Explanatory Materials for Business Resultsfor Fiscal Year Ended March 2008
Explanatory Materials for Business Forecasts
for Fiscal Year Ending March 2009
Toward a More Communicative Society

May 29, 2008
VIC TOKAI CORPORATION (2306)
Representative Director and President Hiroshi Hayakawa

All the descriptions about the future in this presentation are merely forecasts,
assumptions, expectations, or assessments based on information currently available
to the Group. Calculation of estimates also involves assumptions or reasonings
based on these assumptions, which may prove inaccurate objectively or which may
not materialize in the future.
Risks and uncertainties leading to these discrepancies are described in the“Business Risks” section of the financial report (kessan tanshin) for the year ended
March 2008 for your reference. Please note that factors that can affect theCompany’s business performance described in the “Business Risks” section are notnecessarily exhaustive.
Copying of the presentation or data therein is prohibited without explicit written
permission of the Company.

1

Introduction of the VIC TOKAI Group’s Business Operations(ISP Brand)

CATV (Cable Television) Business
Provide CATV broadcasting services and Internet, telephone,and other information and telecommunication services on
CATV networks and sell portable terminals

CS (Communication Service) BusinessSell circuits by wholesale as an Internet service provider or atelecommunication carrier, rent core circuits, and provide datatransmission services

SIS (System Innovation Service) Business
Software development business, system integration business,and data center business21. Business Results for Fiscal Year Ended March 2008

2. Business Forecasts for the Fiscal Year Ending March 2009

3. Mid-Term Management Vision31. Consolidated Business Results for Fiscal Year Ended March 2008
(Unit: Million Yen)
Percentage
overPrevious Year

Percentage of
Adjusted
Forecast

35,089
4,371
4,223
2,333

103.4%
99.0%
100.6%
56.7%

98.8%
100.5%
100.3%
104.2%

58.23
8,604

56.7%
104.8%

104.1%-

Actual result
Sales
Operating Profit
Recurring Profit
Net Profit
EPS (Yen)
EBITDA* EBITDA = Ordinary Profit - Interest Income + Interest Expenses + Depreciation Expenses

Consolidated Income Statement(Uinit: Million Yen)

Current Year Previous YearSales

35,08933,924

Cost of Sales

21,633

20,581Gross Profit on sales

13,456

13,343Operating Profit

4,371

4,415

Nonoperating Income

92

38

Nonoperating Expenses

240

257

4,223

4,196

Extraordinary Income

165

132

Extraordinary Loss

494

546

3,893

3,783

795

53

755

-401

8

18

2,333

4,112

Rcurring profit

Net profit before tax
Corporate tax, Resident tax& Enterprise tax
Adjustment foe corporate
and other taxes
Profit or loss of minority
shareholders
Net Profit41. Impact of Changes in Accounting Principle on Consolidated Results<Corporate Tax, etc., and Adjustment to Corporate Tax, etc.>

Impacts
Corporate Tax,etc.
Accounting

Impacts

Background
Adjustment to
Corporate Tax,etc.

Accounting

Total Impacts on Taxes

Year to March 2008

Year to March 2007

-795 million yen-53 million yen

A taxable income of about 2 billion yen after applying
tax-deductible loss carried forward against net income
before tax of 3,890 million yen.

Corporate taxes, etc. of consolidated subisidaries(and per-corporation municipal tax on parent
company).

-755 million yen+401 million yen

Tax-deductible loss succeeded from acquired T-com(about 2.3 billion yen outstanding at the beginning of
the current fiscal year out of original 8.2 billion yen) all
used up in the current fiscal year.

Due to good achievement of the business plan since
the merger in October 2005, a change was made to
the criteria for recognition of deferred tax assets.

Of the deferred tax assets posted in March 2007
period of 1,467 million yen, the portion related to taxdeductible loss carried forward of 915 million (2.3billion yen multiplied by 39.7%) was drawn down inthe current fiscal year as adjustment to corporate tax,
etc. for an amount of 755 million yen, due toexhaustion of tax-deductible loss carried forward.

Long-term and short-term deferred tax assets totaling
1,467 million yen were recognized, which resulted inadjustment to corporate tax, etc. of -401 million yen.

-1,550 million yen (effective tax rate: 39.8%)347 million yen (effective tax rate: -9.2%)<Change in Accounting for Provision of Retirement Benefits for Directors>
An amount of 33 million yen was posted as sales and administrative expenses for the year, and 189 million yen as extraordinary losses for the previous year. This reduced operating
profit and ordinary profit by 33 million yen each, and net income before adjustment to taxes, etc. by 223 million yen, compared to the figures based on the former accounting principle.

