strategies for reducing capex/opex - · pdf filemitsuyoshi kobayashi. executive vice...

Mitsuyoshi Kobayashi Executive Vice President, Senior Vice President of Technology Planning Department

September 26, 2014

Strategies for reducing CAPEX/OPEX

The forward-looking statements and projected figures concerning the future performance of NTT and its subsidiaries and affiliates contained or referred to herein are based on a series of assumptions, projections, estimates, judgments and beliefs of the management of NTT in light of information currently available to it regarding NTT and its subsidiaries and affiliates, the economy and telecommunications industry in Japan and overseas, and other factors. These projections and estimates may be affected by the future business operations of NTT and its subsidiaries and affiliates, the state of the economy in Japan and abroad, possible fluctuations in the securities markets, the pricing of services, the effects of competition, the performance of new products, services and new businesses, changes to laws and regulations affecting the telecommunications industry in Japan and elsewhere, other changes in circumstances that could cause actual results to differ materially from the forecasts contained or referred to herein, as well as other risks included in NTT’s most recent Annual Report on Form 20-F and other filings and submissions with the United States Securities and Exchange Commission.

* “E” in this material represents that the figure is a plan or projection for operation.

Copyright©2014 Nippon Telegraph and Telephone Corporation 1

Activities in Progress

Reducing CAPEX: Strategic investment


Aggressive Investment

Streamlining

Rapid Expansion

Efficient Utilization

Strategic Investment

introduction growth maturity decline

life cycle of the service

Strategic investment based on the stage of services

Cloud Services

/DC/Wi-Fi

FTTH

PSTN

ＬＴＥ

Copyright©2014 Nippon Telegraph and Telephone Corporation

▲40％

▲30％

In comparison with FY2005

▲16％

2005 2014E

3G(FOMA), others

PSTN

CAPEX to Sales

LTE

Cloud Services /DC/Wi-Fi

15.9％（2014）

19.4％（2009）

FTTH

2.2

1.9

3

Changes in capital investment

[Fiscal year] * Amounts excludes sales and investments related to real estate and solar power generation operation

(Trillions of yen)

*


<Growing Field: LTE> Changes in capital investment

2013 2011 2012 2014E

Capital investment

of LTE

Increase LTE base stations

Total capital investment of NTT docomo

* Forecast at the end of FY2013

Capital Investment of

FOMA

Suppress total capital investment

4

95,000 stations

7,000 stations

Number of LTE Base Stations

[Fiscal year]

(Billions of yen)

*

(New segment reporting structure have been applied from FY2014/1Q)


ü Reducing goods expenses and improving efficiency of engineering ü Introducing multi-frequency antenna (maximum 5 frequencies)

⇒reduced to 1/3 compared with FOMA ü Utilizing the network service of NTT East and NTT West

*1 Cost of antenna for one frequency of a base station *2 Calculated by dividing LTE investment by the number of the installed base station

2013 2011 2012 2014E

The unit construction cost of the LTE base stations

▲12% *2

Capital investments for LTE

Efficient investment

*1

5

[Fiscal year]

<Growing Field: LTE> Improving efficiency of installing base stations


2012 2003 2008 2013

Number of FTTH subscribers

2005

18 millions

1 million

Area coverage rate of FTTH

94％

50％ (FY 2000)

80％

6

[Fiscal year]

Capital investments for FTTH

<Maturing Field: FTTH> Changes in capital investments

* Ratio of optical fiber deployment in distribution points (NTT East)

*


2012 2003 2005 2008 2013

0.65

Number of opened connections (millions)

Net increase of subscribers (millions)

Over 3 million opened connections

1.75

2.36

0.74 0.75

7

[Fiscal year]

<Maturing Field: FTTH> Changes in number of opened connections

(per year)


0

1

2003 2005 2008 2012 2013

ü Reduce goods expenses 50% or more

ü “DIY” activation rate improved by approx. 20% ü BPR introducing SCM system

including cooperative company

* Supply chain management 8

Reduced to 1/3 in activation cost

Reduced to 1/2 in delivery time

[Fiscal year]

<Maturing Field: FTTH> Reducing the activation costs

*

per one FTTH line compared with FY2003

per one FTTH line compared with FY2003


Significant improvement in work efficiency by “Free-Bending Optical Fiber Cord”

