Thank you very much for taking time out of your busy schedule to attend NTT IR Day today. I am Fujiki from NTT IR, and I will serve as the moderator till the end of the meeting. Today, we will have presentation on three themes, technological strategy, global strategy, and governance. Then move on to the Q&A session by President Sawada at the end. If you have questions or NTT DOCOMO subsidiary questions that we announced on September 29 will be entertained at the end. We plan to end at 5:30 P.M. Today, we have the live streaming by the internet, and this will be distributed on demand at a later date. I hope you could understand. Without further ado, the first theme, technological strategy, will be explained by Senior Executive Vice President Shibutani, who will talk about NTT's growth strategy from the viewpoint of the CTO.
Mr. Shibutani, please.
Good afternoon, ladies and gentlemen. Thank you for the kind introduction. My name is Shibutani, the Senior Executive Vice President of NTT. I was appointed in the current position back in June this year. Allow me to briefly introduce myself. I was involved in network reliability, building a design for network reliability building back in Fukushima at 3/11. I was involved in the reconstruction and the rebuilding of the network after the earthquake and tsunami. I was involved in business development, and also as the President of NTT East, I was involved in exploration of new strategic business. From June this year, I was appointed as the CTO, CIO, and CTO responsible for digital transformation. I'm responsible for technology matters overall at NTT Holding Company. I look forward to your kind support and understanding.
On the 29th of this month, we announced the JPY 4 trillion worth of tender offer for NTT DOCOMO. I'm sure you're highly interested in this particular topic. We had the largest market cap at NTT in the past, and also in the heyday of the i-mode technology, DOCOMO's market cap was around JPY 43 trillion. Subsequently, the likes of GAFA and BAT of China, these players, have grown, and there is now a major gap. Can NTT once again reemerge as an innovative company? That, I'm sure, is the topic that you're most interested in. With regard to the short-term growth plan, DOCOMO and other group operating companies will come up with rate plans and also will come up with new services. That is how we'll be responding to the requirements of the market.
In terms of the medium term and beyond, the strategy for medium term and beyond, it's important that R&D capacity of NTT Group and the technological capacity of NTT Group as a whole, how can we bring this together so that we can drive innovation and contribute to the society? This is very important, and this is another matter of great interest to the public. That being the case, today, I would like to talk about NTT's growth strategy from the perspective of CTO. That is why I decided to choose this topic. I would very much appreciate your kind attention until the very end. Let me start with the substance of my presentation.
On the 29th, when we announced the tender offer, President and CEO, Mr. Sawada, mentioned that in the course of this tender offer, this is the direction based on which we're going to seek growth. He identified four directions of growth. The two boxes that are not covered in black, that's the Smart Life and Digital Transformation. In the case of Digital Transformation, JPY 100 billion cost reduction until 2023, and also with regard to Smart Life and B2B2X model business. By 2023, again, we are aiming for JPY 600 billion. These are the targets we have set for these two boxes, and we have made concrete progress to date. With the consolidation of the group this summer end, we'll be able to further expand these sides, and we'll be able to accelerate this growth.
Now, in terms of the medium-term growth, the boxes that are covered in red, number 1 and 3. Development and provision of new services based on a remote world will be very critical. How can we provide that to the society at large? The other box is number 3. We want to make sure that we're able to promote global scale R&D and drive innovation. For these two topics, I would like to primarily focus on during the presentation today. In order to deliver these targets, and by the way, on the 29th, Mr. Sawada used these materials at the press conference. We are going to pursue four pillars, and we are going to contribute to the society at large. In particular, I want to highlight the most relevant topics. The yellow one on the top, strengthening global industrial competitiveness.
We want to develop new services because the world is becoming more virtual in nature. It's important that we have the ability to deliver various services on our own volition. We want to bring about that change. The second. Right now, 5G is being introduced, we want to expand the area of coverage so that we'll be able to see the dawn of the new IoT era. We really are in the new development stage. We're in the new era. Mr. Sawada talked about 6G, inclusive of space and outer space and underwater. It's important that the scope covered by wireless further expand going forward. Inclusive of the deal of DOCOMO that we announced, it's important that we further accelerate the expansion of wireless. The third topic, this is in the blue part. We want to promote B2B2X.
