Press Release

November 22, 2001

NTT Communications' Financial Results
For Fiscal Half-Year Ending September 30, 2001

NTT Communications Corporation (NTT Com) today announced its non-consolidated financial results based on Japanese accounting principles for the period from April 1 to September 30, 2001. Operating revenue was 637 billion yen (down 4.1% year on year or 27 billion yen in the same term of the previous year), operating income was 37 billion yen (up 46.1% YoY or 11 billion yen), and recurring profit was 38 billion yen (up 86.8% YoY or 17 billion yen).


NTT Com's Corporate Vision

NTT Com, under the corporate slogan of "creating the new world of the Internet," has been developing its business with the vision of becoming a "Global IP Company" that provides the best and most innovative IP services to customers worldwide. The firm hopes to establish itself both in name and reality as a "Global IP Company" in the next fiscal year.

NTT Com has positioned the following three items as its core competencies: 1) broadband IP network, 2) global data centers directly connected with this IP network, and 3) platforms that aggregate applications and content over the network. These three layers, conceptually named "e-theater," have been positioned as the firm's significant business domain. In addition, NTT Com has concentrated and migrated its internal resources, both product and human, towards IP. By proactively deploying its e-theater competencies, NTT Com intends to create new business models for corporate customers and support the realization of new lifestyles for personal users.

Changes in Market Environment and Business Base, and Future Growth Strategy

The Internet, which has proliferated worldwide as the foundation of a historical development known as the IT Revolution, has migrated from conventional data communications to IP-related services. Moreover, it has created a new market in which IP-related services are rapidly growing. NTT Com, in order to respond to these market changes, acquired Verio Inc. in September 2000, thereby gaining Tier 1 status and a global IP backbone. Since then, NTT Com has positioned broadband, global IP and total solutions services as the foundation for its business growth, strategically focusing its resources accordingly. NTT Com is now becoming a "Global IP Company," with Verio at the core of future growth.

In order to provide innovative, high-level IP-related services, NTT Com is aggressively pursuing the following growth strategies:

1. Broadband IP
- Enrich IP products and service lineups
- Strengthen seamless end-to-end broadband services
- Promote aggregation of broadband content
- Enrich security services
2. Global lP
- Enhance the Global IP Network by integrating NTT Com and Verio networks (including related IP network services and global data centers)
- Promptly integrate Verio and NTT Com (Arcstar-brand) businesses
3. IP Solutions
- Comprehensively support computerization of governments, businesses and customers
- Develop solutions for e-governments and local governments in step with the nation's "e-Japan Strategy"
- Establish safe and secure e-commerce platforms by promoting NTT Com's Safety Pass authentication and settlement platform
- Enrich lineup of total outsourcing solution services


During the interim period, NTT Com carried out the following activities as part of pursuing its goal of becoming a "Global IP Company" by FY2002:

1. IP Network
- Packaged OCN-brand IP network services (the focal point of the company's growing IP services) with telephone services, emphasizing broadband compatibility and attractive content.
- Constructed the NTT/Verio Global IP Network, based on Verio's Tier 1 backbone, covering Japan, the U.S., Europe and Asia.
2. Global Data Centers
- Launched highly reliable, value-added data-center services, including co-location and hosting services, as well as in combination with various network services.
3. Platforms
- Constructed platforms that offer one-stop supply chain management for various companies and industries.
4. Telephone Services
- Launched competitive (price- and content-wise) services for the new Myline carrier-selection service, viewing the Myline service introduction as an opportunity for customers to select NTT Com as their carrier because of our total service capabilities and corporate vision, rather than merely a chance for customers to select a telephone company or for the industry to engage in a price war.
- Launched packaged services combining telephone and IP services.
5. Verio
- Established initiatives for Verio to streamline operations while pursuing new growth, aiming at enhancing the synergy between NTT Com and Verio and responding to challenges in the U.S. market.


Recurring profit of 38 billion yen in the interim period was slightly higher than the company's initial forecast. Although data and IP-related revenues increased substantially, voice transmission revenues decreased due to fierce competition resulting from the Myline service introduction.

Data and IP service revenues

Data and IP revenues came to 320 billion yen (up 16.8% YoY or 46 billion yen), supported by a steady increase in customers for these services.

1. OCN Services Revenues
Continued growth in the subscriber base for the "OCN ADSL Service" enabled NTT Com to slash charges in September. The company additionally launched the following services:
- "OCN Access B Flets Plan" (combined with the B Flets Services of NTT East and NTT West)
- "Super OCN DSL Access" (high through-put)
- "V Portal" (voice-activated Internet access)
The extensive lineup of OCN services had approximately 2.7 million subscribers as of end of September 2001. Sales came to 49 billion yen (up 52.9% YoY or 17 billion yen).

2. Leased Circuit and Data Revenues
In addition to new frame relay and IP-VPN services, NTT Com and Verio:
- Integrated their global IP backbones, unifying their autonomous system (AS) numbers.
- Launched a global IPv6 network bridging Japan, the U.S., and Europe, and commenced the world's first full-scale IPv6 service.
Revenues came to 210 billion yen (up 3.5% YoY or 7 billion yen).

3. Solutions Revenues
As a result of enriching the company's total outsourcing solutions lineup, NTT Com achieved steady increases both in the number of orders received and average value per order.

4. Data Center Revenues
NTT Com strengthened its domestic data centers by expanding space in its Otemachi building — the company's main center for domestic business — and established a new data center in Tokyo. Overseas, data-center services were launched in Thailand, Singapore and Indonesia, and were marketed with the "Managed Service" (center monitoring and operations) package. As a result, data center revenues increased. As of the end of September 2001, NTT Com had more than 60 data centers in Japan and about 40 abroad.

Voice transmission services revenues

Revenues came to 316 billion yen (down 18.9% YoY or 73 billion yen), as a result of reduced charges and expanded discounts on services. NTT Com developed various services to encourage customers to select NTT Com with the Myline service and to promote the firm's total service provision capability and corporate vision. NTT Com was selected by approximately 60% of the nation's total subscribers both for inter-prefectural and international call services.

Ratio of data/voice revenues

The ratio of data and IP service revenues versus voice service revenues (D/V ratio), a benchmark of NTT Com's progress in achieving its goal of becoming a "Global IP Company," increased to 0.9, up from 0.6 in the first half of the previous fiscal year.

Extraordinary Loss

Writing down goodwill (based on new U.S. accounting standards) for the acquisition of Verio and revaluing financial instruments led to the posting of an extraordinary loss of 628 billion yen. As a result, interim loss came to 342 billion yen.

Although the valuation losses taken for Verio will have a considerable impact on earnings for the full year, conservative calculations of the situation enabled the company to fully amortize this goodwill in the half-year period. In the future, as part of transforming into a "Global IP Company," NTT Com will fully mobilize its global customer base and resources for maximized profits and financial stability.


In the immediate 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 and exceed voice services profit in FY2003. NTT Com's consolidated global business, including Verio and other subsidiaries, is forecast to turn a profit in FY2005.