ü Applying the fruits of R&D

Previously 7km

OLT

Currently 20km or more

Extend the transmission distance of the optical signal

ONU

9

<Maturing field: FTTH> Measures to facilitate more activations (example)


(15%)

0%

15%

-1,000

0

1,000

2009 2010 2011 2012 2013

Operating Profits (left axes)

To improve the profit margin: ü Reduce activation cost and improve facility

utilization rate ü Expand the number of subscribers and its usage

Profit margin (right axes)

10

100

0

▲100

[Fiscal year]

<Maturing Field: FTTH > Changes in profit margin

(Billions of yen for Operating Income)

* Summary of “FTTH Access Services” and “Other” from “Designated Telecommunications Services other than Specified Telecommunications Services”

▲15%


Asset’s carrying value

Streamlining the equipments

26 ▲56%

60 Number of subscribers (millions)

Decreased to half in 10 years

2012 2003 2005 2008 2013 11

[Fiscal year]

<Declining Field: PSTN > Changes in asset’s carrying value


(5%)

0%

5%

10%

15%

-1,000

0

1,000

2,000

3,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Operating profits (left axis)

Accelerating activities for streamlining the equipments

12

<Declining Field: PSTN > Changes in profit margin

(Billions of yen)

[Fiscal year]

300

0

200

100

(100)

Profit margin (right axis)

* Calculated from “Voice Transmission Services” and “Leased Circuit Services”


Replacement of legacy equipments Transport system : 60 thousand racks Switch system : 1.8 thousand units Settlement of lines : 400 thousand lines

Significant asset reduction

OPEX ▲20 Billion yen/year (Electricity charges, Maintenance costs, etc.)

(from FY2012 to FY2016)

13

<Declining Field: PSTN > Measures to streamline the equipments(example)


Improving efficiency in procurements

2013 2003

The amount of procurements of NTT Group

Operating

companies

ü Cost reduction by introducing new technologies ü Extend the common specification and reduce

the variety of goods

Vendors

Suppliers

Dimension Data

Promoting competition by utilizing Dimension Data

Procurement price (example：Aerial optical fiber cable)

2003 2013

RFP

Up to now üExpansion of the global procurement

Price per 1meter (100 fibers cable)

Cost of antenna

2013 LTE(Xi)

Reduced to 1/3

2007 3G(FOMA)

Cost of antenna for one frequency of a base station

From now on Promoting the cooperated procurement strategy for whole NTT group ü Deployment of visualization and best

practices by the unification of IT systems ü Improve efficiency including the procurement

of outsourcing services

14 [Fiscal year]

[Fiscal year] [Fiscal year]

(Compared to 3G) (Compared to 2G: 1/10)


Up to now

Improve efficiency by individual companies ü Standardization of

development procedure

ü Automation of testing

ü Applying open source softwares

ü Utilizing offshore

From optimization of individual companies to optimization in whole group

Systematization and standardization of procedures and tools by whole NTT group

ü Applying group common frameworks with open source

ü Applying group common tools (e.g. automated testing, development process control) Assumed effect

2013 2015

Cost of new development project

From now on

15

Improving efficiency in software development

[Fiscal year]

*

* Templates of Applications


Activities in Progress

Reducing OPEX


2006 2009 2013

Trouble reception centers of NTT East and NTT West

Operators in Companies outsourced from NTT East and NTT West

Significant reduction of operating sites and operators

Improving efficiency in operation

Applying IT systems

Further multitasking

17

[Fiscal year]


Improving efficiency in operation(Example)

ü Applying IT systems

ＯＮＵ

equipment equipment

Monitoring and control system

Automatic testing system

Diagnostic and recovery tools

18

Detecting trouble point in fiber network

Traffic control and troubleshooting from remote site

Trouble diagnosis and recovery by customer


Multitask by one operator

manual

Cloud & Tablet ü Electronic manuals ü Automated tools (e.g. testing tools)

Automated testing tools

Terminal equipment

Indoor equipment

Improving efficiency in operation(Example)

Outdoor facilities

repair xx manual

ü Further multitasking

19


Suppressing energy consumption by Total Power Revolution (TPR)

Efficient use of energy

8.54 8.68 8.72 8.71 8.66 8.56 8.52

2007 2008 2009 2010 2011 2012 2013

ü Replacing old equipment to energy efficient type ü Introducing new technologies aggressively

• Next-generation power transmission system HVDC (High voltage direct current )

• Cooperative control of the NW equipment, AC and electric supply • Outdoor air cooling system

Electric power

(billion kWh)

Gbps Gbps

Gbps Gbps Gbps

Gbps

Gbps

520 750

1,020 1,090 1,270 1,560

2,130

20

2007 2008 2009 2010 2011 2012 2013 [Fiscal year]

Internet traffic of NTT

* Predicted by NTT based on the following “The estimation of the Internet traffic in Japan” (Ministry of Internal Affairs and Communications)

*

(reference)


Activities from now

Further reduction of CAPEX/OPEX

21


2013 2014 2015 2016 2017 2018 2019 2020

ファイル共有

ウェブ

ビデオ

Internet traffic of Japan

Increase of Internet Traffic

* Predicted by NTT based on the following “The estimation of the Internet traffic in Japan” (Ministry of Internal Affairs and Communications) “The present conditions of the mobile communication traffic in Japan” (Ministry of Internal Affairs and Communications) Cisco Visual Networking Index 22

Expansion of video services

Penetration of smartphones

4K/8K（High definition video）, Wearable devices , etc.

*

File sharing

Web

Video

10x increase


2000

Cyber attacks against social infrastructure

Connected Devices

Connected Device/Person

12.5 Billion

50 Billion

2010 2020

Internet of Things

Increase of risk by connecting vulnerable devices

Increase of cyber attacks

10x increase

2012 London Olympics 210 million times of cyber attacks

2012 Japan A concentrated attack

for government websites by crackers

Smart city (social infrastructure

interconnectivity)

23 2010 2020

* Source: Cisco IBSG, April 2011

*

*


Further evolution of network services

Specifically…

ü Strengthen the competitiveness by further cost reduction

ü Enhance the function to support the creation of the service

ü Building the resilient network (Corresponding with increase of traffic and cyber attacks)

Promoting collaboration model

Accelerate the evolution of networks and operations by maximizing Cloud and Virtualization

24


The Internet

Cloud (Virtualization)

Public Wi-Fi In-house Wi-Fi

LTE, 5G

Further reduction of ＣＡＰＥＸ/ＯＰＥＸ

While traffic will increase by ten times

OSS/BSS

Network as of 2020

1)Control by software (e.g. SDN)

Strengthening the competitiveness by Cloud and Virtualization

3)Efficient expansion of wireless access network

Optical fiber base + new technologies

(e.g. WDM)

* Electronics manufacturing service

2)Large capacity, simplified Cost reduction using EMS *

25


Service Ａ

Service Ｂ

Cloud

OSS/BSS

B

Service NW

General switches

Service NW

Ａ Controlling resources

quickly and automatically depending on the situation

End users

Technology strategies for strengthening the competitiveness

Innovation by Service Collaboration

Sports/ Entertainment

Distribution Health care Environment Transportation

Tourism

Manufacturing

B

MVNO,ISP Other industries On demand control

Realization of ＴＡＦ(Trusted and Adaptive Fabric ) *

26

Telecomm carriers

Ａ

* The network which has both confidence and flexibility (= tough) to meet various demands of partners, quickly and precisely


Correcting and analyzing vast information using AI technologies

Equipment log

2013-1-1T01:11:00 msg [100]: STP: VLAN 1 Port 38 STP State -> DISABLED (PortDown) 2013-1-1T01:11:00 msg [101]: System: Interface ethernet 38, state down 2013-1-1T03:00:00 msg [200] : STP: VLAN 100 Port 22 STP State -> DISABLED (PortDown) 2013-1-1T03:00:00 %NODE%: %HOST% port %I/F% detected CRC error in %N% flames 2013-1-1T03:00:00 msg [201] : System: Interface ethernet 22, state down

Big Data analysis

Social log (e.g. SNS)

Evolution of operations

Further reduction of OPEX by Proactive Operation

・・・

27

Detect the sign of a cyber attacks, traffic fluctuations, equipment failures, etc.

and correspond in advance, automatically


★ ★ ★

★

★ security operation center (including locations with security specialists)

Advanced security management

Global Broadband Network

Seamless security monitoring

system

World leading detecting and analyzing

technique

★

★

★ ★

★

★

★ ★

★ ★

★

Guarding solidly with collective strength

28


Summary

NTT continues to be selected by customer by strengthening the competitiveness of network services

Need to enhance network

Increase of traffic and security risk Streamlining

capital investment &

Cost reduction

R&D + Technical Capabilities

29

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