5

1. Unconsolidated Business Results for Fiscal Year Ended March 2008

(Unit: Million Yen)
Actual result

Percentage overPrevious YearNet Profit

31,779
4,435
4,306
2,358

102.6%
104.0%
105.9%
59.1%

EPS (Yen)

58.84

59.1%

Sales
Operating Profit
recurring Profit

Unconsolitated Income Statement(Unit: Million Yen)

Current Year Previous YearSales

31,77930,960

Cost of Sales

19,327

18,622Gross Profit on Sales

12,451

12,338Operating Profit

4,435

4,266

Nonoperating Income

78

29

Nonoperating Expenses

206

227

4,306

4,068

Extraordinary Income

50

115

Extraordinary Loss

440

499

3,916

3,684

773

33

784

-338

2,358

3,989

Recurring Profit

Net Profit before Tax
Corporate tax, Resident tax& Enterprise tax
Adjustment foe corporate
and other taxes
Net Profit before Tax

61. Results for Fiscal Year Ended March 2008: Sales by Segment■ Factors
CATV
CS
SIS

Good acquisition of CATV-FTTH businesses, increases in households subscribing to multichannel digital services, start of operations in Gotemba area.
A substantial increase in number of FTTH customers, more than offsetting decrease in ADSL
customers.
Increases in sales of stock businesses such as outsourcing and ASP, but decreases in entrusted
development.
(Unit: Million Yen)

Sales: 35,089 million yen

33,92435,089CATV
10,903

CATV
11,827CS
12,529CS
12,930SIS
10,569SIS
10,387

FY2007FY 2008(Up 1,164 million yen overprevious year, 103.4%)<Sales by Segment>
CATV: 11,827 mil. yen (up 924 mil. yen, 108.5%)
CS:
12,930 mil. yen (up 401 mil. yen, 103.2%)
SIS:
10,387 mil. yen (down 182 mil. yen, 98.3%)* Figures in parentheses represent year-to-year comparison* Sales by segment include inter-segment sales.

71. Results for Fiscal Year Ended March 2008: Operating Profit by Segment■ Factors
CATV
CS
SIS

A large increase in operating expenses due to strategic investments in CATV-FTTH operations,and strengthening of sales and marketing organizations.
A substantial increase in profit due to a large increase in the number of customers and efficientuse of expenses. This is attributed to our strategic sales promotion in cooperation with FTTH
carriers and our proactive efforts to acquire FTTH businesses.
A decrease in profit due to increases in expenses for strengthening sales and marketingorganizations and also to occurrence of some unprofitable projects.
(Unit: Million Yen)

Operating Profit: 4,371 Mil. Yen(Down 43 mil. yen fromprevious year, 99.0%)

4,415

4,371

CATV
1,749

CATV
1,393

CS
1,895

CS
2,726

<Operating Profit by Segment>
CATV: 1,393 mil. yen (down 356 mil. yen, 79.6%)
CS:
2,726 mil. yen (up 831 mil. yen, 143.9%)
SIS:
1,183 mil. yen (down 507 mil. yen, 70.0%)* Figures in parentheses are year-to-year comparison

SIS
1,691
FY2007SIS
1,183
FY20088

1. Results for Fiscal Year Ended March 2008: Capital Investments
 Strategic investments for CATV and data center operations<< Major Investments >>CATV-FTTH

4.1 bil. yen(1.1 bil. yen prev. year)

Expansion of CATV areas 2.2 bil. yen
Data Centers

3.4 bil. yen(Million Yen)

Previous Year Current Year Year to year
comparison
CapitalInvestments

5,265

11,232

5,966

Depreciation
Expenses

3,791

4,172

380
9

1. Results for Fiscal Year Ended March 2008: Subscriptions■ Focus on acquisition of FTTH customers intelecommunications businesses (bothCATV and CS operations). An increase by
88,000 subscriptions, compared to End of
Mar.2007.
■ Steady increase also in number of CATV
broadcasting customers.
(1,000 Subscriptions)
Telecommunications(Broadband Customers)
CATV

FTTH

ISP Direct Sale
Subtotal

CATV - Internet
ADSL ISP Direct Sale
Other
Broadband
ADSL Wholesale

Subtotal
Total

Broadcasting
CATV Broadcasting(Digital multi-channel)

End of Mar.
2007

End of Mar,2008

Changes

4
51
55
75
171
171
416
471

26
117
143
61
141
155
357
500

22
66
88
-14
-30
-16
-59
29

End of Mar.
2007

End of Mar,2008

Changes

300
(61)

323
(72)

23
(11)

(1,000 Subscriptions)Term-end Subscriptions of CATV-FTTH and Internet* CATV-FTTH services started in Aug. 2006

