikari TV 552 1,9 1,413 2,4 2,453 2,823 2 Mobile communications services FLET S TV ,3 1,161 2 dvideo 74 4,13 4,41 2 NOTTV 684 1,61 2 Xi (LTE) + FOMA (3G) + mova (2G) 48,825 51,144 52,621 53,388 54,61 56,82 58,1 6,129 61,536 63,15 FOMA (3G) 11,51 23,463 35,529 43,949 49,4 53,23 56,746 57,95 49,97 41,14 Xi (LTE) 26 2,225 11,566 21,965 3 ARPU* 6 ARPU of fi xed-line (Telephone subscriber line + INS-Net subscriber line) NTT East 3,19 3,17 3,11 3,5 2,98 2,93 2,86 2,81 2,76 NTT West 3,5 3,2 2,96 2,9 2,85 2,8 2,76 2,72 2,69 ARPU of FLET S Hikari (FTTH) NTT East 4,65 5,5 5,31 5,58 5,74 5,88 5,9 5,86 5,66 NTT West 4,89 5,12 5,46 5,62 5,78 5,89 5,93 5,88 5,83 Mobile aggregate ARPU Mobile aggregate ARPU 7,2 6,91 6,7 6,36 5,71 5,35 5,7 5,14 4,84 4,5 Voice ARPU 5,33 5,3 4,69 4,16 3,33 2,9 2,53 2,2 1,73 1,37 Packet ARPU 1,87 1,88 2,1 2,2 2,38 2,45 2,54 2,59 2,69 2,64 Smart ARPU Yen 1 FLET S Hikari (FTTH) Net addition of 75 thousand subscriptions Promoting uptake of discounts designed to promote long-term usage Effective in preventing churn Strengthening initiatives targeting small and medium-sized companies Increasing share of net additions represented by corporate customers Advancing alliance business Creating new usage scenarios 2 Video services Expanded range of services provided Initiatives supporting the trend toward the use of multiple devices Aiming to increase the number of subscribers 3 LTE Xi service Net addition of 1,399 thousand subscriptions Expanded uptake of smartphones (Start of sales of iphone* 7, etc.) Further expansion of Xi service area Increases in speed of Xi service Enhancement of dmarket Performance Highlights Fixed-Line Broadband Services Subscriptions Mobile Communications Services CO2 Emissions Volume* 8 Final Disposal Rate for Waste (Thousands of subscriptions) 2, 1,483 (Thousands of subscriptions) 8, (Million tons of CO2) 6 (%) 3 15, 18,5 16,256 6, 21, , 5, 4, 2, 41, End of year / month 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 End of year / month 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 Fiscal year ended March 31 29/3 21/3 211/3 212/3 213/3 214/3 Fiscal year ended March 31 29/3 21/3 211/3 212/3 213/3 214/3 FLET S Hikari* 4 FLET S ADSL Hikari Denwa* 5 mova (2G) FOMA (3G) Xi (LTE) ARPU of FLET S Hikari (FTTH) Mobile Aggregate ARPU Paper Usage Volume* 9 Employment (Yen) 6, 4, 5,66 5,83 (Yen) 9, 6, (Thousands of tons) Female 18, Male 11, Female 81 Male 24, Overseas 73, Japan 173, 2, Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 3, Fiscal year ended March 31 25/3 26/3 27/3 28/3 29/3 21/3 211/3 212/3 213/3 214/3 49 2,64 1,37 3 Fiscal year ended March 31 29/3 21/3 211/3 212/3 213/3 214/3 Number of Employees* 1 128, Number of Managers* 1, *11 24,81 Number of Employees by Region* , NTT East NTT West Voice ARPU Packet ARPU Smart ARPU *1 As of each fi scal year-end *2 Number of Telephone subscriber line is the total of individual lines and central station lines (Subscriber Telephone Light Plan is included). *3 Number of INS-Net is the total of INS-Net 64 and INS-Net 15 (INS-Net 64 Lite Plan is included). In terms of number of channels, transmission rate, and line use rate (base rate), INS-Net 15 is in all cases roughly 1 times greater than INS-Net 64. For this reason, one INS-Net 15 subscription is calculated as 1 INS-Net 64 subscriptions. *4 Number of FLET S Hikari subscriptions includes B FLET S, FLET S Hikari Next, FLET S Hikari Light, and FLET S Hikari WiFi Access provided by NTT East, and B FLET S, FLET S Hikari Premium, FLET S Hikari Mytown, FLET S Hikari Next, FLET S Hikari Light, and FLET S Hikari WiFi Access provided by NTT West. *5 Number of Hikari Denwa subscriptions is calculated by number of channels in thousands. *6 Please see page 123 for the ARPU calculation method and other details. *7 TM and 214 Apple Inc. All rights reserved. iphone is a trademark of Apple Inc. The iphone trademark is used under license from AiPhone Co., Ltd. *8 Total for Scope 1 (direct emissions from the use of fuel, etc.) and Scope 2 (indirect emissions accompanying the use of energy, such as electricity) *9 Amount of paper used for bills, offi ce paper, telegrams, and telephone books *1 Estimated number of employees as of March 31, 214, for NTT, directly affi liated companies in Japan, and their affi liated companies in Japan (total of 59 companies) *11 Section manager level or higher *12 Estimated number of employees as of June 3, 214, for eight principal companies (NTT, NTT East, NTT West, NTT Communications, NTT DOCOMO, NTT DATA, NTT FACILITIES, and NTT COMWARE) 8 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 214 9

7 Message from the President We will strive to increase corporate value by accelerating the transformation of NTT into the Value Partner that customers continue to select. Message from the President I would like to take this opportunity to express my sincere appreciation for your continued understanding and support of the NTT Group. In November 212, the NTT Group released its new Medium-Term Management Strategy, Towards the Next Stage. Under this strategy, we are taking steps to implement Global Cloud Services and to Comprehensively Strengthen Network Service Competitiveness as pillars for growth in our profits. In May 214, we announced our next initiative, the Hikari Collaboration Model. This new business model represents the world s first full-scale fiber-access services offered through a wholesale framework. In the past, fiber-access services were offered directly to customers, but we will now open those services to a wide variety of players. We are already in an era in which telecommunications operators alone cannot provide all services. As the Value Partner that customers continue to select, the NTT Group will work in collaboration with a diverse range of players. In this way, we will strive to support the new business development initiatives of partner companies, contribute to the realization of a comfortable, convenient society, and achieve steady increases in corporate value. In closing, I would like to ask our shareholders, investors, and other stakeholders for their ongoing understanding and support of the business activities of the NTT Group in the years ahead. August 214 Hiroo Unoura Representative Director and President, Chief Executive Offi cer 1 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

8 Interview with the President Q1 A Aiming to achieve steady increases in corporate value and to support the further development of society, the NTT Group has transformed its business model. Hiroo Unoura Representative Director and President, Chief Executive Offi cer Would you discuss the progress achieved under the Medium-Term Management Strategy? The NTT Group is making steady progress toward its objectives. In November 212, we announced our new Medium-Term Management Strategy, Towards the Next Stage. Global Cloud Services is one of the pillars of this strategy, which also included the objective of increasing overseas sales to $2. billion by the fi scal year ending March 31, 217. Our progress toward the achievement of this objective has been in line with our expectations, and in the fi scal year ended March 31, 214, overseas sales increased to $12.2 billion. In addition, the proportion of corporate sales represented by overseas sales increased 4.8 points, to 36.6%. This also represents solid progress toward our objective of 5% or more by the fi scal year ending March 217. In the fi scal year ending March 31, 215, we are planning overseas sales of $15. billion, an increase of $2.8 billion year on year. We have recorded favorable growth in cross-selling, where we receive orders through collaboration among Group members, and we are maximizing the effects of the M&A transactions that we implemented in previous years. We are moving steadily toward our $2. billion objective. The second pillar of the strategy is Comprehensively Strengthen Network Service Competitiveness. This applies to the fi ercely competitive fi xed-line and mobile environments. We have made especially