Thank you very much for attending today despite your busy schedules. We will now start the briefing on NTT's financial results for FY 2020 2Q. I'm Fujiki from the IR office and will be serving as today's facilitator. First, I would like to introduce today's attending members. Mr. Sawada, Representative Member of the Board and President. Mr. Shimada, Representative Member of the Board, Senior Executive Vice President. Mr. Nakayama, Executive Officer, Senior Vice President, Head of Finance and Accounting. Mr. Taniyama, Executive Officer, Senior Vice President, Head of Corporate Strategy Planning. In view of preventing the spread of COVID-19, today's briefing is held via live voice streaming. Please refer to the presentation materials posted on our company IR website. On the first page of the presentation materials is point to be considered, stated. We kindly ask you to read through them.
Mr. Sawada, president of the company, will explain the financial results outlined and take your questions later. Without further ado, Mr. Sawada, please.
Thank you very much. I would like to base my presentation on the presentation material entitled Financial Results for the six months at September 30th, 2020. I'll be very brief in my presentation. Please turn to page four of the material. This shows you the fact that we saw a decline in operating revenue, but increase in operating income for the second quarter. Yes. We saw a decrease in operating revenue, but increase in operating income. We made very strong progress in the second quarter, but as the situation is unclear with the second wave of COVID-19 hitting primarily Europe and the U.S., we will not be changing the annual guidance at this juncture.
Also with regard to operating revenue, due to decline in DOCOMO's handset sales and also decline in overseas system integration revenue due to COVID-19, operating revenue declined by JPY 178.2 billion year-on-year. As for operating income, while there is decline due to COVID-19, and there is increase in DOCOMO Smart Life Business. A question. As for operating income, while there is decline due to COVID-19, there is increase in DOCOMO Smart Life Business and profit, improved global business profitability. Operating income improved from -JPY 7.6 billion in first quarter to +JPY 25.8 billion year-on-year in the second quarter. As for overseas, top line has dropped due to COVID-19, but margin has improved by 0.7%. This is due to streamlining effect.
As far as the second quarter results are concerned, the impact of COVID-19 is -JPY 103 billion on revenue and -JPY 20 billion for profit. That is the impact of COVID-19 for the second quarter results. Please go on to page five. This shows you the contributing factors by segment. The top shows the operating revenue and the bottom column indicates operating income. The red part shows the areas that are declining, and the blue part shows the areas that are increasing. As for mobile and data, you're probably familiar with the results already. As for regional communication business, yes, there is decline in both operating revenue and operating income. Due to strong net adds in fiber sales, and also there's increases of service revenue. On a second quarter standalone basis, both entities almost enjoyed increase in both operating revenue and operating income.
As for regional communication, they have a guidance of increase of operating revenue and operating income. They're making strong strides towards this annual target. As for long distance and international communication business, it may seem as though the operating revenue drops significantly, it's just that at NTT Ltd., the accounting method has changed. In other words, recognition of revenue for straightforward supply sales and maintenance has been shifted from reflecting and recognizing total amount to posting that amount. That has impact of JPY 30 billion. Also, there's also JPY 14 billion impact from COVID-19 and currency. The operating revenue dropped by JPY 114.5 billion. However, as for operating income, due to structural reform, they have been very favorable. They were able to post increase in operating income at the end of the day. Let's turn to the following page six, please.
This shows you the medium-term debt levels. We wanted to clarify that for your reference. Let's start from the left-hand side, JPY 4.7 trillion. That is the amount of interest-bearing debt at the end of fiscal year 2019. D/E ratio is about 50%, and debt-to-EBITDA ratio is approximately 1.5x. Very clean. We'll be spending JPY 4.3 trillion for bridge loan, rather, to acquire NTT DOCOMO. This may increase up to JPY 9 trillion. However, please bear this in mind. The target for debt will be set as JPY 6 trillion. We want to make sure that since the EBITDA for our company is [JPY 3 billion], we are considering up to [JPY 6 billion] debt. The ratio of 60%, that's lower than the average of 80% for single A rating. That is the target that we want to set.
