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 present, could be materially relevant to investment decisions.
KDDI discloses information on possible risks in the interest of greater transparency, and 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, 2011.
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.

1. Competitors, Rival Technologies, and Rapid Market Shifts

Mobile Business

In the mobile communications market, competition to acquire customers has been increasing sharply with the use of low-cost service plans, varied handset styles mainly of smart phones, tablet terminals, and ebook terminals, and content services that include music, video clips, and ebooks.
The KDDI Group has responded to meet diversifying customer needs by developing and launching an enhanced lineup of handsets and accessories, by devising and offering new pricing plans, and by enhancing its services targeting individual and corporate clients-including the new "iida" brand launched in April 2009. However, these services are subject to various uncertainties arising from competition with rival carriers, competing technologies, and rapid shifts in market conditions.
As a result, the following factors could have a negative impact on the Group's financial position and/or earnings performance.

• Market demand trends out of line with KDDI Group expectations
• Subscription growth trends out of line with KDDI Group expectations
• Fall in ARPU due to tariff discounts sparked by fierce price competition, or higher sales commission and retention costs
• Decline in ARPU due to drop in service usage frequency by subscribers
• Drop in customer satisfaction with the quality of the network or content due to unforeseen developments
• Decrease in attractiveness of handsets or supplied content in comparison with offerings of rival carriers
• Increase in handset procurement costs associated with adoption of more advanced functions, or higher sales commissions
• Drop in customer satisfaction caused by spam or other e-mail abuse, plus related increases in network security costs
• Increase in network costs associated with construction of base stations for the 2GHz band and the new 800MHz band to accommodate new frequencies
• Increase in competition due to new high-speed wireless data technology
• Effects associated with dependence on specific communications protocols, handset technologies, network technologies, or software
• Intensifying competition resulting from convergence of fixed-line, mobile, and broadcasting, and other changes in the operating environment environment

Fixed-line Business

In the fixed-line market, competition among services is entering a new phase as FTTH and other broadband services expand, and as convergence continues between fixed-line and mobile communications, and between communications and broadcasting.
The KDDI Group is working to enhance ease-of-use for its services and expand access lines, particularly FTTH services, while offering more solutions services for corporate clients. The Group also strives to bolster its systems for supporting corporate clients' international business development by increasing its overseas locations. However, these services are subject to competition with rival carriers, ADSL providers, CATV operators, and other firms, and to rapid changes in market conditions.
As a result, the following factors could have a negative impact on the Group's financial position and/or earnings performance.

• Market demand trends out of line with KDDI Group expectations
• Subscription growth trends out of line with KDDI Group expectations
• Fall in ARPU due to tariff discounts sparked by fierce price competition, or higher sales commissions and retention costs
• Decline in ARPU due to drop in service usage frequency by subscribers
• Drop in customer satisfaction with the quality of the network or content due to unforeseen developments
• Decrease in attractiveness of supplied content relative to rival carriers
• Drop in customer satisfaction as a result of spam or other e-mail abuse, plus related increases in network security costs
• Contraction of the fixed-line telephony market due to spread of IP telephony
• Possible increase in NTT access charges
• Intensifying competition resulting from convergence of fixed-line, mobile, and broadcasting, and other changes in the operating environment

2. 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 and 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 codified its business ethics, formulated the KDDI Privacy Policy and established the Business Ethics Committee. Handbooks on customer privacy issues have also 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 both training employees to adhere to these policies and 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. In addition to a possible 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/or earnings performance of the KDDI Group. Going forward, the Company may also face higher costs to develop or upgrade communications security and privacy protection systems.