strong progress with cost reductions. As of the fi scal year ended March 31, 214, we had reduced costs by 41. billion in comparison with the fi scal year ended March 31, 212. As a result, we have increased our reduction target for the fi scal year ending March 31, 215, to 6. billion, an increase of 2. billion. Through the daily efforts of employees throughout the Group, our cost reductions have exceeded our initial expectations, but this is just a transit point. Enhanced effi ciency is a never-ending task, and we will continue to do our utmost to increase effi ciency going forward. Achieving a reduction of 6. billion is certainly not an easy objective, but we will steadily take steps to achieve it, including implementing the transformation of our business model. We have also made progress with the capex to sales ratio. Through increased effi ciency in capital investment, centered on the regional communications business and the mobile communications business, and through growth in operating revenues, we were able to reduce this ratio by 1.4 points, to 16.7%, in the fi scal year ended March 31, 214. We expect to reduce it further, to 15.9% in the fi scal year ending March 31, 215. We are moving closer to the achievement of our goal of 15.% in the fi scal year ending March 31, 216. In regard to EPS, for which our objective is growth of 6% or more from the fi scal year ended March 31, 212, to the fi scal year ending March 31, 216, we were able to achieve an increase of 39% in the fi scal year ended March 31, 214, through growth in net income and acquisitions of treasury stock. This is our highest priority fi nancial target, and moving forward we will do our utmost to achieve it. In these ways, in the year and a half since we announced our growth strategy, the NTT Group has made steady progress toward the achievement of its objectives. Medium-Term Financial Targets The Path to Profit Recovery and Growth Global Cloud Services as the cornerstone of NTT s business operations Comprehensively strengthen network service competitiveness Further improvement of facility efficiency Establishment of simple and highly efficient business operations tailored to future market changes Cash Control and its Effective Utilization Streamlining capital investment Increasing M&A with a focus on cloudrelated businesses Enhancing shareholder returns in the medium term By the fiscal year ending March 31, 217 Overseas sales $2 billion Proportion of corporate sales represented by overseas sales 5% or more By the fiscal year ending March 31, 215 At least 4 billion yen in cost reductions in fixed-line / mobile access networks (compared with the fiscal year ended March 31, 212) Revised to 6 billion yen in cost reductions By the fiscal year ending March 31, 216 Capex to Sales: 15% EPS growth of 6% or more by the fiscal year ending March 31, 216 (compared with the fiscal year ended March 31, 212) Overseas Sales (Billions of US$) (%) Fiscal year ended / 213/3 ending March Fiscal year ended / 213/3 ending March % % /3 215/3 (Forecast) /3 215/3 (Forecast) 43.1% Overseas sales (US$ basis) (left scale) Proportion of corporate sales represented by overseas sales (right scale) Cost Reductions in Fixed-Line / Mobile Access Networks* (Billions of Yen) * Compared to the fiscal year ended March 31, 212 Capital Investment / Capex to Sales* (Billions of Yen) (%) 2,4 3 1,6 8 1,97.5 Fiscal year ended / 213/3 ending March % 1, % 1, /3 215/3 (Forecast) Capital investment (left scale) Capex to sales ratio (right scale) 15.9% * Amounts exclude sales and investments related to real estate and solar power generation operations EPS (Earnings per Share) (Yen) Fiscal year ended / 213/3 ending March (+46%*) 59 (+39%*) 214/3 215/3 (Forecast) * Compared with the fi scal year ended March 31, 212 (Note) For the fi scal year ended March 31, 214, EPS is 477 (3% increase) when excluding the effect of non-operating income relating to the Otemachi 2-chome area redevelopment project. 12 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT Interview with the President

9 Interview with the President Q2 A What specific progress has been made in Global Cloud Services? Our efforts to continue to be selected have generated results, and we are recording favorable growth in cross-selling activities and overseas sales. In the fi scal year ended March 31, 214, we Cross-Selling Contract Value recorded dramatic growth in cross-selling, (Millions of US$) 8 with the order volume reaching $7. 7 One example is the business process outsourcing (BPO) and IT outsourcing (ITO) 6 contract that we signed with Yum! Brands, 4 Inc., one of the world s largest restaurant companies. The restaurant brands operated 2 by Yum! Brands include KFC and Pizza Hut This order was the result of collaboration between NTT DATA and NTT Communications, Fiscal year ended /3 212/3 213/3 214/3 March 31 as well as the use of the cloud migration advisory tool developed by NTT Innovation Institute, Inc. (NTT I 3 ). The partnership contract that we signed with the Texas Department of Transportation, one of the largest transportation departments in the United States, was the result of the high evaluation of the comprehensive range of services from NTT DATA, Dimension Data, and Solutionary and the total solution provided by these companies in the fi eld of security. Moving forward, we expect our cross-selling initiatives to generate more large orders, and I look forward to reporting the results in the future. I believe that our achievements in cross-selling and the growth that we have achieved in overseas sales are the result of our efforts to continue to be selected. These efforts have included strengthening collaboration among NTT Group companies and substantially expanding our ability to provide solutions. The NTT Group s global cloud business infrastructure is in the top ranks worldwide in terms of scale. This includes data center server room fl oor space in more than 25 locations worldwide and the traffi c volume on the global IP backbone that extends around the world. Of course, our strengths include more than just scale. It goes without saying that we have been highly evaluated for reliability and quality as well. In particular, the Group includes telecommunications operators that provide IP backbone on a global scale, and this is a major advantage in the global, integrated management of cloud service quality. One of our strengths is our ability to provide total services on the base of this robust infrastructure. These services include consulting and application services related to the migration from onpremises to the cloud; network integration (NI), such as communications device installation and setup; and monitoring, maintenance, and ITO. Further, the NTT Group includes companies with positions of leadership in each of its fi elds of business. We are proud to be one of the few groups in the world that can provide this full lineup of high-quality services. The Group s ability to provide one-stop solutions to the wide-ranging needs of customers that are migrating to the cloud is one of its greatest strengths. Moving forward, we will work to further reinforce our footprint, which indicates the scope of our business fi elds, as well as our depth, which indicates our ability to provide solutions in those fi elds. To that end, we will implement M&A transactions that will generate Group synergies. As demonstrated by the receipt of large orders from global corporations, the recognition of the NTT Group in global markets has steadily increased. Accompanying the increased recognition and the enhanced Group formation, I believe that there will be a growing number of projects for which we can leverage the breadth of our lineup, and that we will see growth in the results of our cross-selling activities. Moving forward, once we have received an order from a customer, we will deepen our understanding of that customer s needs and implement upselling initiatives (receiving orders from existing customers for higher level services). Q3 A Would you describe