As you know, we have spun out leasing business, therefore, we've been able to off balance JPY 1.1 trillion in debt. Also, DOCOMO's credit receivables and handset receivables, they will also be securitized. JPY 1 trillion over the next four to five years. Right now, JPY 0.7 trillion is very clear. These are probably expected feasible. The actual interest debt will be JPY 2.2 trillion. If the target is JPY 6 trillion, it means that the amount of debt we need to repay would be only JPY 0.9 trillion after the math. We take a look at the average free cash flow for the past three years is roughly JPY 0.9 trillion. Also, paid out dividends is JPY 0.2 trillion, which means that we are able to generate JPY 0.5 trillion in cash every year.
We believe that we will be able to implement both share buyback and also increase the enrichment of shareholder return, and also be able to repay in a planned manner while we carry out the required investment for the growth. We believe the JPY 0.9 trillion debt can be repaid over the next couple of years, maybe over the next four to five years. As a result, we believe that for this fiscal year, we will be able to realize shareholder correction, share buyback as part of a shareholder return program. Now, as for the good, there will be no goodwill from the transaction to make DOCOMO into a holding subsidiary firm. Let's talk about share buyback. For the past two years, we have carried out JPY 250 billion worth of share buyback every year for the past two years.
That being the case, as we have consistently mentioned, we believe that we are able to continue shareholder return as we have done in a consistent manner and still be able to make repayments. We want to implement that. As for EPS, toward the year-end, we are headed toward the year-end. We believe that considering the operation, we will be able to increase JPY 1 at this juncture. As for topics, there are three. One is to create initiatives to create a Remote World. We have created a new service brand called the Remote World. This is a new title brand. I want you to do seven services, and I hope that you will take a look at this a year later.
The second is the OWN MEDIA DOOR. We will be preparing that. The R&D Forum will be held remotely. November 17th, the R&D Forum's situation or exhibition. To be able to view that, we are going to digitalize that. Of course, this is going to be a place where people other than NTT employees can attend, and it will be a 3D media. The people can experience the Remote World. Next is regarding the progress of the midterm management strategy. There are several of them, and I would like you to take a look at all of them later on. Three points here. First is the promote B2B2X model, and it has reached 88. Our target is 100 next fiscal year, we are in line with our plan.
The second point is that the satellite offices, actually station facilities, are convergent to satellite offices. We will have employees come here. In October, we have converted Noborito, and in 2020, 10, and by fiscal year 2021, we would like to convert 50 of them. Lastly, ESG-related matters. We have received the Climate Change Initiative approval for SBT, and we have announced it today, together with the National Institutes for Quantum and Radiological Science and Technology. In order to have a field demonstration of nuclear fusion energy, we have signed the alliance and partnership agreement today. That's all from myself.
Thank you very much. We will now take your questions. We'll take questions for those of you who have registered beforehand and those who are connected to the phone system right now, as we have informed you in advance. The operator will now explain how we will be taking your questions.
We will be starting the Q&A session at this juncture. From SMBC Nikko Securities, Mr. Kikuchi. Your question, please, Mr. Kikuchi.
Thank you very much. Kikuchi here. I have two questions, if I may. My first question is about NTT Ltd. You talked about cost reduction benefit, and as a result, you mentioned that the performance has been of the halt or the worsening of the performance. We have a good image of NTT Ltd. As a result. Having said that, both Europe and the United States, the COVID-19 situation remains very harsh in these regions. I wonder how you see the outlook for the second half of this fiscal year against this situation. That is my first question.
Yes, thank you very much. First, the impact of COVID-19. We believe there will be roughly JPY 45 billion impact on NTT Ltd. That has been the case so far. With regard to short-range order taking, many customers are very quick to withdraw their contracts. NTT Ltd. Has a large pipeline of such projects.
As far as operating revenue is concerned, yes, the situation is somewhat challenging, but as you mentioned, cost reduction benefit will really accrue, and we believe that the benefits of cost reduction will continue on to the second half of the year. Declining operating revenue and increase in operating income will probably continue under the current level of COVID-19 impact. That's one positive factor. There's another positive factor. With regard to value-added services, we want to make sure that value-added services account for 36%, but now that percentage has increased to 37% of the total revenue. Value-added service has been very strong due to COVID-19. The demand for digital event and remote services are very strong. We believe that this trend will continue. That represents another positive factor.