3. System Failures due to Natural Disasters and Other Unforeseen Events

The KDDI Group depends on communications network systems and equipment in and out of Japan to provide voice and data communication services. The KDDI Group, to minimize as much as possible the risk of service outages or interruptions as a result of natural disasters or accidents, takes steps to improve the reliability of its network and to prevent service outages.
However, should there be a service outage as a result of failures in network systems or communications equipment, or substantial billing errors, the discredit to the Group's brand image, reliability, and lower customer satisfaction caused by opportunity loss in provision of products and services due to agent closures and distribution suspension could have a negative impact on the Group's financial position and/or earnings performance.
The following incidents could cause a service outage

• Natural disasters, such as earthquakes, tsunamis, typhoons, or floods, as well as secondary damages from the spread of toxic substances caused by natural disasters
• Spread of infectious disease
• War, terrorism, accidents or other unforeseen events
• Power brownouts or blackouts
• Computer viruses or other forms of cyber attack, hacking
• Operation system hardware or software failures
• Flaws in communications equipment and services

4. Telecommunications Sector Regulations and Government Policies

The revision or repeal of laws and ordinances governing telecommunications, together with related government policies, has the potential to exert a negative impact on the financial position and/or earnings performance of the KDDI Group. The Group believes 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, if such measures were to prove ineffective in the future, it could negatively affect the financial position and/or earnings performance of the KDDI Group.
Regarding the policies for competition in the new era of fiberoptic and IP services, the KDDI Group advocates measures for fair competition with other telecommunications companies through various study groups with the Ministry of Internal Affairs and Communication and by offering opinions through a public comments system. However, if KDDI's market competency is lost despite the above efforts, it could have a negative impact on the financial position and/or earnings performance of the KDDI Group.
The Company's business operations are subject to the following elements of uncertainty in regard to the revision or abolishment of telecommunications laws and regulations, to government policies, and to factors affecting the competency of the KDDI Group.

Mobile Business

• Revisions to the mobile business model, such as removal of subscriber identity module (SIM) locks
• Revisions to inter-operator access charge calculation formulae and accounting methods
• Revisions to the specified telecommunications equipment system (tighter regulation)
• Revisions to systems governing universal service
• New carriers entering the mobile communication market as Mobile Virtual Network Operators (MVNOs)
• Regulations of the mobile Internet due to an increase in harmful websites
• Regulations of mobile phone usage
• Regulations regarding the operations of NTT East, NTT West, and the NTT Group as a whole
• Regulations regarding the effect of radio waves on health
• Revisions to radio wave usage rules
• Establishment of regulations regarding the operations of NTT East, NTT West, and the NTT Group as a whole
• New research into the effect of radio waves on health

Fixed-line Business

• Revisions to the specified telecommunications equipment system
• Revisions to inter-operator access charge calculation formulae and accounting methods
• Revisions to systems governing universal service
• Regulations of the Internet due to an increase in harmful websites
• Rules regarding access to the next-generation networks of NTT East and NTT West
• Regulations regarding the operations of NTT East, NTT West, and the NTT Group as a whole

5. 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 Group also seeks to comply fully with commercial, anti-trust, patent, consumer, tax, currency exchange, environmental, labor, and financial laws. Were these laws and regulations enhanced, or should the Group and/or business contractors fail to comply with legislation, it could result in limitations being placed on the future business activities of the KDDI Group and increases in costs.

6. 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 the financial position and/or earnings performance of the KDDI Group..

7. 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.

8. Retirement Benefits

The KDDI Group provides a defined-benefit pension plan (fund type), a retirement allowance plan (internal reserve), and a retirement benefit trust. Some consolidated subsidiaries have defined-contribution pension plans or association- establishment-type employees' pension funds. KDDI regularly reviews its asset management policies and agencies in accordance with future predictions of retirement payment liabilities. However, going forward the KDDI Group could incur extraordinary losses if a fall in yields on managed pension assets leads to a drop in the market value of the pension funds, 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.

9. Asset-impairment Accounting

In the year ended March 31, 2011, the KDDI Group posted impairment loss on current 800MHz band facilities, idle assets including domestic transmission lines and a part of legacy-service facilities in the Fixed-line Business. Going forward, the KDDI Group may post other impairment losses against property, plant and equipment, depending on the level of its utilization.

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/or earnings performance of the KDDI Group. Going forward, the KDDI Group may undertake further business restructuring measures at some later date. The Group cannot guarantee that such action would necessarily have a positive impact on its business performance.