the background to the Hikari Collaboration Model? The era in which telecommunications operators could take the lead role and provide all services by themselves has already come to an end. Interview with the President Since I was appointed president in June 212, I have consistently emphasized, both inside the Company and outside, my strong determination to transform the NTT Group s business model, as indicated by the words Value Partner. During the telephone era, telecommunications operators had the starring role. The operators themselves built the platform for all services, including not only communications infrastructure but also upper layer services, and provided those services to the customer. In other words, facilities and services were provided as a package. However, the times have changed signifi cantly. Currently, cloud services are a global trend. In the past, customers accepted, as is, the services prepared by the service provider, but that market structure no longer exists. Now, customers can freely choose service providers and use optimal combinations of services. A good example is how a variety of companies use voice call applications to provide services over the NTT Group s networks. Under our former business model, we implemented upfront investment in the construction of facilities, recovered funds through communications charges, and then reinvested those funds in facilities. That business model has reached its limit. The future will not be an era in which telecommunications operators take the lead role and provide all services by themselves. I believe that NTT Group, as one company among many, must work to support the business development initiatives of its partner companies. Customers have a wide range of choices, and for the NTT Group to continue to be selected as a trustworthy partner in this environment we will need to transform our approach and our business model. These concepts are incorporated in the words Value Partner, and they are given concrete shape by the Hikari Collaboration Model, which was announced in May NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

10 Interview with the President Q4 A How will the role of the NTT Group be changed by the Hikari Collaboration Model? We will foster innovation through collaboration with a variety of companies. We have leased access line functions to operators in accordance with connection rules determined by law. In contrast, under the Hikari Collaboration Model, fi ber-access services, including the core network, will be provided to partner companies on a wholesale basis. It will be a challenge to implement this model, which is the world s fi rst fi ber-access services wholesale model that covers an entire country. Through this model, the previous B2C model of NTT East and NTT West will be transitioned to a B2B2C model. The Hikari Collaboration Model is something that I have thought about since I became president. It will enable us to create new businesses through collaboration with a wide range of business partners, leading to steady increases in corporate value for the NTT Group and further development for society. The choice of Tokyo as host of the 22 Olympic and Paralympic Games provided an additional incentive for my decision to announce this model. The NTT Group has led the world in the installation of a fi ber-access network, and the Group s network extends throughout Japan. In contrast to the availability of fi ber access, the actual use of that fi ber access is not suffi ciently advanced. In preparation for 22, telecommunications operators have the responsibility and the opportunity to resolve this issue and foster further advances in ICT. Which raises the following questions. What can the NTT Group do? And what should we do? My answer to those questions can be found in the Hikari Collaboration Model. Previously, fi ber-access services were considered to offer a high level of value for their provision of a high-speed, stable Internet environment. However, the rollout of LTE has made it possible to enjoy high-speed, large-volume communications in a mobile environment, and in this setting there is no expectation of substantial growth in usage without the addition of a variety of added value, such as services leveraging fi xed-mobile convergence. If NTT East and NTT West are providing services directly to customers, and competing for share only within the telecommunications industry, then there is a limit to how much of that added value we can create. To break free from this situation, we decided to discard our insistence on doing everything in-house and to open up fi ber-access services to a wide range of industry players. We decided to introduce the Hikari Collaboration Model. We will consider fi ber-access services to be tools rather than products, and we will devote ourselves to being a Value Partner that supports companies in a wide range of industries as they implement business initiatives as main players. I believe that this approach will ultimately lead to growth in the use of fi ber access. As we provide support, we will also contribute to the business development initiatives of partner companies by providing added value that leverages the distinctive strengths of the NTT Group. In this way, we will be evaluated as a Value Partner, and will maintain a presence that is indispensable for our partner companies. For example, in R&D we will continue to enhance our broadband platform technologies, which are in the highest level worldwide, and give shape to the emerging needs of our partner companies. Under the Hikari Collaboration Model, we will encourage partner companies to make aggressive use of our research results, and will expand business opportunities by fostering innovation. The Hikari Collaboration Model is a major transformation of our business model. The question of whether or not the NTT Group s value to society will continue to be recognized in the years ahead depends on the extent to which we foster innovation through collaboration with a variety of partner companies. Hikari Collaboration Model Interview with the President The World s First Wholesaling of Fiber-Access Services Current Model Hikari Collaboration Model Wholesaling fiber-access services by NTT East and NTT West The world s first full-scale wholesaling of fiber-access services Fair provision to diverse market players in a wide variety of industries Able to provide the service within the current legislation (while continuing to provide facility access under the current interconnection regulations) NTT East and NTT West support a variety of market players to create new services as a Value Partner (Value Added Enabler) NTT East and NTT West directly provide fiber-access services to end users B2C A variety of market players provide their own integrated services to end users by combining their strengths with the wholesale fiberaccess services of NTT East and NTT West B2B2C Hikari* Collaboration Model * Hikari: Optical, fi ber access 16 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