Having said that, should the lockdown due to COVID-19 become very prolonged, then more than the first half, if the situation were to become more stringent, then that could be a potential negative factor for the second half of the year.
Thank you very much for that response. With regard to your annual guidance, operating income, JPY 5 billion and JPY 4.4 billion for the second half. The impact, as opposed to any upside, you have with annual guidance will not be that significant. I think with regards to operating income, I think there's still cushion, right? Comfortable cushion for you as far as annual guidance is concerned. Would I be correct in understanding that?
Well, thank you for your question. Well, is there a cushion? Yes, I think there is an upside as far as operating income is concerned for the full year. First of all, NTT Ltd. People, NTT Ltd. I think this will be a very positive driver for the people at NTT Ltd. As they go on to the next year. Yes, that is our expectation.
Thank you for that. My second question is this. It's about making DOCOMO into a wholly owned subsidiary firm. After this is delivered and realized, what will happen to DOCOMO's performance?
Generally, the general consensus on the stock market is that since the percentage of non-controlling interest will be coming down, that should enhance your flexibility for your business operation with fewer non-controlled interests.
What will be the policy based on which you will be practicing control over the operations at DOCOMO, inclusive of the possible rate plans? That's my first question.
You're talking about the control at DOCOMO, right?
Yes, that is my question.
For example, you'll be able to review rate plans because you have the ability to weather any potential decline in operating income. Well, that is not in line with our basic thinking. As is the case when DOCOMO was a listed company, it's important that we have very strong, robust governance. That being the case, there was a transition to audit the committee-based company at DOCOMO, and that practice will continue, and outside directors will remain on board, and they will be part of the governance at DOCOMO.
Now, what will happen to DOCOMO after they become a wholly owned subsidiary firm?
Well, investor relations type of activities and interaction with media and the analysts and the securities firms, we hope that they will continue even after they become a wholly owned subsidiary firm. The thought that just DOCOMO becomes part of the group, and we have the room to accept decline in operating income. That type of thinking is not right.
I see. Thank you.
Okay.
May I say that in terms of as part of NTT holding company's policy, you will continue your policy of safeguarding the profit at NTT DOCOMO?
Yes, that is the case. Already, the EPS target is the medium-term target, and also cost reduction and return on invested capital. We have these targets. The major subsidiary firms, we are going to assess the securities at the major subsidiary firms in a way which is linked with the targets set forth in the medium-term target. The actual valuation will start, but this program has been introduced in the previous year, and this will continue. Again, as was the case in the past, in an integrated manner, we hope that companies will be contributing to increase in operating income. Your interpretation is correct in that context.
I see. It's important that each operating company generates profit, and on a consolidated basis, it's important that. You're not going to take deposit just because on a consolidated basis, you have strong operating income, you're going to accept the decline in one particular company.
That's right. That is not the case. We want to make sure that there is synergy among the operating companies.
Thank you very much.
Thank you very much. I'd like to take the next question. Next, Nomura Securities. Mr. Masuno, please go ahead, ask your question.
This is Masuno from Nomura Securities. Can you hear my voice?
Yes, we can.
I have several questions. Related to the result this time, the limited restructuring in the full year, cost-wise and value-added wise, what is the scale that you're expecting? You said this is going to continue on to the next fiscal year. Next fiscal year, what is the upside scale that you are thinking?
Thank you very much. This fiscal year, it's JPY 300, and it will exceed JPY 300. Next fiscal year, actually, in December, well, we have started the discussion, but entering December, we're going to establish the plan for next fiscal year. The PMI plan was set for two years originally. Therefore, it started from 2019 and up to July 2021. Various PMI initiatives are running or implemented. Especially the effect of the IT initiatives, we are going to accumulate those effects. Scale-wise, it will be several 10 billion JPY level, is what we are considering.
Okay. The breakdown of that cost and the value-added contribution, what is the ratio? 50/50?
Well, at the beginning, when we were considering the midterm, the cost was JPY 300 and value added was JPY 400, or JPY 30 billion, JPY 40 billion. Maybe the value added is going to be an actual larger.
Value added in absolute amount is not going to decline.