90
85

CATV-FTTH
CATV-Internet

80
75
70
65
60
55
0

50
Dec. 2006

Mar. 2007 June 2007 Sept. 2007

Dec. 2007 Mar. 2008

Term-end Subscriptions of ISP Direct Sale
(FTTH and ADSL)
250

ADSL

FTTH

200
150
100

* Rounded to nearest 1,000050Dec. 2006

Mar. 2007 June 2007 Sept. 2007

Dec. 2007 Mar. 200810

2. Business Forecasts for the
Fiscal Year Ending March 200911

2. Consolidated Forecasts for the Fiscal Year Ending March 2009

Other

(Unit: Million Yen)
Eliminated orConsolidated
unallocatedamounts

CATV

CS

SIS

Sales

13,68014,08012,60020-14040,250Year-on-yearcomparison

115.7%

108.9%

121.3%

51.2%-

114.7%

Operating Profit

1,650

2,480

1,570

20

-1,1104,620Year-on-yearcomparison

118.4%

91.0%

132.6%

93.9%-

105.7%

Ordinary Profit

4,280

Year-on-yearcomparison

101.3%Net Profit

2,480

Year-on-yearcomparison

106.3%EPS (Yen)
EBITDA

61.87
9,430

* Sales by segment include inter-segment sales.
* EBITDA = Ordinary Profit - Interest Income + Interest Expenses + Depreciation Expenses

12

2. Consolidated Forecasts for the Fiscal Year Ending March 2009:
Sales and Operating Profit
Sales: 40,250 Mil. Yen

Operating Profit: 4,620 Mil. Yen

 In CATV, increases in sales and profit due to sharp
increases in number of FTTH subscribers.
 In SIS, expansion of stock businesses of IDC andsolutions services.
35,089CATV
11,827
CS
12,93040,250CATV
13,680CS
14,080SIS
10,387SIS
12,600FY2008FY2009 (E)* Sales by segment include inter-segment sales.

(Unit: Million Yen)

4,371

CATV
1,393

4,620
CATV
1,650

CS
2,726

CS
2,480

SIS
1,183

SIS
1,570

FY2008(Unit: Million Yen)

FY2009(E)132. EBITDA EBITDA increased by 4.8%, year to year, in fiscal year ended
March 2008
 EBITDA is expected to rise 9.6% in fiscal year ending March 2009
10000
10,000(Unit :Million Yen)

EBITDA
9000

8,000
8000

8,604

7000

8,209
6000

Up 4.8%,year toyear

9,430
Up 9.6%,
year to
year

5,000
5000
FY2007

FY2008FY2009 (E)142. Consolidated Forecasts for the Fiscal Year Ending March 2009:
Capital Investments

Strategic Investments for CATV business
CATV-FTTH

3.2 bil. yen≪主な投資内容≫

CS(4.1 bil. yen prev. year)

Expansion of CATV service areas 2.0 bil. yen
Purchases of Tokai Kanto’s transmission facilities
0.8 bil. yen
DSL NW
1.4 bil. yen(Million Yen)

March 2008

March 2009 (E)Year to year
comparison

CapitalInvestments

11,2328,490-2,742

Depreciation Expenses

4,172

4,790

617
15

3. Mid-term Management Vision
Our Group will strive to achieve the Mid-term Management Vision“Total Communication for the Best 2007－2011”
Our Group will endeavor to proactively expand earnings bases bybuilding a business model unique to our Group that combines theinformation telecommunications infrastructure including networks
and data centers and the system development, IT outsourcing, IT
solutions and ASP services provided by our engineers, as well as
by providing to a wide range of customers from individual
consumers to corporate customers by fully utilizing our Group's
planning and marketing capabilities.

163. Near-future Transformation of Telecommunications and Broadcasting
A major transformation is expected in the telecommunications and broadcasting spheres in 2010 and 2011
as witnessed by increased capacity of next generation networks allowing for 20 million subscribers,
unification of telecommunications and broadcasting laws, and termination of terrestrial analog broadcasting.
2008

2009

2010
NGN service areas to be
expanded to covercurrent B-Flets service
areas by March 2011

Services commenced inpart of Tokyo and Osaka
areas in March 2008

TelecomNTT’s target: 20 million subscribers to optical services by FY 2010
NTT’s expansion of next-generation network
Ministry of Internal Affairs and Communications’ target: no areas
without access to broadband services by FY 2010
Telecommunications Business Law,
NTT Law, etc.

Broadcasting

Broadcasting Law, Cable TV
Broadcast Law, etc.