11 Interview with the President Q5 A Would you discuss, in specific terms, the effect that the Hikari Collaboration Model will have on the NTT Group and on society as a whole? I am confident that the Hikari Collaboration Model will lead to steady increases in the corporate value of the NTT Group and will strengthen the overall competitiveness of Japanese industry. The implementation of this model will have advantages not only for telecommunications operators but also for a wide range of industry players that do not own telecommunications facilities. These companies will be able to draw on their strengths to create diverse services that utilize fi ber-access services under their own brand name. Telecommunications operators will likely offer bundles of mobile telecommunications and ISP services that offer added value not only in price but also in service. Real businesses, meanwhile, will likely offer new services that combine their own real businesses with telecommunications. I believe that this will result in further advances in cross-sectional collaboration among industries. In addition, it will be possible to offer a diverse array of services on a one-stop basis, thereby substantially enhancing convenience for customers. As 22 approaches, the Hikari Collaboration Model will result in the provision of new services that were not previously possible. It will also increase convenience through multilayered services that incorporate fi ber-access services. We expect that this will reinforce the competitiveness of Japanese industry. In addition, partner companies will develop value-added services utilizing fi ber-access services, and the size of the fi ber-access services market will be expanded through the proposal of these services to customers that the NTT Group has not previously been able to reach. This will grow the business of the NTT Group and, at the same time, increase the effi ciency of our optical-fi ber network. In addition, NTT East and NTT West will transition from the previous B2C model to a B2B2C model. As a result, we expect to control sales-related expenses. Furthermore, we also anticipate new sources of revenues, such as support for call center operation and maintenance service functions for partner companies. I am confi dent that, in these ways, the Hikari Collaboration Model will lead to steady growth in the corporate value of the NTT Group. Q6 A Please discuss the positioning of CSR in the NTT Group s business operations. For the NTT Group, business and CSR are inseparable. Interview with the President Creation of Value through Collaboration Transportation Environment Tourism Carriers Health Care Innovation by Service Collaboration Collaboration MVNOs, ISPs Collaboration (NTT East, NTT West, R&D) Value Partner Distribution Sports / Entertainment Companies in other industries Manufacturing Creation of New Value As we advance Groupwide CSR activities, we are guided by the NTT Group CSR Charter. In regard to global environmental problems, we act in accordance with the Group s environmental vision: The Green Vision 22. In line with three themes Creating a low carbon society, Implementing closed loop recycling, and conserving biodiversity we are working to reduce the burden on the global environment. In addition, the NTT Group CSR Priority Activities were formulated to increase the level of Groupwide CSR initiatives. To measure Groupwide activities, we have completed the establishment of quantitative indicators for all eight of the priority activities and have commenced the use of those indicators. The basis of these CSR activities is the resolution of social issues through ICT. I believe that opportunities for growth will be found in the problems for which society expects a solution. In other words, business and CSR cannot be separated, and neither can our Medium-Term Management Strategy and our social responsibilities. On the other hand, if we cannot meet the expectations of society, then our growth will slow and, what is more, our corporate value could be adversely affected. In recent years, our employees have been involved in serious compliance violations. In response, the NTT Group is strengthening compliance on a Groupwide basis. Moreover, as a global company we are also working actively in the area of respect for human rights, for which there are growing demands around the world. In June 214, we formulated the NTT Group Human Rights Charter, and are working to enhance awareness of this charter and to ensure that it is followed. 18 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

12 Interview with the President Q7 A Would you discuss, in specific terms, how the NTT Group is implementing initiatives that combine CSR and growth strategies? In accordance with four goals, we are implementing initiatives that combine CSR and growth strategies. The four CSR Goals are Communication between People and Their Communities, Communication between People and the Global Environment, Safe and Secure Communication, and Team NTT Communication. Based on these goals, we are implementing initiatives that combine growth strategies and CSR. One example of an initiative addressing the CSR Goal of Communication between People and Their Communities is the new emergency medical information system. This system is a cloud-based solution to the problem of emergency patients being unable to fi nd a hospital that can treat them, which has become a major social problem in Japan (Please refer to pages 36 37). In today s Internet society, security is recognized as a major social problem. For NTT, defenses against cyber attacks are an ongoing obligation that addresses the CSR Goal of Safe and Secure Communication. At the same time, our ability to provide those defenses will be a major differentiating factor in the advancement of our strategies. The provision of ICT services that are resistant to disasters is our greatest duty. In addition, a solid reputation for network reliability will become the foundation for the stable growth of the NTT Group. Through the provision of value that leverages the unique capabilities of the NTT Group, we can also discover diverse business opportunities in addressing the CSR Goal of Communication between People and the Global Environment. For example, smart communities, which are next-generation social infrastructure, are expected to signifi cantly increase the use of ICT. Team NTT Communication is a CSR Goal that shines a spotlight on human resources. In Japan, where the population is aging, a major issue for companies is how to secure the human resources who will support the future. To foster innovation and reinforce corporate strength, diversity management has been positioned as an important management strategy at the NTT Group. In regard to the employment of women and support for their career development, we have set the specifi c objective of raising the percentage of female managers from the current level of 3.3% to 6% by the fi scal year ending March 31, 221. In addition, under the Medium-Term Management Strategy, developing and utilizing global human resources is an important issue in expanding our global business foundation. Moving forward, we will recruit people who can be active on the global stage, without regard to nationality. Q8 A Finally, what aspects of the NTT Group s operations should stakeholders focus on going forward? Please keep a watch on growth in cloud services and the transformation of our business model. Interview with the President The NTT Group CSR Charter Safe and secure Creation of a safe, Team NTT communication secure and prosperous communication society through communications that serve people, communities, and the global environment Communication Communication between people between people and the global and their communities environment As I mentioned, I would like stakeholders to focus on the extent to which the NTT Group can leverage its strengths and record growth in the cloud service market, which is a future growth fi eld. In addition, I would also like people to focus on the transformation of our business model through the Hikari Collaboration Model and on each of the other initiatives that we implement. Specifi cally, a key point will be the extent to which these activities contribute to increasing the corporate value of the NTT Group as well as to boosting the overall competitiveness of Japanese industry and to resolving social issues. Going forward, we will continue to do our utmost to advance initiatives in accordance with the Medium-Term Management Strategy, and I would like to ask all of our stakeholders for their support. 2 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