Correct. The total improvement effect is going to start to show. Well, that is my wishful thinking.
Thank you. My second question is related to midterm. DOCOMO is going to be a wholly-owned subsidiary company regarding the sales, service, and finance-related matters. DOCOMO alone, at what time, what is going to happen? The alliance or partnership with Communications, whatever way it is, at what time and what way is that going to be done? I'm asking these questions several times, the size or the timing or the content of this, if there's anything that you can share, I would like to hear.
Well, as reality, this is not that has been thoroughly considered because we're still in the TOB period. Mid this November, TOB will be completed, from there, we are going to have thorough discussions. At this point, there's nothing that I can share with you. Generally speaking, well, DOCOMO, compared to its competitors, they're behind. That is because the fixed line network or the corporate customer side, they don't have the NTT Communications type of part in their business.
How should I say this? Before it's becoming a wholly owned subsidiary, we need them to continue to actively work on that part. In terms of the sales activities, if it becomes deeper together with NTT Communications, then the pie of the corporate customers is going to be larger. That will be the next step. On the other hand, the NTT Communications side, they didn't have that much of a wireless solution. As the sales activities for NTT Communications, they'll be able to sell integrated services. That's going to be one synergy effect. As I have mentioned to you before, the network or the facilities and equipment, that side, how much are we going to integrate, is the question. Looking at DOCOMO alone, for the various service developments, comm and communications in an agile way are developing it.
In several months, they can provide service in of the solution. How are we going to provide that also? Explaining what the scale will be at this point is difficult. However, as the president of the group or CEO of the group, I want them to put their full efforts out there.
I just want to check. That with the communications and sales activities collaboration, that is going to be able to come true at the field?
Yes. However, DOCOMO, or what they say, the prohibited actions, there are some regulations that are imposed. That probably is going to be discussed further. It will depend on how that discussion goes.
Okay. Thank you very much. Also, on the finance part, page six, the interest-bearing debt level, target level. If you look at the actual, it's JPY 4.7 trillion. However, you have cash also. The net debt, I think it's the JPY 1 trillion left, JPY 3.7 trillion. In reality, this target of JPY 6 trillion, in net debt, it's going to be JPY 5 trillion. I think you still will have some more buffer or room, is what I think. How are you looking at this?
You're exactly right about the JPY 1 trillion of buffer we have. However, as explained to you, our basic business is the telecommunications business. Therefore, natural disasters or some unprecedented natural disaster that happens, we want to secure the capability that we alone will be able to respond to such disasters. Cash or capital on hand, we would like to have a comfortable level of that buffer. As you say, the working capital or that part, how much can we allocate that to lower the debt or improve the capital efficiency or cash efficiency?
It's a challenge that we have to take on, so we would like to continue to review this.
Thank you very much. That's all.
Thank you very much. Next question, please. Next question from Citigroup Securities, Mr. Tsuruo. The floor is yours.
Thank you. Good afternoon. My name is Tsuruo from Citigroup. Thank you for this opportunity. Thank you. I'm also looking at page six. Could we talk about page six? You want to have debt repayments of JPY 0.9 trillion, and you talked about five years in the previous sessions. Can you elaborate on the debt repayment program? You have idle assets or unused assets. If you sell off those unused assets, you'll be able to accelerate debt repayments. Is there such a buffer? If there is such a buffer, what options will be available for you? To the extent possible, I would appreciate some hints or clues.
Thank you. Those securitization assets. We are not reflecting that on this slide. For example, data centers or real estate. Those elements are not incorporated into the slide, but that would be part of the target, and we're giving these matter consideration as we speak. We're not able to have concrete numbers. That is why they're not reflected on this page. I believe there is some sort of cash that can be available to be allocated for debt repayment purposes.
Can you give a certain range? Is there a certain size that you'll be able to give? What about the timeframe? If you could give us some pointers, we would appreciate it. Thank you.
The overall program will take roughly four to five years, in our opinion. There is share repurchase, and also there's going to be requirement of cash for investment for the future. That might be the case. Several tens of billions of yen on a per annum basis. I think that would be one possibility.