Unificationof telecom
andbroadcasting
lawsIntelligent
homeappliance
network

Amalgamationof fixed andmobile phones

High-speed
remotemedical care

Realization of ubiquitous
society with access to safe,
secure and useful network
services using NGN

Telecommunications andBroadcasting Bill (tentativename) to be submitted to 2010
ordinary diet session

Terrestrial analog broadcasting to be terminated by July 2011
Digital broadcasting

2011

Creation anddevelopment of
new services
beyond walls
betweencommunications,broadcasting andinformation
technology
17

3. Highlights of Consolidated Mid-term PlanFY 2007 - FY 2009: Expansion of customer base
CATV

CATV-FTTF: Winning100,000 subscribers

CS@T-com: Net increase of 100,000 direct-sale subscribers(FTTH: ＋175,000; ADSL: -72,000)
Î Total direct-sale customers: 325,000 by end of FY 2009

SIS

Establishment of customer base by expansion of stock businesses

Expansion of next-generation services with a focus on
NGN for high, sustainable growth from FY 2010 onwards
18

3. Image of Sales by Segment
60,000,000

55,000,000

50,000,000
50

CS
SIS

45,000,000

40,000,000

Total Sales(45.4)

50

Total Sales
40.2

Total Sales
35.0

35,000,000

30,000,000
30(Unit: Billion Yen)

CATV

(16.1)
13.6
30

11.8

25,000,000(15.5)

20,000,000

14.0
12.9

15,000,000

10

10,000,000
10

5,000,000

10.3

12.6

(13.8)

FY2008FY2009 (E)FY20100Note: Approximate figures for FY 2010

FY2011FY2012* Sales by segment include inter-segment sales.

193. Operating Profit by Segment(Unit :Billion Yen)

CATV
CS
10

SIS

5

Recurringprofit10,000,010

Net profit

Recurring profit
4.2

Recurring profit
4.2

Net profit
2.3

Net profit
2.4

Operating profit
4.3

Operating profit
4.6
Eliminated orunallocated-1.1

Eliminated or
Unallocated amounts
-0.9

1.3

55,000,00

(2.5)
1.6
(2.4)

2.7

2.4

1.1

1.5

(1.8)

FY2008FY2009 (E)FY20103
Note:1 Approximate figures for Mar. 2010

FY2011FY20125020

3. Images in Capital Investments and Free Cash Flow

20
18
16
14
12
10
10
8
6
4
2
0

(Unit: Billion Yen)

Capital investment
FCF
Money borrowed
New data center
CATV-FTTH

11.2

FY2008FY2009 (E)Base Expansion Period
CATV-FTTH
The new data center begins operations.
M&A activities

FY2010FY2011FY2012

Period of Growth
Provision of high-quality total services
through the use of the new base
Improvement of customer satisfaction
Securing of stable earnings･････ And further growth21

CATV Business22

Business Policy on CATV-FTTH Operations
 Target number of CATV-FTTH subscribers:
100,000 new subscribers in three years from FY 2007 to FY 2009
Year to Mar. 2008

(1,000 subscribers)

100
57

Started CATV-FTTH services in all areas
where the Parent Company’s CATV service isavailable
Year to Mar. 2009
All six Group Companies to start CATV-FTTH
services

26
Year to Mar. 2010
Mar. 2008

Mar. 2009 (E)Mar. 2010 (E)To acquire a cumulative total of 100,000 new
subscribers backed by wider service areas
and expanded broadband market
23

Sales/Marketing and Investments of CATV-FTTH Operations
 CATV-FTTH
investment plan (cumulative)(Billion Yen)

15.8

 CATV-FTTH
sales/marketing organization(No. of Staff)■ Variable portion□ Fixed portion

4.4

10.2
2.9

117

6.1
11.4

1.8

88
69

7.3
4.3
Mar. 2008

Mar. 2009 (E)Mar. 2010 (E)A cumulative total of 15.8 billion yen to beinvested by fiscal year ending Mar. 2010,
comprising 13.2 billion yen in facilities andequipment and 2.6 billion yen for leasing

Mar. 2008

Mar. 2009 (E)Mar. 2010 (E)88 dedicated sales/marketing staff in
fiscal year ending Mar. 200924

Area Expansion of CATV-FTTH Services<Timetable of introduction of broadband and CATV-FTTH Services>
Introduction ofbroadband services

CATV-FTTH Services

Mar. 2006

Mar. 2007

Percentage of areas withaccess to FTTH services

Mar. 2008

Mar. 2009

Mar. 2010

50%

70%

Kumagaya CT

20%

60%

Ichihara CNT

20%

40%

Gotemba CM

30%

70%

(Completed in
Sept. 2006)

70%

100%

Atsugi Isehara CN(Broadband already in place)

30%

40%

East C(Broadband already in place)

VIC TOKAI

100%

25

Areas with Access to CATV-FTTH Services (Shizuoka Prefecture) Areas with access to CATV-FTTH
services (Shizuoka Prefecture)

VIC TOKAI Mishima Branch

Mishima, Izunokuni, Sunto, Kannami

VIC TOKAI Numazu Branch

Numazu, Susono, Gotemba (South)

VIC TOKAI Fuji BranchFuji, Fujinomiya, Ihara, Former Kambara Town

VIC TOKAI Seisei Branch

Yaizu, Fujieda, Shimada, Okabe

Gotemba Cablemedia Corp.

Harasato (Gotemba), Subashiri (Oyama, Sunto)

Gotemba Cablemedia(Partially serving FTTH)

Seisei
BranchFuji Branch

NumazuBranch<Central Shizuoka><Eastern Shizuoka>

Mishima
Branch26

Areas with Access to CATV-FTTH Services (Kanto Area)
 Areas with access to CATV-FTTH
services (Kanto Area, scheduled tostart in fiscal year ending Mar. 2009)
Ichihara Community Network TV Corp. andGotemba Cablemedia Corp. started services
in May 2008
Kumagaya Cable TV Co.,Ltd. scheduled tostart services in Dec. 2008

<Atsugi Isehara Cable Network>

Atsugi, Kanagawa Pref.

Atsugi Isehara CN

Aiko, Asahichou, Mimamichou, Okata, Sanda, Sandaminami,
Shimoogino, Oigawa, Tsumada, Tobio, Matsukagedai,
Miharuno, etc., Atsugi City, Kanagawa Pref.

East C

Asumigaoka, Midori-ku, Chiba City, Chiba Pref.

Ichihara CNT

Kokubunjidai, Yamadabashi, Saihiro, Souja, and Suwa,
Ichihara City, Chiba Pref.

Kumagaya Cable TV

Kamino, Kumagaya City, Saitama Pref. (planned)<Ichihara Community Network TV><East Communications>

Ichihara, Chiba Pref.
Midori-ku, Chiba City

<Kumagaya Cable TV>

Kumagaya, Saitama Pref.
27

ARPU for CATV Business Forecasts of ARPU (average revenue per month per contract)
(Yen)
4,000

3,500

3,000
Actual results for the period
ended March 2007

Actual results for the period
ended March 2008

Period ending March 2009
(projections)

Period ending March 2010
(projections)

Actual results for the period Actual results for the period Period ending March 2009 Period ending March 2010
(projections)
ended March 2008
(projections)
ended March 2007

ARPU for CATV business
(yen)

3,098

3,186

3,500

4,000

 The ARUP for CATV subscribers will increase with an
expansion of CATV-FTTH services.
* Definition of ARPU: Monthly usage revenue / (no. of broadcasting subscribers + no. of Internet-only subscribers)
28

Profit Target of CATV Business■ Operating profit target of CATV business■ FTTH Business□ Others(Billion Yen)

5.0

4

2

1.4

1.6

3.0

0

FY2008FY2009 (E)FY2012 (E) Target operating profit for fiscal year ending Mar. 2012 set at 5 billion yen
backed by overall business expansion with a particular emphasis on
CATV-FTTH business.
29

Future Services Utilizing Next-generation Networkz In CATV-FTTH business, will provide community-based services, similar to those available in
NGN services.

(1) Interconnection with NTT’s next-generation network
 Will interconnect with NTT’s next-generation network, taking advantage of common platform.
 Will offer next-generation telecommunications services such as intelligent home appliance andremote medical care services to CATV-FTTH customers, using QoS mechanisms, etc.

(2) Development of community-based contents
 Will utilize our community-based feature and program production technology to develop uniquevisual contents that deliver on demand information required locally.
Intelligent home
appliances
Remote medicalcare
Remote nursing

Provision of nextgeneration
telecommunications
services by utilizing
QoS mechanisms,
etc.

Information on
traffic, disaster,and other regional
matters frompublic agencies tobe delivered to
relevant areas in
video

PolicestationFire station
Municipal
office30

CS Business31

Development of ISP Business (Stronger Partnership with Home
Appliance Mass Merchandisers, etc.)
Stronger partnership with agents for increased confidence of customers
 Development of confidence by joint efforts to win customers with agents
 Stronger sales partnership with agents in winning broadband customers
 Contribution to increasing visitors by holding storefront events of our own
 Increased confidence of customers through sales activities

Placing over 200 of our staff at home
appliance mass merchandisers andPC shops constantly, which gives
the Company an unrivaled selling
power.