13 Special Feature 1 Strong Growth in Global Cloud Services In its Medium-Term Management Strategy, Towards the Next Stage, the NTT Group announced the concept of working to become the Value Partner that customers continue to select. The strategy also positioned Global Cloud Services as the future growth driver of the NTT Group and included the objective of $2. billion in overseas sales by the fiscal year ending March 31, 217. This special feature explains the steps taken by the NTT Group to strengthen its Global Cloud Services and the progress of those initiatives. Applications / Solution Services Special Feature 1 Managed ICT Services Feature: Contents Full Lineup of Cloud Services from the NTT Group 24 Further Bolstering the Scope and Depth of Our Business Operations 25 The Unique Strengths of the NTT Group 26 Overseas Sales Leading Growth in the Group s Top Line 28 Data Centers / Networks Steps Taken to Strengthen Scope and Depth in the Past Year 3 22 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

14 Special Feature 1: Strong Growth in Global Cloud Services Value Proposition Initiatives Full Lineup of Cloud Services from the NTT Group Cloud services comprise applications / solution services, managed ICT services, and data centers / networks. The NTT Group provides a full lineup of services that meet customer needs at each of these layers, from advisory services for the customer s migration to the cloud to management services after the migration is completed. Initiatives Further Bolstering the Scope and Depth of Our Business Operations To provide higher quality cloud services to customers, the NTT Group is working to further reinforce the footprint of its operations, which indicates the scope of its business fields, as well as the depth of its operations, which indicates its ability to provide solutions in those fields. To that end, the Group is implementing M&A transactions. Global Cloud Business Promotion System Overview and Purpose of Major M&A Transactions in the Past Year Cloud Services Corporate Customers Advisory Services Migration Services Operational Services Management Services Applications / Solution Services Managed ICT Services January 214 Acquisition December 213 Acquisition * In May 214, the consolidation of Optimal Solutions Integration into the NTT DATA brand was completed. * The acquisition of the everis Group has expanded our footprint. Through this transaction, we acquired a robust business foundation in Spain and major countries in Central and South America, and we strengthened our comprehensive solutions provision capability from upstream to downstream. The everis Group has near-shore and offshore development bases, and we still strive to use those assets to increase our price competitiveness and service quality. In North America, we brought Optimal Solutions Integration, which has advanced skills and abundant training in the SAP fi eld, where we expect to see strong demand growth, into the NTT Group. Going forward, we will expand our fi elds of business to include the provision of SAP services to the public sector, retail, distribution, and other entities. Special Feature 1 Data Centers / Networks February 214 Acquisition In Europe, we acquired NextiraOne, which has technological strengths in unifi ed communication and collaboration services. NextiraOne s technologies will strengthen Dimension Data s ICT service provision capabilities, leading to a larger market share in Europe for the NTT Group. R&D Applications / Solution Services Approximately 42, employees in 175 cities in 41 overseas countries provide a wide range of services to the customers of the NTT Group. These include system Integration (SI) services, such as corporate ICT system planning, design, development, construction, installation, maintenance, and operation; outsourcing services, such as business process outsourcing (BPO); and application services using SAP, Oracle, and other applications. Managed ICT Services The NTT Group provides a wide range of ICT services in an end-to-end manner. These range from network integration (NI) such as design for network construction and the installation and set-up of communications equipment to IT outsourcing (ITO), including monitoring, maintenance, and operation of networks after they are put into operation. Data Centers / Networks Data centers are an extremely important operational platform for the provision of cloud services to corporate customers, and the NTT Group is in the top ranks worldwide in terms of server room fl oor space. We operate more than 25 data centers around the world, and we provide colocation services, which entail the provision of data center space, as well as hosting services, under which we provide sets of equipment and space. In addition, the NTT Group s global base of corporate customers extends to more than 1, companies in 196 countries and regions around the world. As a world-class global IP backbone operator, the Group provides IP-VPN and other data communications networks as well as global network services, such as Internet access. At NTT Laboratories, we are enhancing high-value-added technologies, such as cloud migration support technologies and security management technologies. In this way, we are working to differentiate our cloud business services. April 214 Acquisition January 214 Acquisition January 214 Acquisition Approach to M&A Transactions in the Future In the United States, we acquired Nexus IS, which provides advanced ICT services. As a result of this acquisition, Dimension Data s presence on the west coast and southeastern regions of the United States have been substantially enhanced, and the scale of our operations in the United States as a whole has been increased by about 4%. In addition, it will now be possible to provide customers with a wider range of more specialized services. Through the acquisition of RagingWire, a U.S. data center operator, NTT Communications data center fl oor space in the United States has doubled from about 2, square meters to about 43, square meters. Moreover, RagingWire has know-how related to effi cient data center facility design and operation, and moving forward we will apply that know-how to other data centers. We also acquired Virtela Technology Services, which has strengths in network virtualization technologies. Through this acquisition, the area in which NTT Communications provides network services to corporate customers has expanded from 16 countries and regions to 196 countries and regions. Moving forward, we will draw on the advanced, highly effi cient operational know-how of Virtela Technology Services to further enhance the quality and competitiveness of our global network services. We will implement M&A transactions that expand our footprint of our business fi elds, strengthen our ability to provide services, and enable us to leverage synergies on a Groupwide basis in building new business models. 24 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

15 Special Feature 1: Strong Growth in Global Cloud Services Advantages The Unique Strengths of the NTT Group Total solutions that leverage the distinctive strengths of a telecommunications carrier NTT s Cloud Technologies Advanced by R&D Cloud Migration Support Technologies In migrating from an on-premises environment to the cloud, corporate customers have a variety of concerns, such as to what kind of cloud they should implement the migration, what the procedures will be, and if they will be able to operate in a safe and secure manner. In response, we provide services that address those concerns. These services utilize technologies to analyze the customer application profi le (current), identify those applications that can be migrated to cloud services, and support the formulation of a migration plan, as well as application migration automation technologies. The Distinctive Strengths of Carrier Cloud The NTT Group includes telecommunications carriers, and this is a major strength in comparison with many other cloud vendors. The unique advantages of carrier cloud include seamless connections to the cloud using optical fi ber, which is an existing asset for carriers, and integrated control of service performance and stability. The NTT Group s data center in Hong Kong, which is operated by NTT Communications, succeeded in reducing the time required for a signal to travel between Tokyo and Hong Kong by.1 