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The Internet backbone network ("backbone") developed and operated by IIJ is one of the largest backbone in Japan, and extends to the United States, Europe, and Asia, providing high-quality Internet connection environment globally through local subsidiaries' operation. The backbone is constantly being enhanced in response to an increase in Internet traffic.
IIJ's backbone has realized high availability that prevents interruptions even in the event of unprecedented circumstances, such as a large-scale disaster, through a redundant design that uses circuits from multiple telecommunications carriers to connect sites via physically different routes, a redundant network equipment design, and the adoption of multi-vendor equipment and software. IIJ operates a highly reliable backbone based on its accumulated Internet operation capabilities, and has not experienced any serious failures in about thirty years since its inception. Therefore, IIJ has been maintaining long-term and good customer relationships, mainly with large enterprises and government agencies. IIJ’s backbone has continued to expand up to today with the spread of Internet in Japan and an increase in traffic, and its related costs have been covered by monthly recurring revenues from customers. In addition, it requires securing highly skilled network engineers and continuing capital expenditures at a certain scale. Therefore, IIJ has established a business model that latecomers cannot easily imitate.
The major cost of Internet connectivity and outsourcing services for enterprises, which IIJ Group provides, is operating costs of networks and systems including backbone such as circuit leasing costs, depreciation costs of equipment, data center usage fees, and personnel-related costs, which are not directly related to revenues. This business model allows for economies of scale which leads to a profit increase along with the expansion of backbone and the increase in monthly recurring revenues, which are generated based it.
As the scope and scale of IT utilization in Japanese society and economic activities are expanding, IIJ Group expects the demand for robust Internet infrastructure to grow further.
Internet is controlled by programs and software, and the accumulation of such technologies' knowledge and experience is a key factor for service development. As a professional group of Internet engineers, IIJ Group has been leading markets by keeping up with the latest technology trends, applying them with flexible ideas, and continuously developing, providing, and operating its own high-value-added services ahead of telecommunications carriers.
The following diagram outlines the development and creation of IIJ Group's Internet-related services. These in-house developed services have become the source of its competitiveness.
IIJ Group's network services are mainly provided via its own backbone, and are operated by experienced Internet engineers, which ensures stable and sustainable service provision. IIJ Group believes that its long track record of reliable service operation has fostered a sense of customers’ trust, leading to a low churn rate and expansion of combined service adoption, which has been reflected in its accumulated revenues of network services for enterprises.
IIJ Group has approximately 14,000 customers, mainly blue-chip enterprises and government agencies in Japan. Network services such as Internet connectivity and security are used across all industries, which leads to the well-diversified customer base with many leading companies in each industry adopting its services. In addition, IIJ Group is not highly dependent on revenues to specific customers and each customer's revenues accounts for no more than three percent of total revenues at maximum based on FY2022 IIJ's non-consolidated results.
IIJ Group shall continue to develop new services, improve and add functions, and seek for revenue growth by encouraging customers to adopt a wider range of its services in a combined manner.
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