32

No. of Broadband Subscriptions (Nationwide)
 Bar graph shows annual new subscriptions
 Figures in parentheses show percentage of each service
4,000

（80%）

FTTH subscriptions
3,500

DSL subscriptions

3,000
2,500
2,000

10,000
Subscriptions

3,211

3,408

3,594
（70%）

2,964

（60%）

2,642
2,281
880
(39%)

（50%）

1,313

1,728

2,098

2,423

2,727

(58%)

(65%)

(71%)

(76%)

（40%）

(50%)

1,500

（30%）

1,000

（20%）

500

1,401

1,329

(61%)

(50%)

1,236

1,113

(42%)

(35%)

985
(29%)

867

（10%）

(24%)

0

（%）

FY2007

FY2008 (E)FY2009 (E)FY2010 (E)FY2011 (E)FY2012 (E)Estimates for Mar. 2008 onwards are taken from forecasts
released by Yano Research Institute on June 15, 2007.
33

Development of ISP Business (No. of Broadband Subscribers)
 Thanks to our excellent selling power, number of customers is on the increase.
Î Net increase of 100,000 subscribers expected in 3 years from 2008 to 2010
(1,000 Subscribers)
400
FTTH subscribers
DSL subscribers
300

se
a
e
r
c
n
Net i

r 10
e
v
o
f
o

0,00

scrib
b
u
s
0

ers
325

291

（70%）

258

222
200

er
s pow
g
n
i
n
r
a
er
sed e
numb
e
h
t
Increa
（80%）
n
i
rises
due to customers
of
（90%）

51

117

(23%)

(45%)

（60%）

174

226

(60%)

(70%)

（50%）

（40%）

to
U due
P
M
A
r
nts
Highe
conte
f
o
n
d
io
adban
provis
o
r
b
r
ed fo
design ervices
s

（30%）

100

171

（20%）

141

117

99

0

（10%）

ew
nt of n te
m
p
o
nex
Devel
lizingituserk
servic
netwo
n
o
i
t
a
gener

（%）

FY2007

FY2008FY2009 (E)FY2010 (E)34Development of Contents Business Development of web pages that offer contents in partnership with advertisers, as well as those that can generate alarge number of page views for advertisement revenues.
 Tighter monitoring of illegal and/or harmful information on the Internet, and awareness and educational campaigns forsite members about how to enjoy the Internet and how to avoid dangers thereon.
No. of members

Service expansion plan for FY ending Mar. 2009

Our Community Sites

Foreign language learning services (new)Avatar SNS

English and Korean learning services to be launchedthat offers “game-like” learning using avatars.
Planning to generate revenues from advertisers for tieup advertisement.

Music preview/sharing

Mini-blog service (new)Mina-kuru portal

Mini-blog service to be launched that offers fun
chatting. Planning to encourage repeated access ofusers for realization of a business model to generate
advertisement revenues proportional to page views.

Movie posting/sharing

Target is to build
a site with1,000,000
members

General information on pets

Contents service for ISPs

560,000
Protecting youths from illegal/harmful information (cont.)
Establishment of a community site that protects youths
from illegal/harmful information and offers fun in peaceof mind by tightening operational structure and system,by such means as manned monitoring, ban on postingof messages including NG words, and safekeeping oflogs on posted messages.

350,000
140,000
Mar.2007Mar. 2008 Mar. 2009 (E) Mar. 2010 (E)35Development of Carrier Business Total transit traffic is expected to increase by 16 times in 7 years from FY2003 to FY2009, and willcontinue rising thereafter.
 Decreases in purchase prices of transit contribute greatly to ISP business as well as to Internet-related
revenues of wholesale and CATV operations.
 The Company will continue to seek reductions in purchase prices of transit by selecting providers withcompetitive prices and by executing competitive biddings.
400

800

350

700

600

Annual transit sales volume
Annual transit cost

250

500

200

400

150

300

100

200

50

100

0

Annual transit cost (million yen)

Annual transit volume (Gbps)

300

0
FY2003

FY2004

FY2005

FY2006

FY2007

FY2008FY2009 (E)FY2010 (E)FY2011 (E)36Development of Carrier Business (Telecommunications Services Using
the Company's Business Infrastructure) Creation of services for corporate customers using the Company’s business infrastructure (datacommunications facilities, data centers, etc.)

The Company’s Business
Infrastructure

ISP Service
Internet connections

Data center

Infrastructure for
ISP service (TCOM, TNC)

Internet lines

Safekeeping of customer
facilities
Provision ofoperations/housing
services
Private line

Office of Customer A

Private line

Office of Customer B
37

SIS Business38

SIS Businesses

1. Enterprise application business (EA)
Entrusted development of software, mainly for information system of various industries such as
major convenience store operators, telecommunications companies, and financial institutions.

2. System integration business (SI)
Comprehensive information services for corporate customers, including designing, building,operations and maintenance of the system, that combines package solutions mainly of ourdevelopment with our network and data center.

3. Data center solution business (DCS)
Provision of new services using virtual technique, etc., in addition to data center services, suchas co-location, hosting, and system operations, and ASP services, following completion of the
new data center equipped with high-capacity facilities and top-quality operation/monitoring
structure.

39

Growth Target of SI Business Sales and operating profit targets of
SIS business Percentage of stock sales (outsourcing
service) in combined SI and DCS businesses(Unit: Billion Yen)

Sales

(Unit: Billion Yen)

9000

8000

8
7000

6.9

5.7
Operating profit

Sales

5.9
5.7
4.4

4

4.4
5000

of
n
o
i
ans
Exp
les
a
s
k
stoc

4000

2000

1000

0

0

FY2008FY2009 (E)FY2012 (E)FY2008FY2009 (E)EA SalesCombined SI/DCS sales

Outsourcing

EA operating profit

Combined SI/DCS operating profit

Package sales

FY2012 (E)Services
Other sales

40

Strengthening of Systematic Management Structure

 Objective assessment of project progress management
Early identification of and responses to problems in a project by means ofobjective assessment of project management structure Risk assessment at the time of order receipt
Strengthened risk assessment at the time of order receipt and monitoringof execution of response measures by means of project management
structure41

Development of Information Service Business

Provision of solutions basedon infrastructure technologies

Network

Our network such as
information box between
Tokyo and Osaka

Data center

Our highly reliable IDC withestablished 24/365 operations

 Most useful information investment for customers
 Stock business generating stable earnings for the Company

Infrastructure
solutionsOutsourcing business(Application service)

Proposal and establishment of solutions most suitablefor each customer

ASP

Healthy and rapid increases inincoming orders centering on
mail solution

System integration

Softwaredevelopment

Good and long-running trackrecord of many development
projects with many high-caliber
engineers42Stable Growth of EA Business For fiscal years ended March 2006 and March 2007, demand for telecommunications-related software
increased favorably, which, however, is expected to level off in fiscal year ended March 2008 onwards.
The Company will strive to increase orders from financial, retail, and other sectors.
■ The Company has been enjoying stable inflow of orders for development work from Nomura ResearchInstitute, NTT Data, Itochu Techno-Solutions, Hewlett-Packard Japan, Daiwa Institute of Research, etc.
(Million Yen)

6,920

Sale of software development
6,257

5,942

5,242
4,124

18%
21%
19%
64%

FY2005

FY2006
Telecommunications

FY2007Retail57%

FY2008Financial

48%

FY2009 (E)OthersOf over 600 system engineers of the Company, about 350 are positioned in the EA operations.
This is supplemented by good relationship with reliable partner companies, enabling the Company
to provide high-quality services.
43

Examples of Outsourcing Operations Accepted Examples of outsourcing businesses accepted with synergy effects

 Route bus
 Development of security system atgarages and maintenance andoperations of IC card systemz Software and system developmentz Network buildingz System operations and server
monitoring Home delivery of foodstuff
 Building and outsourced operations ofcommon sales management system
for franchisees of nation-wide
franchiser of foodstuff home delivery.
z Software and system developmentz Provision of network and housingz System operations

 Highway express bus
 Development, maintenance andoperations of highway express bus
reservation systemz System developmentz Provision of network and housingz System operations and help desk

 Chain restaurant(Skylark Co. Ltd.) Database building for 3,000 outlets, aswell as building and outsourced
operations of data collection anddistribution system for head office, plants
and business partners of Skylark group.

z Building of large-scale database server
z Provision of network and housingz System operations
44

Example of Newly Acquired Outsourcing Operations

Major human resource application service provider
Details of the human resource service provider:• Acceptance of outsourced human resources operations• Development of related systemsz No. of user companies: 85
z No. of employees under management: 115, 000 (as of Mar. 2007)

The provider used to use a data center of a competitor, but
switched over to our data center, and our operations started in
April 2008.
A case of acceptance of outsourced operations typical of our
information service business model
z
z
z
z
z

Provision of network and data center housing
System operations and help desk
Provision of infrastructure solution (our proprietary package)
Provision of ASP (OneOffice) service
Entrusted system development
45

Completion of Second Data Center
Floor space

8,026m²

In full operations from Apr. 2008

Structure

5-story, RC, seismic isolated
structure

Exterior viewNo. of racks

Up to 825 racks

Floor
withstand load

1,250kg/m²

Security

24-hour manned monitoring,biometrics, noncontact IC card,
numerical keypadServer room46

Seismic Isolation Devices and Redundant Equipment andPower Lines at Second Data Center
Seismic isolation devices

Redundant power supplies and air
conditioning equipment
Redundant air
conditioners

Batteries

Laminatedrubber bearing

Fluid damperHigh line
Redundant
77KV (main)lines
Redundant uninterruptible
power supplies

Cross linear
bearing

Tin rubber bearing

High line
77KV (backup)