second through the use of a fi ber-optic submarine cable linking Japan and Hong Kong. This achievement has been highly evaluated by customers in the fi nancial industry who conduct ultra-high-speed transactions. To meet future growth in demand, in 215 we plan to further expand the fl oor space of this data center, which is already one of the largest in Hong Kong. At each layer applications / solution services, managed ICT services, and data centers / networks industry analysts have given the NTT Group high evaluations that place the Group in the top ranks worldwide. The NTT Group includes leading companies in each of these fi elds, and those companies mutually leverage their service provision capabilities and customer bases to generate synergies. In this way, the Group is further enhancing its ability to provide total solutions. Hybrid cloud services, which combine on-premises private clouds and public clouds, are a good example. The system linkage between the private and public clouds requires advanced provision capabilities at each layer as well as cooperation among the service providers. Consequently, our ability to draw on our full lineup, from applications to infrastructure, in the provision of total solutions is a major strength. Hong Kong Financial Data Center High reliability at Tier IV level, the highest quality level in the world The data center has an ideal location near the Hong Kong stock exchange data center, high security, and a low latency network. Total Solutions Provided through Leading Companies at Each Layer Key Aspects of Global Cloud Services Leader s Quadrant Gartner s Magic Quadrant for Communications Outsourcing and Professional Services* Leader s Quadrant Gartner s Magic Quadrant for Global Network Service Providers** World-Class Global IP Backbone (Traffic volume (Source: Renesys Corporation)) World-Class Data Centers (Server-room floor space:.425 square meters (as of the end of March 214)) Salesforce.com s Platinum Cloud Alliance Partner Dimension Data NTT Communications NTT Group NTT Centerstance NTT DATA * Source: Gartner, Magic Quadrant for Communications Outsourcing and Professional Services Eric Goodness, et al. 21 October 213 ** Source: Gartner, Magic Quadrant for Global Network Service Providers Neil Rickard, Robert F. Mason. 2 March 214 Gartner does not endorse any vendor, product, or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. The Gartner Report(s) described herein, (the Gartner Report(s) ) represent(s) data, research opinion, or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ( Gartner ), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Prospectus), and the opinions expressed in the Gartner Report(s) are subject to change without notice. Application Migration Automation Technologies Select migration mode Select a cloud appropriate for the application concerned World-Class Security Services On-premise (customer site) As the uptake of cloud services progresses, the threat of cyber attacks is increasing. Through its advanced security technologies, the NTT Group protects the valuable data that customers have entrusted to the cloud. The NTT Group s Security Information & Event Management (SIEM) platform utilizes world-leading log analysis technologies and malware countermeasure technologies developed independently by NTT Laboratories. Previously, cyber attacks and incidents continuing over an extended period of time, such Security countermeasure product logs Automate migration procedures Automate installation of software stack, etc. Automates a series of migration procedures Monitor the systems concerned after migration MYSql Customer DB MYSql Offerings DB Apache Web Server Java Modules php Modules Linux Server and other logs Network device logs Refl ection of know-how Collection of events and logs as targeted attacks, were diffi cult to defend against. The SIEM platform, however, can rapidly detect signs of these attacks and defensive measures can be implemented. Going forward, we will enhance our detection logic, which is not available from other companies, and incorporate into our services differentiated technologies and know-how that can respond to cyber attacks, which continue to become more sophisticated. In this way, we will maintain our world-class security services. The SIEM platform was developed by integrating the know-how of NTT Communications and NTT Com Security and the advanced technologies of NTT Laboratories. Analyst NTT Laboratories proprietary database Migration to private, hybrid, and public clouds SIEM platform Prediction / detection Threat detection Influence analysis Severity judgment Customization / tuning Increasing detection precision Improving misdetection rate Correlation analysis Using proprietary know-how to detect new threats Patch analysis engine Real-time analysis engine NTT Communications proprietary blacklist NTT Laboratories analysis engine Customer portal Analyst report Automatic notifi cation Customer Data by customer Database by region Customer system data Special Feature 1 26 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

16 Special Feature 1: Strong Growth in Global Cloud Services Track Record Overseas Sales Leading Growth in the Group s Top Line Example of Cross-Selling 1 Customer Yum! Brands, Inc. One of the world s largest restaurant companies, with brands including KFC and Pizza Hut Migration of common information systems to the cloud Contract Summary Provision of outsourcing services Business process outsourcing (BPO), such as accounting, general affairs, and personnel Information technology outsourcing (ITO) Growth in Cross-Selling Order Volume (Orders received through Group collaboration) By advancing Group collaboration and further strengthening our business system through M&A transactions, we have substantially enhanced the Group s ability to provide total solutions, from IT infrastructure to applications. We are recording growth in cross-selling orders leveraging cloud and IT outsourcing (ITO) services as triggers. Consequently, our cross-selling contract value has increased substantially, rising from $143 in the previous year to $7 in the fi scal year ended March 31, 214. The expansion of our business in the global market and the receipt of large orders has further increased recognition of the NTT Group around the world and generated a favorable cycle leading to new transactions with global enterprises. Overseas Sales Growth in Cross-Selling (Cross-Selling Contract Value) $62 $85 $143 $7 Fiscal year ended 211/3 212/3 213/3 214/3 March 31 In July 213, the NTT Group received an order for IT outsourcing from Yum! Brands, one of the world s largest restaurant companies. The restaurant brands operated by Yum! Brands include KFC and Pizza Hut. Yum! Brands, which conducts global business operations, had been searching for a partner that offered high levels of technical capabilities and service quality. This partner needed to be able to help Yum! Brands to reduce costs through the provision of optimal services with fl exible accommodation of changes in needs. We proposed a total solution encompassing (1) migration of the client s ERP system, which had been operated on their own servers, to a cloud environment utilizing an NTT Communications data center, (2) outsourcing of indirect operations, including accounting, general affairs, and personnel (BPO), and information technology outsourcing (ITO), with the outsourced operations handled by NTT DATA, and (3) advisory services for an effective, effi cient migration to the cloud using a proprietary tool developed by NTT I 3. The NTT Group received the order as a result of the high evaluation of its comprehensive capabilities. Example of Cross-Selling 2 Texas Department of Transportation Advisory Services Assessment of cloud migration with tools developed independently Data Center Provision of data center Yum! Brands, Inc. Applications / Managed ICT Customization and implementation of Oracle ERP application Provision of private cloud service Special Feature 1 On a dollar basis, overseas