CloseMarch 01, 2005NTT's Two Local Units Eye Lower Profits Next FY
TOKYO (Dow Jones)--NTT East Corp. and NTT West Corp., the two regional arms of Nippon Telegraph and Telephone Corp. (9432), said Tuesday they expect their profits to fall significantly next fiscal year due to weaker revenue from their traditional fixed-line phone services.
Their outlooks underscore the severe business conditions surrounding the Japanese telecommunications giant. Cutthroat price competition with rivals in the domestic telecom market - KDDI Corp. (9433) and Softbank Corp.'s (9984) Japan Telecom - has recently forced NTT to cut the base fee for its fixed-line telephone service.
NTT East projects a parent pretax profit of Y25 billion and parent operating revenue of Y2.012 trillion for the fiscal year starting April 1, compared with its outlook for this fiscal year of a pretax profit of Y90 billion and operating revenue of Y2.152 trillion.
NTT West estimates a pretax profit of Y15 billion and operating revenue of Y1.966 trillion next fiscal year, sharply lower than its forecasts for this fiscal year of a pretax profit of Y78 billion and operating revenue of Y2.087 trillion.
NTT, the holding company of the telecom group, said it expects a pretax profit of Y145 billion next fiscal year, down Y5 billion from its forecast profit for this fiscal year.
All the figures are on a parent basis.
The weaker projections by the two local carriers will likely weigh on NTT's group earnings next fiscal year as NTT faces many challenges.
Japan's fixed-line phone market has been shrinking, while the race for customers for broadband Internet services is fierce due to aggressive pricing by rivals including Softbank. Moreover, NTT DoCoMo Inc. (9437), NTT's profit engine, has also been forced to cut its mobile service fees as a result of rising competition.
In an effort to keep ahead in the country's increasingly competitive communications industry, NTT is focusing on next-generation optical fiber network communications operations.
"We will promote the customer shift to IP services," NTT East President Satoshi Miura said at a news conference.
Due to lower phone fees and faster data communications speeds, demand for IP, or Internet Protocol, based services via optical fiber networks is growing rapidly in Japan. Such services include IP-based phone services and Internet access services for computer users.
But revenue from these new services isn't growing much yet. NTT East said it expects IP-related service revenue to increase by Y82 billion next fiscal year. But that growth is much smaller than the projected revenue drop of Y210 billion in its traditional fixed-line services.
The two regional units also said they plan combined capital expenditure of Y780 billion next fiscal year. That's a slight reduction from the Y790 billion in spending they expect for the current fiscal year.
NTT East said it plans capital expenditures totaling Y400 billion next fiscal year, unchanged from its estimate for this fiscal year. NTT West said it plans to invest Y380 billion next fiscal year, down from the Y390 billion it expects to have spent this fiscal year.
Of the total expenditures, both NTT East and NTT West said they aim to boost spending related to fiber-optic communications. They plan their combined outlays on optical fiber networks to grow to Y330 billion next business year, compared with an expected Y290 billion this fiscal year.
Copyright 2005 Nihon Keizai Shimbun, Inc. All rights reserved.