Redundant in-house
power generators

Stock fuel47

Improvement in Quality of Data Center Operations
ISO27001

International standard for building and operating
mechanism for ensuring information security

Information
security
management

ISO9001

International standard for aiming at improved
customer satisfaction, including quality assurance

Quality
management

 To be certified in FY2008 first half:

ISO20000International standard for assurance of IT service quality:••••

Customer management
SLA management
Incident management
Configuration management

IT service
management48

Results and Plans of Mail Solution Service
 OneOffice is an ASP service specialized in mail, and has, in addition to basic functions,solutions such as safekeeping and searching of all mail messages, for intended use ininternal control.
 Functions for improved security such as encryption of file attachments and transmission filter
for prevention of wrong transmission are added, and expected to be selling points in
attracting new customers.
Sales target

No. of accounts(Unit: Million yen)

Sales
Operating profit

Mar. 2009
160,000
Mar. 2008
87,000460Mar. 2007
32,000200
125
FY2007

FY2008FY2009 (E)FY2010 (E)FY2011 (E)Mar. 2007

Mar.2008

Mar.2009(E)Mar.2010(E)Mar.2011(E)49

Fully Managed Services of Data Center
Our data center offers fully managed services from monitoring operation tocustom-built services, supported by many of our technical staff.

 Track records
based on ITIL and ISMS
High-quality, high-security services

Connectiv
ityService

ManagedService

Hous
Servi ingceCo-locationService

CustomizedService

Ou
t
s
o
u
rcing

Security
Service・ ISP system
・ Web shopping site
・ Mobile location information system
・ Web site for bus reservations
・ Web site for broadcasting station
・ Core system for restaurant chain
・ Core system for used car retailer
・ Core system for foodstuff homedelivery company
・ Core system for logistics company
・ System for humanresources/payroll management
・ Sales management system for
distributor
・ Internet, etc., for elementary andjunior high schools
50Plans for Launch of Services
2008

Existing services

New services

2009

Data center IT outsourcing services
Co-location
Line service
Operations service

RentalManaged service
Hosting

Virtual gateway services

Virtual platform services
Virtualserver
networkstorage

Virtual platform services

OneOffice mail solution
Mail service
Mail storage
Spam filtering

Encryption of fileattachments
Mail transmission filter

CDP

51

Measures to Strengthen Corporate
Governance
CSR Activities

Return to Shareholders

52

Measures to Strengthen Corporate Governance Measures taken during the year for strengthening of internal control system
1. Compliance risk committee meetings were held four times during the year, andreviewed the Company’s compliance-related issues and risks for improvement.
The Company also encouraged compliance managers and officers at various
divisions to obtain compliance-related qualification, and 68 compliancemanagers and 4 compliance officers were certified.
2. Information security committee meetings were held as necessary, and reviewed
the Company’s information security-related issues for improvement. The
Company also promoted information security training for all officers andemployees of the Company.
3. An internal control committee was set up so that all the officers and employees
share the sense of urgency for establishment of internal control. Project teams
were also established to formulate measures to develop internal regulations andimprove work flows.
4. Results of internal audit by the Audit Office were reported to management as
required and measures were taken to improve the raised points in a timely andappropriate manner. This has helped improve the internal control system of theCompany.
53

CSR Activities

Local disaster preparedness activities
In cooperation with municipalities, the Company has established an emergency
information system using the Company’s CATV community channels. This has helped
improve the safety of local communities.

Traffic safety activities
In cooperation with Shizuoka Prefecture and the prefectural police department, theCompany is broadcasting circumstances surrounding traffic accidents and traffic safety
programs. By calling for traffic safety leveraging on the community-based characteristics
of CATV, we help to reduce traffic accidents.

Internship, etc.
We are proactively accepting interns. We are also contributing to the society andsporting, cultural, and art activities. A retiree reemployment plan is already in place forsocial activities. An employee is also dispatched to the Japan Overseas Cooperation
Volunteers.
54

Return to Shareholders
The Company considers return of profit toshareholders as one of the most importantmanagement goals. The Company also
thinks it important to retain an appropriate
level of profit for further enhancement of
the Company’s financial standings and for
future development of operations. Basedon these principles, the Company’s
dividend policy is to pay stable andsustainable dividends in accordance withthe financial results.
For the current fiscal year under review,
management plans to pay an annual
dividend of 25 yen per share, including
12.5 yen per share already distributed as
an interim dividend.

Dividends(Yen per share)

30

Commemorative dividends
Term-end dividends

25

25

25

25

Interim dividends

20

17.5
15

15

12.5

10
5
0
Mar. 2004

Mar. 2005

Mar. 2006

Mar. 2007

Mar. 2008 Mar. 2009 (E)55