sales in the fi scal year ended March 31, 214, were $12.2 billion. Targeting the achievement of our objective of overseas sales of $2. billion by the fi scal year ending March 31, 217, we will strive to achieve organic growth at each Group company, centered on NTT DATA, Dimension Data, and NTT Communications. In addition, through M&A transactions we will further strengthen our operational scope (expand our footprint / fi elds of business) and operational depth (ability to provide solutions). We will also strive to make additional gains in cross-selling. As a result, we are forecasting overseas sales of $15. billion in the fi scal year ending March 31, 215. We are making steady progress toward our objective of increasing the proportion of corporate sales represented by overseas sales to 5% or more in the fi scal year ending March 31, 217. Due to steady growth by overseas sales, the proportion of corporate sales represented by overseas sales increased 4.8 points year on year, to 36.6%, in the fi scal year ended March 31, 214, and we are forecasting a further increase to 43.1% in the fi scal year ending March 31, 215. Overseas Sales $12. billion Fiscal year ended / ending March billion $12.2 billion 1,196. billion $15. billion 1,53. billion 36.6% 43.1% 31.8% Proportion of corporate sales represented by overseas sales 213/3 214/3 215/3 (Forecast) Customer Contract Summary In June 213, the NTT Group concluded a partnership agreement with the Texas Department of Transportation, one of the largest transportation departments in the United States. The aims of the Texas Department of Transportation are to reduce costs and focus management resources on primary strategic operations. Accordingly, the agreement covers a wide range of areas, including application development, operation, and quality control; operation and maintenance of networks and core systems; and security. NTT DATA will handle applications and core system, Dimension Data will be in charge of network construction and maintenance, and Dimension Data and Solutionary will provide managed security services. Especially important factors in the receipt of the order were NTT DATA s track record in application maintenance and management and Solutionary s total security solutions that leverage advanced technical capabilities. Government agency responsible for maintaining public transportation / aviation / rail infrastructure Provision of core system for public transportation management on highly secure cloud platform Security Full-line security service Applications Application development / maintenance / quality assurance Texas Department of Transportation Managed ICT Provision of private cloud service ICT support for core systems, such as CAD and GPS Construction and operation of unified communication platform* * Unified platform for telephone calls, video conferencing, etc., provided via network 28 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

17 Special Feature 1: Strong Growth in Global Cloud Services M&A Mergers and acquisitions Action M&A Acquired Arkadin International SAS, a provider of teleconferencing services M&A Acquired Nextira One, a provider of ICT solution services in Europe United Kingdom United States 213/ 9 213/4 DC Began construction of the Hemel Hempstead 3 data center Established NTT Innovation Institute, Inc. (NTT I3) as an R&D base in North America Provided solution utilizing the cloud for core systems for the Texas Department of Transportation 214/ 1 213/8 Acquired the everis Group, which provides ICT services in Spain and six countries in Central and South America M&A Acquired Solutionary, a provider of security solutions for corporations M&A 214/1 M&A Acquired Virtela Technology Services, a major network operator 214/1 M&A Acquired RagingWire, a data center operator 214/3 Acquired EBS Romania, which conducts business centered on software development Germany Austria 213/6 213/1 M&A Made subsidiary itelligence a wholly owned subsidiary Made BDC, which provides security services, a subsidiary DC Commenced provision of services at Hong Kong Financial Data Center DC 213/6 Expanded comprehensive ICT services in Central and South America through the acquisition of the everis Group M&A Agreed to the acquisition of Digital Port Asia Limited, a data center operator Malaysia 214/4 Santiago DC Commenced provision of services at Cyberjaya 4 Data Center São Paulo Buenos Aires Bogota Mexico City Lima Philippines DC 213/8 Established offices aimed at scouting ICT markets and ICT business opportunities M&A Acquired Nexus IS, a U.S. ICT solutions service company NIPPON TELEGRAPH AND TELEPHONE CORPORATION Hong Kong 213/5 Launched Biz Hosting Cloud services at data centers in the United States 3 Acquired fine trade, a provider of settlement services for online retailers M&A n 214/4 M&A Thailand M&A M&A M&A Commenced provision of services at Bangalore 2 Data Center, one of the largest data centers in India Acquired the Aster Group, a provider of SAP-related consulting and other services 213/12 213/11 Acquired 4C Management Consulting through German subsidiary itelligence 214/3 Order Acquired Optimal Solutions Integration, Inc., a provider of SAP-related services M&A India Established a new BPO / IPO center in Louisville, Kentucky Received order from Yum! Brands, Inc. 213/11 214/1 214/3 Spain Order Romania Denmark Special Feature 1 214/ 1 214/ 2 213/8 Order Order France Steps Taken to Strengthen Scope and Depth in the Past Year 213/5 DC Data center NextiraOne, a provider of ICT solutions services in 13 European countries, acquired by Dimension Data Guam 213/5 M&A Acquired MCV, a cable TV and Internet operator ANNUAL REPORT

18 Special Feature 2 Contributing to Solutions for Social Issues through ICT The NTT Group aims to contribute to the realization of a sustainable society through the use of ICT. To that end, the NTT Group will provide its world-class ICT platform to diverse players and support the creation of innovation through wide-ranging collaboration. This section introduces the types of capital that the NTT Group will utilize and the various forms of collaboration with diverse players that the Group will engage in as it targets the creation of new innovation that helps to resolve social issues. Contents Establishing Business Models to Resolve Social Issues 34 Contributing to the Smooth Operation of Emergency Medical Care through ICT 36 Reducing Environmental Impacts through ICT 38 Special Feature 2 32 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

19 Special Feature 2: Contributing to Solutions for Social Issues through ICT Social Responsibility Targeting the Realization of Steady Growth Together with Stakeholders Establishing Business Models to Resolve Social Issues With business models that utilize a wide range of capital, the NTT Group aims to contribute to the resolution of social issues and to achieve growth over the medium to long term. NTT has been a leader in achieving higher speeds and larger capacities for fiber-optic technologies. We also led the world in the construction of a fiber-optic network, and we developed and promoted the LTE high-speed mobile communications standard. As a result, Japan now has one of the world s most advanced ICT platforms. Moving forward, NTT will provide this platform for use by diverse players in a variety of industries. In this way, we will work to create wide-ranging innovation through collaboration with players in different fields. To contribute to the resolution of social issues and the development of the Japanese economy, the NTT Group will strive to be a Value Partner that supports customers and realizes sustained growth together with stakeholders. We aim to resolve these social issues through the use of ICT. Contributing to the Resolution of Social Issues Medicine Environment Logistics Improving medical / welfare environments P36 37 Introducing advanced educational environments Transportation Innovation by Service Collaboration Tourism Sports / Entertainment Education Manufacturing Activating regional