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  6. 3Q FY21 Financial Results Briefing (Online)

QAs from earnings release meetings and others

February 8, 2022:3Q FY21 Financial Results Briefing (Online)

(*) This is a summary of questions and answers took place at the Briefing.

Question: Please explain your outlook for Network services gross profit margin which has been contributing to the profit expansion.
Answer: Most of the costs for our Network services, excluding data interconnectivity charge and voice purchasing costs which are for Mobile services, are circuit leasing fees for Internet backbone etc., depreciation cost of network equipment, personnel costs for service development and operation, and operation costs for data centers. By leveraging such cost structure which has an economy of scale, we can achieve structural profit expansion when we have favorable revenue accumulation of network services for enterprises such as IP services. We think the digital shit in Japan just took off. Along with further adoption of IT, by both private and public sectors, we expect stronger demands for our various network services which should continuously contribute to improving our gross profit margin.
Question: Please kindly comment on IIJ's Mobile business strategy.
Answer: Our Mobile business strategy is to gather various traffic from enterprises including IoT and consumers onto the same mobile infrastructure in order to achieve higher utilization which would lead to improvement of profitability. Therefore, we shall continue to provide Mobile services to both enterprises and consumers. For consumers, as we believe that our services are well-received in terms of service offerings and pricing, we shall continue to further upgrade our services. For enterprises, we shall continue to differentiate our services by leveraging our full-MVNO functions and expertise on combining various services and systems integration as solutions such as IoT to accumulate orders.
Question: What kind of impact did you have from the revision and finalization of NTT DOCOMO, INC.'s ("DOCOMO") FY20 mobile data interconnectivity charge cost (unit charge) on your FY21 consolidated financial results?
Answer: For FY20 DOCOMO's usage charge, from 1Q20, we applied JPY41,436 per Mbps as a unit charge which was disclosed by DOCOMO based on the future cost method. The FY20 unit charge was revised and fixed as JPY37,280 per Mbps, which decreased by 12.7% from that of the last year, at the end of December 2021 based on DOCOMO's actual results etc. for the corresponding period. With this, as a difference between such two charges, we had onetime profit contribution of JPY1.0 billion or a little bit more in 3Q21. Please note that we recorded such an impact entirely in 3Q21 while we recorded such onetime impact separately in 3Q and 4Q in the last fiscal year results as FY19 DOCOMO's unit charge was revised and fixed in January 2021.
Question: What is your reaction toward DOCOMO's FY20 mobile data interconnectivity charge cost (unit charge) which decreased by 12.7% from that of last year?
Answer: The usage charge decreased more than our conservative estimation which had been taken into consideration for our FY21 financial targets. Also, we take it positively as it was lower than what DOCOMO disclosed based on the future cost method which was JPY41,436 per Mbps, down 3.0% from that of the last year. However, the calculation is still not clear from MVNOs' point of view. We understand that a year over year decrease rate for the unit charge should be larger along with the increase in demands and/or decrease in cost of MNOs, generally speaking. We expect a further decrease of mobile data interconnectivity cost as well as more transparent calculation.
Question: 3Q21 systems construction's order received seems somewhat weak. Could you kindly comment on that as well as the demand situation for systems integration?
Answer: Volume for systems construction's orders, which results in one time revenue, fluctuates quarter by quarter mainly because it depends on the timing when we receive orders. Orders received somewhat concentrated in 2Q21 and orders received in 3Q21 were slightly weak relatively. We think that network integration continues to see a strong demand, following the momentum of the first half of this fiscal year.
Question: IIJ recently announced the construction of the second site of Shiroi Data Center Campus which is owned by IIJ. What is IIJ's Data Center business strategy?
Answer: As of December 31, 2021, we operate sixteen data centers all over Japan, among which two are owned by us and fourteen are leased from other data center operators. By integrating certain leased data center spaces to our owned data centers, we aim to achieve higher operational productivity and lower operation costs etc. Our owned data centers are expected to be used for our service facilities such as for Network and Cloud services in response to their revenue growth as well as colocation services for enterprise clients including third party Cloud venders. At our owned data centers, we plan to promote the use of renewable energy as well as saving energy.
Question: Please update us on DeCurret Holdings, Inc. ("DeCurret"), which is IIJ's equity method investee. What impact will your consolidated FY21 financial results have in relation to the divestment of DeCurret's crypto asset business?
Answer: As announced in DeCurret's press release published on February 1, 2022, DeCurret divested its crypto asset business to focus on digital currency business which is expected to expand in the middle- to- long term. As for its digital currency business, DeCurret is serving as a secretariat of the Digital Currency Forum in which more than seventy prominent Japanese companies including Japanese major banks participates and they are currently conducting various proof of concepts to realize issuing digital currency in the private sector. Please refer to the following release for the details: to DeCurret's divestment of its crypto asset business, we recorded JPY484 million of loss in 3Q21 as equity in net loss of DeCurret in addition to ordinal loss and we expect to record about JPY1.2 billion of loss in 4Q21 as impairment on corresponding amount of goodwill. With these, we expect no more loss related to its divestment.

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