I see. Thank you. If you're able to accelerate the debt repayments, then how will the free debt cash be utilized? If you're able to accelerate debt repayment, are you going to allocate that for dividend or share buyback or any other purposes? How are you going to intend such cash at that juncture?
Well, thank you for the question. Well, first, we have not reflected the impact from synergy on this page. How much synergy can we generate? That is up to a consideration, a study from now on. Depending on the level of synergy, there might be need for future investment, or there might be need to increase R&D expenses. We want to consider that possibility as well.
Compression of assets and also, compressing working capital, and also by improving efficiency, then we will be able to generate some benefit. We'll be able to accelerate debt repayments, which will mean less interest burden. If that is the case, we want to be able to allocate that for shareholder return and also for other purposes. If I may add, in this calculation, in this formula, when it comes to cash, well, we talked about JPY 0.9 trillion, but we want to work with EBITDA and bring this back to JPY 3.2 trillion. If that is the case, then we'll be able to do this much earlier, and then we'll be able to have greater cash available for shareholder return purposes. Paid-out dividend is already JPY 400 billion. This is factored in.
Paid-out dividend is already factored in this calculation, which means that cash-wise, we have many potential pockets and capabilities available for us.
If I may, one other question, one additional question, and this will be the final part of my question. This might be a sensitive question, so to the extent possible, if you could give us pointers. Among DOCOMO's assets, when JTOWER was listed, you talked about carving out of base stations at that juncture. This, I believe, represents one important factor for debt repayment. Is my understanding correct?
Realistically, I don't think we'll be able to make such a move quickly. That is a possibility. We are not progressed that far as far as the consideration of the scheme is concerned. That factor, it is not factored in the current debt repayment plan we have.
Thank you. That's all. Thank you very much.
Thank you very much. I'd like to take the next question. Next question, Daiwa Securities, Mr. Ando, please go ahead with your question.
Hello. Can you hear me?
Yes, we can hear you. Hello.
My first question also is related to page six. Share buyback, JPY 250 billion. You've done that. Thank you very much. This repayment plan, we'll keep an eye on this plan. Regarding EPS, DOCOMO become a wholly owned subsidiary. It's going to go up by JPY 50 or so. Considering that there's a JPY 250 billion in a midterm perspective, is this becoming a reality level? Or t his year, there are some factors involved?
You have added some additional factors to this and come up with JPY 250 billion. Up till now, about this amount is the share buyback that we have conducted in the open market.
The message we want to convey is that, as already mentioned to you, this JPY 4.3 trillion, even though we borrow this, as we have been doing till now, shareholder return in terms of dividends and share buyback, we are going to continue that. We are actually practicing that. That is the major message that we want to convey. In the midterm perspective, whether this amount is going to be too much or less, are we going to increase it more? I'm very sorry, it will depend on how much synergy will be achieved. When we think about the new midterm management strategy, what is the effort that is going to be generated from each company is going to be considered. At this point, there is nothing that I can share with you at this point.
Okay. Thank you very much. My second question is regarding the pressure from the Japanese government to lower the mobile phone rates. KDDI and SoftBank, for the 20 giga, through the sub-brand, they are responding to that pressure, is the current situation. For your company, with the Japanese government, I believe that you are sharing your thoughts and having discussions with them. This 20 giga, JPY 5,000. Basically, this time, in the short-term perspective, it seems sufficient. As DOCOMO, on their own, are proactively going out there to take more market share. Is that the background story on these actions?
Thank you very much. This 20 giga, you did international comparison, and compared to the major cities around the world, the rate is high. That seems like the standard of the guidance that the government is saying, and the other competitor's rate is around JPY 4,000. The consensus we have is how are we going to respond to that? Furthermore, as you have mentioned, marketing-wise, how are we going to expand our market shares? In DOCOMO's case, it doesn't have a sub-brand, so there's some cannibalization may occur. What kind of impact is going to occur, including those factors? They are examining various points, and we have not have seen specifics yet at this point. Thank you very much.
Thank you.
Thank you very much. We'll go on to the next question. Next, from Mr. Kinoshita, please.
From BofA Securities.
Thank you. We hear you, Kinoshita-san.