economies Reducing the environmental impacts of society Special Feature 2 P38 39 Excellent human resources in each region of the world Human capital Increase Collaboration with players in a wide range of industries NTT Group Value Partner Communications facilities and data centers Manufacturing capital Increase M&A, R&D, and alliances Strong partnerships inside and outside the Group, shared values Social and relationship capital Natural capital World s most-advanced technical capabilities Intellectual capital Increase Supporting countermeasures for the aging of social infrastructure Advances in ICT, centered on the globalization and initiatives of corporations and on migration to the cloud, have transcended the boundaries of fields and industries and brought about new types of competition. In this setting, companies are not trying to address the needs of customers entirely on their own. Rather, they are actively taking steps to maximize customer satisfaction by creating new innovation through collaboration among players that extends across industry lines. NTT has a responsibility to offer ICT as catalyst in order to support innovation through collaboration. We have a foundation of social and relationship capital comprising strong partnerships and shared values, both inside and Providing information security measures Reinforcing and Expanding the Various Capitals that Support New Business Models outside the Group. On that foundation, we will utilize M&A, R&D, and alliances to further reinforce and expand our various capitals. These capitals include human capital in each region of the world, as well as manufacturing capital in the form of our ICT platform, including communications facilities that support a world-class ICT communications foundation and the world s second largest data center operations. In addition, our intellectual capital includes the world s most advanced technical capabilities. Together with players from a wide range of industries, we will contribute to the creation of new value and the resolution of social issues. 34 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT

20 Special Feature 2: Contributing to Solutions for Social Issues through ICT For Social Communities Development of a New Emergency Medical Information System Using ICT Developing a system to transport sick or injured people to the optimal medical institution as rapidly as possible Contributing to the Smooth Operation of Emergency Medical Care through ICT On the front lines of emergency medicine, emergency response teams share the patient intake readiness of medical institutions, and IT systems have been used for these purposes. However, there have still been issues, such as the appropriate updating of information about whether or not a medical institution can accept patients. In some cases, these systems were not fully utilized in certain municipalities. In response, NTT DATA proposed a new emergency medical information system (EMIS) to municipalities. The proposal called for shifting the primary data input role from the medical institutions to the emergency response teams. Under the system created by NTT DATA, the emergency response teams and medical institutions can use smartphones or other devices to share information in real time, such as information about the emergency patients and information about transport results. This system facilitates the transport of emergency patients to the optimal medical institution as rapidly as possible. With the new emergency medical information system, each time an emergency patient is transported the emergency response teams use their smartphones to enter that information. As this information accumulates, related parties can visualize information about medical institutions that can accept patients, even during emergency situations, and the problem where ambulances carrying people needing emergency transport are refused at multiple hospitals can be controlled. In addition, the emergency response teams use digital pens during transport to digitize and register their observations of the emergency patient. The registered information can be seen in advance by the medical institution, which can prepare to rapidly implement emergency measures. Improvements Offered by the New Emergency Medical Information System Urgent Issues in Emergency Medical Care Previous Data entry Registered information Method of registration Frequency Input by medical institution Issue: Human resources shortage Availability input Issue: Difficult to forecast Written with ballpoint pen Issue: Cannot be managed electronically Twice per day Issue: Information out of date Special Feature 2 The number of patients being transported by ambulance is increasing, and it is taking longer for emergency patients to find a hospital that can treat them. Japan faces a problem where ambulances carrying people needing emergency transport, such as pregnant women in serious condition, are refused at multiple hospitals. This situation occurs throughout the country and has become a major social problem. Factors contributing to this problem include social issues, such as a shortage of doctors and mismatches between physician specialties and the needs of patients. Moreover, there are also ethical issues, such as patients with minor illnesses who call an ambulance rather than use a taxi. Also, Japan s population is aging, and a Number of Emergencies Attended and Number of Patients Transported (1, emergencies / 1, patients) 6, 5, 4, 3, 2, 1, Increase of about two times in comparison with ,82,455 5,25,32 Number of emergencies attended Number of patients transported Source: Fire and Disaster Management Agency, Ministry of Internal Affairs and Communications, 25-nenban, Kyukyu/Kyujo no Genkyo growing number of people require emergency transport, such as those who experience a sudden decline in their physical condition. In recent years, while the number of emergencies attended and the number of patients transported is increasing, a variety of problems and issues have combined to result in an increase in the length of time required to reach the hospital. (Minutes) Doctor shortage Mismatch between physician specialties and patient needs Time Required to Reach Hospital Acceleration of population aging Issues in emergency medical care Irresponsible use of ambulances Increase of about 1 minutes in comparison with 1 years ago Source: Fire and Disaster Management Agency, Ministry of Internal Affairs and Communications, 25-nenban, Kyukyu/Kyujo no Genkyo 38.7 New Basic Operational Flow Emergency responder Call Medical institution Input by emergency response team Effect: Rapid decisions regarding hospital Observation of emergency patient Observation items confirmed Information sharing Negotiations with hospital regarding acceptance of patient Receipt decision Decision on where to take patient Receipt confirmation Information sharing Input transport results Transport to hospital Emergency patient confirmation Effect: Rapid decisions regarding hospital Information sharing Preparation for treatment Written with digital pen Effect: Achieve digitization without changing the practice of using handwritten notes Digitization of Patient Observation Notes Using Digital Pen Digital pen Smartphone Cloud server Input at all times Issue: Information more up-to-date Using the EMIS in Multiple Prefectures and in the Field of Disaster Medicine The system developed by NTT DATA has been the focus of attention from other prefectures, and we are moving ahead with discussions regarding its introduction. In addition, experts in domestic disaster medicine have also shown interest in this system, and this has led to the start of initiatives targeting the introduction of the system to the field of disaster medicine. The Group is also actively implementing activities targeting overseas markets. For example, we exhibited the system at the 18th World Congress on Disaster and Emergency Medicine, which was held in May 213 in Manchester, England. 36 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT