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This website takes as its objective the provision of information regarding the management policy, plans, and financial situation of KDDI to shareholders, investors and other visitors. It constitutes neither an offer nor a solicitation to purchase or sell KDDI stock.
KDDI endeavors to ensure that the information and other resources on this website are accurate. However, the company cannot guarantee that all important corporate information will be updated to the site immediately. Furthermore, the company accepts no responsibility for damage or other problems caused by any of the data on the website or the downloading of that data.
Statements made on this website with respect to the KDDI Group's (KDDI and its subsidiaries and affiliated companies) current plans, estimates, and strategies that are not historical facts are forward-looking statements about the future performance of the KDDI Group. These statements are based on management's assumptions and beliefs in light of the information available at the time they were made. They therefore include certain risks and uncertainties. Actual results can differ from these statements due to reasons including, but not limited to, economic trends, competition in the communications industry, and the success or lack thereof of new services.
We ask that those visitors who intend to make investments in KDDI understand that they bear full responsibility for those investments.
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This section contains an overview of the principal business-related and other risks facing the KDDI Group that could have a material bearing on the decisions of investors. The section also discloses information on a number of other subjects that, while not explicitly considered business risks at the present time, could also be materially relevant to investment decisions. KDDI discloses information on possible risks in the interests of greater transparency. The company assesses the likelihood of issues arising in connection with the various risk factors. Based on these assessments, it strives to take all appropriate measures to avoid risk wherever possible and to develop appropriate and timely countermeasures for situations as they arise. This section contains various forward-looking statements that represent the best judgments of the KDDI Group as of March 31, 2007. Investors should note that future developments are also subject to unknown risks and uncertainties that by their nature cannot be covered by the following discussion.
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Competitors, Rival Technologies and Rapid Market Shifts
Mobile Business
The KDDI Group launched 3G cellular-phone services in Japan in April 2002 with the introduction of CDMA 1X, followed by CDMA 1X WIN in November 2003. During the fiscal year ended March 2007, KDDI launched 43 handset models, allowing customers to select the model that best suits their personal preferences and lifestyle. The new models included handsets capable of receiving "1 Seg" TV broadcasts- adding video to the existing focus on music and design-as well as the first mobile phone handsets to receive digital radio, and "au design project" models. KDDI also strove to enhance payment options, introducing the "INDEFINITE-PERIOD CARRY OVER" plan in August 2006. In addition, KDDI began providing a variety of services through the "LISMO" comprehensive music service suite in an effort to further enhance the mobile phone music enjoyment of its customers. Services included "LISMO Music Store" , "LISMO Video Clip" and "LISMO Music Search" . As a result of such efforts to add services and enhance customer satisfaction, the number of subscribers to the au service increased steadily, enabling KDDI to lead the industry in terms of the overall annual net increase in subscribers. However, these services are subject to competition from rival mobile carriers and competing technologies and to sudden changes in market conditions. The main business-related factors and uncertainties that could have a negative impact on Mobile Business operations and thereby affect the financial position and performance of the KDDI Group are summarized and listed below.
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Market demand trends out of line with KDDI Group expectations
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Subscriber growth trends out of line with KDDI Group expectations
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Fall in ARPU (Average Revenue Per Unit) due to tariff discounts sparked by fierce price competition, or higher sales-commission related or promotional costs to maintain customer base
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Decline in ARPU due to drop in service usage frequency by subscribers
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Drop in customer satisfaction with network quality or capacity irrespective of any unforeseen developments
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Decline in attractiveness of handsets or supplied content in comparison with offerings of rival carriers
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Increase in handset procurement costs associated with adoption of more advanced functions, or higher sales commissions
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Drop in customer satisfaction caused by spam or other e-mail abuse, plus related increases in network security costs
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Higher costs of 2GHz spectrum
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Increase in competition due to new wireless technology of highspeed data
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Effects associated with dependence on specific communications protocol, handset or network technologies or software
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Intensifying competition resulting from increasing convergence of fixed-line, mobile and broadcasting, and other changes in the operating environment
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Fixed-line Business
KDDI is expanding sales of direct-access services targeting the residential user segment, including "KDDI METAL PLUS" (IP telephony and ADSL), and "HIKARI-one" which supplement the existing "MYLINE" and DION-brand ADSL services. Also, KDDI is promoting "KDDI Powered Ethernet" for corporate customers. In January 2006, KDDI merged with POWEREDCOM Inc. as part of its comprehensive alliance with Tokyo Electric Power Company (TEPCO) in the telecommunications business. In a measure to reinforce its operating base with a view to developing its broadband services in the future, in January 2007, KDDI absorbed the FTTH businesses operated by TEPCO's internal Fiber Optic Network Company. Through such initiatives KDDI is working to upgrade services and enhance customer satisfaction. However, these services are subject to competition from fixed-line carriers, ADSL providers, cable TV operators and other firms, as well as to sudden changes in market conditions. The main business-related factors and uncertainties that could have a negative impact on Fixed-line Business operations and thereby affect the financial position and performance of the KDDI Group are summarized and listed below.
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Market demand trends out of line with KDDI Group expectations
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Subscriber growth trends out of line with KDDI Group expectations
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Fall in ARPU due to tariff discounts sparked by fierce price competition,or higher sales-commission related or promotional costs to maintain customer base
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Decline in ARPU due to drop in service usage frequency by subscribers
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Drop in customer satisfaction with network quality or capacity (irrespective of any unforeseen developments)
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Decline in attractiveness of supplied content relative to rival carriers
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Drop in customer satisfaction caused by spam or other e-mail abuse, plus related increases in network security costs
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Contraction of fixed-line telephony market due to spread of IP telephony
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Increase in NTT access charges
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Intensifying competition resulting from increasing convergence of fixed-line, mobile and broadcasting and other changes in the operating environment
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Communications Security and Protection of Customer Privacy
KDDI is legally obliged as a licensed Japanese telecommunications carrier to safeguard the security of communications over its network. The company is also actively engaged in protecting the confidentiality of customer and other personal information. KDDI has established the Corporate Risk Management Division and a committee for privacy and security issues to formulate and implement measures across the entire KDDI Group to prevent internal privacy breaches or other information leaks, as well as unauthorized access from external networks. The KDDI Group as a whole is pursuing a number of initiatives to improve its compliance-related provisions. In one measure, KDDI reinforced controls and supervision regarding access to information systems that manage personal and customer information. The company also formulated its business ethics and the KDDI Privacy Policy, and established the Business Ethics Committee. In addition, handbooks on customer privacy issues have been distributed to employees. Meanwhile, KDDI is working on a companywide level to ensure communications security and protection of customer privacy. It has drawn up security-related policies such as forbidding employees from taking internal data out of the office, or from copying data from work PCs to external memory devices. KDDI is training employees to adhere to these policies, as well as rigorously monitoring their implementation. Despite all these measures and safeguards, however, KDDI cannot guarantee that breaches of privacy or leakage of confidential customer information will never occur. Any such incident could seriously damage the brand image of the KDDI Group. Besides a loss of customer trust, the company could also be forced to pay substantial compensation, which could have a negative impact on the financial position and performance of the KDDI Group. Going forward, the company may also face higher costs to develop or upgrade communications security and privacy protection systems.
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Telecommunications Sector Regulation and Government Policies
The revision or repeal of laws and ordinances governing telecommunications, together with related government policies, have the potential to exert a negative impact on the financial position and performance of the KDDI Group. The KDDI Group believes that it is taking all appropriate measures to respond to such laws, ordinances and government policies, including those related to social issues with potentially injurious implications for its brand image and customer trust. However, the financial position and performance of the KDDI Group could be negatively affected if such measures were to prove ineffective in the future. With regard to the future of the NTT Group in the new era of fiber-optic and IP services, the KDDI Group advocates revisiting the original reasons for deregulating telecommunications - namely, to allow fair market competition to work effectively. The government has conducted a range of study projects and invited public comments regarding rules to govern competition in the Japanese telecoms market. KDDI has used these opportunities to advocate fundamental reform, including abolishment of the NTT Group's holding company structure, complete severance of equity links between the NTT companies and separation of its operations on access networks. Fulfilling these demands would require revision of laws including the NTT Law (The Law Concerning Nippon Telegraph and Telephone Corporation, etc.), so in the meantime KDDI is advocating that rigid inter-company partitions are determined and made compulsory to prevent the NTT companies from sharing personnel, property, funds or information. If market domination by the NTT Group as a whole grows despite these measures, this could have a negative impact on the financial position and performance of the KDDI Group. The main factors and uncertainties in terms of the revision or repeal of laws and ordinances governing telecommunications and related government policies that could affect the financial position and performance of the KDDI Group are summarized and listed below.
Mobile Business
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Revisions to the mobile business model
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Revisions to inter-operator access charge calculation formulae and accounting methods
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Revisions to the specified telecommunications equipment system (tighter regulation)
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Revisions to systems governing universal service fund
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Allocation of frequencies for commercialization of wireless broadband and similar services
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New carriers entering the mobile communications market
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New research into the effect of radio waves on health
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Mobile internet systems or related regulatory developments
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Systems targeting mobile phone use or related regulatory developments
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New regulations regarding access to the next-generation networks of NTT East and NTT West
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New regulations regarding the operations of NTT East, NTT West, and the NTT Group as a whole
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Product defects in mobile phone handsets or chargers (including adapters)
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Fixed-line Business
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Revisions to the specified telecommunications equipment system (deregulating use of optical fiber and similar equipment)
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Revisions to inter-operator access charge calculation formulae and accounting methods
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Revisions to systems governing universal service fund
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Internet systems or related regulatory developments
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New regulations regarding access to the next-generation networks of NTT East and NTT West
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New regulations regarding the operations of NTT East, NTT West, and the NTT Group as a whole
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Product defects in communications equipment or chargers (including adapters)
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System Failures due to Natural Disasters and Other Unforeseen Events
Provision of voice and data communication services by the KDDI Group is dependent on the smooth functioning of related communications networks in Japan and overseas. Temporary service outages due to systemic problems or other unforeseen circumstances cannot be ruled out and could theoretically lead to largescale billing errors. Temporary or long-term cessation of services due to KDDI Group systems going down is another system-related risk with potentially negative effects on the financial position and performance of the KDDI Group. The major potential causes of such an event are listed below.
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Computer viruses or other form of cyberattack
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System hardware or software crashes
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Power brownouts or blackouts
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Natural disasters such as earthquake, typhoon or flood
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War, terrorism, accidents or other unforeseen events
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Litigation and Patents
Litigation stemming from alleged infringement of intellectual property and other rights associated with KDDI Group products, services and technologies could potentially have a negative impact on financial position and performance.
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Personnel Retention and Training
The KDDI Group invests in company-wide personnel training to ensure that it can respond rapidly to technological developments, although the training process takes time for the desired effects to manifest. Going forward, KDDI faces the risk of a substantial increase in personnel development costs.
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General Legal and Regulatory Risk
In each of the countries in which it operates, the KDDI Group takes steps to secure the appropriate business and investment permits and licenses, to establish procedures in conformity with national safety and security laws, and to apply various other government regulations. The company also seeks to comply fully with commercial, anti-trust, patent, consumer, tax and labor laws as well as legislation covering foreign exchange transactions and issues related to the environment and recycling. Failure to comply with legislation could result in limitations being placed on the future business activities of the KDDI Group or increases in costs.
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Pension Liabilities
Following the merger in 2000, the KDDI Group has undertaken efforts to integrate pension systems. This has involved moves to return the government-sponsored substitutional portion of employee welfare pensions and to cut pension liabilities through revisions of retirement benefit rates. KDDI has also revised its pension asset management policies and methods, based on projections of future retirement benefit liabilities. Going forward, the KDDI Group could post extraordinary losses if a fall in yields on managed pension assets leads to a drop in the market value of the pension fund, or in the event of significant revisions to the actuarial assumptions (such as the discount rate, composition of personnel or expected rate of salary increases) on which planned retirement benefit levels are based.
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| (9) |
Asset-Impairment Accounting
In the fiscal year ended March 2007 the KDDI Group posted impairment losses primarily for asset groups related to the provision of Tu-Ka cellular phone services. Going forward, the KDDI Group may post other impairment losses against property, plant and equipment.
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| (10) |
Telecommunications Sector Consolidation and Business Restructuring in the KDDI Group
Consolidation within the telecommunications industry in Japan and abroad could exert a negative impact on the financial position and performance of the KDDI Group. Going forward, the KDDI Group may undertake further business restructuring measures at some later date. The company cannot guarantee that such action would necessarily have a positive impact on the KDDI Group. In October 2005, KDDI absorbed three Tu-Ka consolidated subsidiaries. KDDI then merged with POWEREDCOM Inc. in January 2006 as part of its comprehensive alliance with TEPCO in the telecommunications business. In a measure to offer integrated services in its FTTH operations, in January 2007 KDDI absorbed the FTTH businesses operated by TEPCO's internal Optical Fiber Network Company. The KDDI Group cannot guarantee that future effects of this business restructuring will necessarily have a positive impact on its financial position and performance.
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IR information provided on this website or by E-mail Alerts may contain "material information" as defined in Article 166 of the Securities and Exchange Law of Japan.
Although the Insider Trading rules do not apply to material information that has been announced to the public, previously, such information was not deemed to be complete prior to 12 hours after it had been published, as defined in Article 30 ("12-hour rule") of the Enforcement Orders to the Securities and Exchange Law. Therefore, any person who traded the Company's shares based on such information prior to 12 hours after it had been published was in danger of violating the Insider Trading rules under the Securities and Exchange Law. On February 1, 2004, however, Article 30 ("12-hour rule") of the Enforcement Orders to the Securities and Exchange Law was amended. Under the amended article, the announcement of material information is deemed complete in the case such information is published on the Timely Disclosure Network (TDnet).
Therefore, KDDI will ensure that such information is released on this website in accordance with the time the information is disclosed on TDnet.
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