Thank you. I would like to ask several questions, if I may. First, with regard to the future, to the extent possible, if you could share with us, it relates to DOCOMO and NTT Communications. Is there a possibility, or do you have a plan to integrate these two companies? I think you talked about the possibility of integrating the businesses of these two companies. Because of DOCOMO not being able to carry out certain activities, would that represent a problem for closer integration between the two businesses? As far as DOCOMO is concerned, after they become part of an integrated company, will they be forced to offer equitable treatment to all partners?
Even without any regulatory issues, does the current scheme allow for the integration of these two businesses? Thank you.
Integration of DOCOMO and NTT Communications, that is not the assumption that we have. We talked about collaboration between the two businesses. One possibility is to bring NTT Communications under the wings of DOCOMO, we're not even considering that at this moment. As far as the target is concerned, the discussion for integration of these two businesses, it's very difficult for me to respond to that. Generally speaking, we have to scrutinize the situation because any further integration could involve certain regulations. I think we need to, again, this is down the road, I think we will probably have to discuss with the regulators about the regulation. Full integration of the two companies.
When it comes to full integration of the two companies, if it's two separate entities in a vertical fashion, will that be a separate issue? That probably will give rise to a whole set of new issues. As for the competition. In the context of fair competition and also the continuity of policies, they have been focusing on these elements through their communication with the media. It's a matter of how MIC responds to these questions. I think we need to bear that in mind.
All right. After the tender offer is over, is there any possibility that due to regulations or rules, you'll not be able to make DOCOMO a wholly-owned subsidiary firm? Is that a possibility?
Well, that's something that we're not in a position to know. Generally speaking, one wouldn't assume such a scenario to occur.
I see. I suppose there's very little risk of that scenario then. That is my interpretation. Let me now ask about the rate plans. In the previous session, you talked about the launch of the rate plans at DOCOMO. Due to the press coverage, Mr. Sawada, I understand that you made a pep talk to DOCOMO to be more bold in their rate plans. Going back to what you mentioned earlier, this time around, DOCOMO is still giving this matter consideration. I believe that it was the gist of your comment. May I take it that, in principle, DOCOMO consults with you beforehand? I suppose after the tender offer is over, you can make a comment, but have they consulted beforehand? Has NTT given the green light to the rate plans?
DOCOMO will submit their rate plans after they have received the approval from NTT Holding Company. Is that how things will evolve from now? That's my second question.
Thank you for your question. First of all, I think the media was quite mischievous when they talked about how they reported that I gave a pep talk. I was not that upset when I talked to DOCOMO. I did say, though, that, "You are much more capable." When I talked to people at DOCOMO, yes, I did encourage them that they were more capable, but I think the media coverage was somewhat sensational. When it comes to the rate plans, when Mr. Suga became the prime minister, at that time already, we had already had talks with the MIC on this matter.
We did communicate to them that we will not be able to say anything while the tender offer was being conducted. We're not sure about how they responded to that. We're not sure what the MIC's position is and what the response is. At the end of the day, KDDI and SoftBank, in this order, they gave indications for rate reduction. These are the facts.
If I may ask, the final decision will only be reached after consultations between DOCOMO and NTT Holding Company?
No. In principle, it's DOCOMO that decides the rate plans. Of course, there's always the relationship between the two companies. We do have discussions. We do talk about them.
Thank you, then. Well, thank you very much.
Thank you very much. We'd like to take the next question. Next, SBI Securities, Mr. Moriyuki, please go ahead with your question.
This is Moriyuki from SBI Securities. Hello.
Thank you very much.
Regarding cost reduction, this time, the factor to push up the operating income, the cost reduction, are there any emergency responses type of cost reduction incorporated in that? When the COVID-19 settles or comes to end, is it going to further come back or improve? Is the background of my question. Are you saying that cost reduction is going in a front-loaded manner, so it's not going to happen? If there's like an emergency, major type of cost reduction, I would like to know.
I don't have the actual figures with me right now. However, the factors incorporated is that the operation center is going to be centralized, that's going to have an effect permanently. We've done quite a bit of streamlining, especially for the backyard operation. The overhead and all the overlaps in that area were all streamlined. That's going to be effective for a permanent manner. Traveling expenses, due to COVID-19, there's no traveling expenses that are occurring. There is a possibility that that may return or recover in a way, but we don't know the size of it. I don't think it's going to be that large. It's global, so it's probably the range about JPY 1 billion. It's just around that level. That's going to be the range or the scale.
