November 22, 2001
NTT Communications' Business Strategy
|1. New Vision
NTT Communications is transforming itself into a "Global IP Company" to deliver high-quality IP services to customers worldwide. The company intends to complete this transformation and establish its new corporate identity as a "Global IP Company" by 2002.
2. Changing Market Environment
The telecommunications market is being shaped by two primary changes: the explosive spread of wireless networks and the growth of the Internet. In contrast, the overall market for fixed line telephony is shrinking, particularly as a result of fierce price competition due to the introduction of the Myline carrier-selection service in Japan.
NTT Com, having foreseen this decline in the fixed line telephony market early on, decided to replace voice as its primary revenue source with data and IP communications services, which will serve as the company's new foundation for revenues.
The Internet has expanded throughout the world, driving the IT Revolution. It is reshaping not only telecommunications, but also the nature and scope of industries and overall industrial structure itself, and has become a major factor in the rapid acceleration of socioeconomic globalization. The Internet has created entirely new domains of business including Internet service providers (ISPs), data centers, content distribution and platforms/e-marketplaces which enable corporate supply chains and inter-company transactions to be conducted within the IP environment. NTT Com believes the markets for these new business domains will continue to demonstrate steady growth going forward.
Based on this perspective, NTT Com has set itself the goal of becoming a "Global IP Company" to offer global IP solutions in Asia, the U.S. and Europe. NTT Com is working toward this goal by combining its existing strengths in data network services, total solutions, resources in areas such as Internet backbone and hosting, and the reliability, stability, and high service quality of the NTT brand.
3. Verio Acquisition and Results to Date
NTT Com acquired Verio Inc. in 2000 to serve as a core component of its global strategy. NTT Com has accelerated its transformation to the IP environment by acquiring Verio's first-class global IP networks in the U.S. the major Internet market and by integrating Verio's strong Web business solutions, including hosting, with NTT Com's own resources. Having largely achieved these tasks, NTT Com is now responding to the needs of a broad range of customers, from multinationals to dot-coms.
In the year since its acquisition of Verio, NTT Com has established the NTT/Verio Global IP Network covering the U.S., Europe and Asia, developed and launched IP-VPN services on a global basis, and established a global 24-hour operational structure centered on the U.S., Japan and Europe. In addition, the company has merged its strong management skills with Verio's venture spirit and fast-paced decision-making, thereby revolutionizing both companies' corporate cultures as the goal of becoming a "Global IP Company" comes into sight.
4. Response to Market Challenges and Strategies for Future Growth
The U.S. economy, which had been growing at a fast pace spearheaded by IT, is now in recession. In the extended forecast, however, the nation's real economy is expected to propel steady growth. Accordingly, while responding to challenges in the current business environment, NTT Com continues to fully pursue its strategy of transforming into a "Global IP Company," including carrying out structural reforms to refocus company resources on the IP field, the foundation of NTT Com's future growth.
Regarding Verio, a core element of this future growth, NTT Com is implementing the following improvements:
1. Major reduction in staffing (by more than 25%),
2. Large-scale consolidation and closure of data centers,
3. Withdrawal from unprofitable businesses, such as dial-up services,
4. Rationalization of access business, and
5. Large-scale reduction in capital investment.
As many new entrants face the difficulties of today's market, NTT Com is satisfying customer needs for reliability, stability and diverse services provided on a unified global basis. At the same time, the international sales, development and operational resources of Verio and NTT Com are being increasingly integrated under the newly launched "NTT/Verio" flagship brand. Moreover, NTT Com is moving forward as a powerful IP solutions provider by developing a unified global Tier 1 backbone and data centers in collaboration with Verio.
5. Financial Status and Business Outlook
Regarding the valuation of goodwill paid in the acquisition of Verio, in accordance with recent changes in U.S. accounting standards, NTT Com posted valuation losses in consideration of the slowing economy. While it will have a considerable impact on NTT Com's financial results for the current fiscal year, it will also eliminate a potential future financial burden on the NTT Com group. This reflects the company's high priority on increased revenue and financial stability as it transforms into a "Global IP Company."
In the near future, the profitability of voice services will decline further. Continued growth in data and IP-related services will, however, overcome this trend and help to sustain steady revenue and improved recurring profit from FY2002 onward. Data and IP operations in Japan are forecast to turn a profit in FY2001. Furthermore, NTT Com's consolidated global business, including Verio and other subsidiaries, are forecast to turn a profit in FY2005.