Okay. Understood. Also for NTT DOCOMO is aimed to further increase their profit and conduct their business. As the synergy effect from NTT Communications, they'll be able to improve their competitiveness. Listening to your explanations, for the corporate customers, it seems that there will be a positive effect coming out for synergy. For the consumers, unless they sacrifice the profit, I don't think that they're going to recover that quickly. You're not going to sacrifice the profit that much. That stance hasn't changed for consumer side? The consumer side is going to gradually improve. That's the image. First, the corporate side will improve rapidly and boost up the profitability?
Well, if we separate from consumer and corporate, we will see, and it's easy to understand the positive impact for the corporate side. In the mass consumer side, the COVID-19.
How should I say it? The Smart Life Business, which is not the telecommunications-related business, they have that Smart Life Business. How much will communications or commerce or software and solutions can help out that part, including the marketing activities? The other point is that traditional or conventional telecommunications or services towards the mass consumers. For communications, they have OCN, they have OCN Mobile. In telephones, for businesses, they have the toll-free services, also that they provide. For the telephone services, for the mass consumers, the services, they have various services on hand. Even though it's a legacy type of service, DOCOMO, when compared with competitors, they don't have the fixed and mobile combined service, meaning that they don't have the PGSN combined service.
Just having the lineup of such a thing as a base load, there are a certain amount that they will be able to recover is what we think. As you mentioned, the new non-telecommunications area, it's not that immediately we'll see some sort of a positive effect. I'm sure it will require some money. If I may summarize, and it was asked you before, the second brand, whether you're going to have that or not. It means that the collaboration is going to become stronger with OCN brand, and they're going to become sort of a second brand in the near future. That is one discussion topic, is what we think. At this point, from my side, I cannot share anything with you regarding that question.
Sacrifice the profit and try to differentiate themselves by price, that strategy is not going to be taken. Yes, of course, because we have to secure a profit. However, increasing the market share, and if we can say that the backyard part has also become efficient, that factor may be incorporated into such a thing. Thank you very much.
Thank you. Next question, please. Next question from Morgan Stanley MUFG. Mr. Tsusaka. Mr. Tsusaka, the floor is yours.
Hello, Tsusaka here.
Thank you very much.
Thank you. I would like to ask one question about DOCOMO and another question about a different topic. The cost synergy as a result of incorporating DOCOMO as part of the group. If I may, I would like to share with you some comments about, and impressions that I have as a result of observing DOCOMO for a long time. I felt that in order to enhance the competitiveness for DOCOMO, they need to do reform, which might actually relate to some painful sacrifices on the revenue. I don't think they will be able to restore competitiveness just by a little half-hearted attempts here and there.
Therefore, the short-term risk as far as revenue is concerned, well, to be very blunt with you, if, for example, you were to introduce second brand, which is one of the shortfalls for DOCOMO, I think this might be very painful because DOCOMO is such a big company. That is my personal impression. What are your thoughts? In the context of group management, how do you intend to control the operations at DOCOMO from that perspective? Also, is that even necessary, or do you believe that that's not even necessary? That you believe that things will be all right just by simply adjusting a little bit the current system. I would appreciate hearing your thoughts. My second question, if I could go on to my second question as well. Back in 1992, well, I think you had a philosophy back in 1992.
NTT DOCOMO was considered a totally separate company in terms of the network, in terms of various systems included. DOCOMO had to be operated as a totally independent company. That being the case, operation-wise, there are some redundant parts from the context of NTT Group. That is my view. After this integration is over, how much cost synergy do you think you'll be able to realize as a result of incorporating DOCOMO as a wholly owned subsidiary firm? If you have any numbers that are available through your brainstorming exercises, I would appreciate your pointers. Thank you. Those are my two questions.
Thank you for your questions. Let me go on to your first question. Indeed. The competition are very strong. The needs of the market and the needs of the customers are very dynamic, and that pace of change is even accelerating. There's need to be flexible to cater to that market. At the same time, there is need for agility in our decision-making process. That is being required, but that is very difficult to do. Up until now, both DOCOMO and NTT holding company, we really were dependent on one single pillar. For example, in the case of DOCOMO, it was mobile communications. In the case of NTT holding company, it was the fixed-line business. I think we need to be more multifaceted.
We need motivation. DOCOMO needs to expand so much throughout their business. They're trying to expand their Smart Life Business. On top of that, it's important that they enhance their corporate business and also work with the partners, and also incorporate platform, and also go onto system integration, and also go to software development. They need to expand into that. In terms of the retail business, they need to expand into the finance business, financial business, and also respond to the requirements of the power business and also do deeper partnerships with construction business. There are a lot of evolutions that could take place. In terms of geographical footprint, I believe outside Japan, global business could be another possibility. It's important that there is a need for reform of the governance and the mindset. They need to be multifaceted.
They need to follow multiple tracks at the same time. That is my thinking at this moment. On the other hand, you mentioned that from 1992, we were a separate company. That is true as far as operation is concerned. When it comes to long-distance communication, yes, we have seen duplication as a result. We believe that there is potential benefit from that. According to simulations, the benefit could be as high as several hundred billion yen. How can we integrate that? That's one possible agenda for discussion between NTT DOCOMO and NTT Communications going forward. As far as buildings and facilities are concerned, the number is not many, but there are separate buildings and facilities owned by NTT Communications and DOCOMO. How do we deal with that?
Also, as far as operation is concerned, the size, the scale, debt obligations is not all that sizable. I suppose if the two companies are combined, the impact, the size could be in the range of tens of billions of yen and hundred billions of yen. I'm talking generalities here. What step can we take and what synergies can be generated? After the tender offer period is over, we would like to set up a working team and then give these matters consideration. That is how you should understand the current situation.
Thank you very much for that.
Thank you very much. I'd like to take the next question. Next question, Mizuho Securities. Mr. Hori, please go ahead.
I'm Hori from Mizuho Securities. Hello. I have two questions. Last time, DOCOMO, 2019 in April, they came out with a new rate. At that time, it seems that you, Mr. Sawada, your tone was in a way that they have to be more proactive, more aggressive, is how I understood it. It was a tone of, "Go and get your customers.
It seems, is it better to think that your tone has changed slightly?
Basically, it hasn't changed. However, in reality, they've done the new rate for one year. How should I say this? Whether they are increasing their market share or not, they are struggling. Therefore, we need them to think reality and come up with measures and consider measures, is what I want them to do. It's not that my tone has become softer or anything like that.
Thank you. You are thinking the reality, too?
Yes.
Okay. My second question is that when you had the meeting regarding the wholly owning NTT DOCOMO towards the midterm plan, the minority shareholders profit being able to incorporate that they'll be able to add the JPY 50 to the EPS. That was the calculation that you've done, is what I've heard. Currently, you are in the mid to late period, and DOCOMO's rate, how is that going to respond and something that's going to discuss moving forward? As a question right now, the synergy part also, all that being considered, if reflected in this JPY 50, or is it going to be more than, or an upside of JPY 50? The midterm plans EPS target, all those numbers, after they all come out at the year-end result announcement, can we have expectations that you will have some sort of a guidance as such?
Thank you very much. That is the target I have for the actions to be taken moving forward. Timing-wise, it will be May. Regarding the content, the target JPY 320 right now, this JPY 50, is that an incremental? That's not the fact. It is one of the measures, this JPY 50, the minority shareholders incorporate it in JPY 200 billion increase, and there's an EPS of JPY 50 increase. That's true, that's that. It's the same way of thinking of when we conduct M&As. Including this point, our midterm management strategy, how much of an increase can we have there? I think that's the way to think of this.
You meaning that it's not just this, but there's synergy that's becoming more realized, and there are some upside factors?
Yes.
Okay. Thank you very much.
Thank you very much. I think we have taken all the questions that were registered. Are there any additional questions from those of you who are connected? It seems that there are no additional questions. At this juncture, with this, we'd like to conclude the presentation of the second quarter results for fiscal year 2020. Thank you for attendance. Thank you very much, ladies and gentlemen. Thank you very much.