We want to support the society and enrich the society. Digitalization and smartification, revitalizing local communities and economies. These are things that we need to promote. These would be the three targets which I'll be covering today. One further point that I wish to address, there's a common platform, the common theme that runs across these three aforementioned targets, which is to increasing resilience and increasing cybersecurity. Increasing resilience information, ICT system against disasters and strengthening the cybersecurity is the key. As there's decoupling involving U.S. and China, it's important that we offer trusted services. How do we deliver that in Japan? There's an increase in this topic on a global scale. At the basis, this is a common basis, so inclusive for all, it is important that we address this very common theme that runs across various targets.
Let me talk about the two targets. How do we intend to pursue the growth? I want to focus on these two growth strategies and focus on how we intend to deliver them. First is to develop and provide new services based on so-called remote world. Let me try to explain the backdrop of what I mean. There's reference to local area network. This is the access network, and the core is the upper layer network. RAN is the bottom layer. As you're seeing, specific vendors provide vertical model covering all the way from application hardware to software, and they're now providing that to carriers and end users. This is a very efficient model, by the way, and it is very integrated, so therefore it is efficient. However, having said that, if you want to be innovative with regard to software, you were reliant on vendors.
Therefore, this did not drive very healthy innovation. What we want to pursue is a model on the right-hand side, which is the open model. This is what we would like to pursue. There are two approaches. First, this is so-called multi-vendor approach, where various equipments could be selected, where you have a variety of available options. This is the CU-DU world. The other is for the upper layer equipments, which we translated into software, which means that we ourselves and our customers will be able to exhibit agility, create their functions in a desired manner in an open environment. This is what we would like to achieve as soon as possible. If this could be delivered, then on the right-hand side, this actually is the fixed-line network, the telephone network offered by NTT. When I say also NTT FLET'S Hikari, which is the broadband, a fiber network.
NTT Comware and other operating companies are trying to create a virtual situation. If that's the case, if that is delivered, full-fledged fixed mobile convergence could be realized through software. To be more specific. Let me try to summarize. We want to make sure that we have a general purpose open system so that we're able to create a situation where we'll be able to advance the given environment. Let me share with you some of the specific examples. On June 25th, we announced that we'll be investing in NEC, and that initiative involves the following. We are having a very heated discussion right now, and in 3 major phases, we're trying to consider the development going forward.
In order to pursue multi-vendor situation, it's important that our RU equipments be connected through open network, open connection, and expand globally. The control units, all the vCU, these control units. They should be driven by virtual software and developed based on a new system. On top of that, what we would have is our strength, which is operation, and also flexibility and advance and reliability. These functions or these features would be offered on top. What we want to do is to deliver this to other vendors and to other carriers as well. On the right-hand side, you find reference to software and NEC with software technology, production technology, and also the ability to use them at DOCOMO and also NTT DATA as LSI. Both coming together, we can offer installation support and maintenance and operational services.
We believe that we'll be able to expand our business in this fashion. That being the case, when this model is achieved, what type of universe are we going to welcome? This is the integration of mobile and fixed-line technologies for core networks. The left-hand side shows mobile network and fixed-line network. These are two independent networks right now, but with softwarization, then based on virtual platform, we'll be able to integrate them. What are some of the challenges in the connected world? For example, in the case of Zoom, the telecommunication with your friends, and also when you have connection for mission-critical functions, and also when you want the connection for government agencies.
If you use SNS and other meeting systems, the authentication and reliability issues are really going to be critical. By using the softwarization and platform, the authentication, security authentication, building security, XR device management, and contents, we believe that we're able to offer them because we have the advantage and know-how in these functions. On top of that, we'll be able to offer trusted service. That is the platform which we want to deliver. At the same time, it's important that on our own, we also have the ability to deliver new services. Also, it's important that with other partners, we provide trusted remote services through collaboration with those partners. We believe that is the services that we are offering in the context of remote world strategy, which is the first topic. The third pillar, which is the worldwide promotion of R&D.
Let me explain about this particular topic. From about two years ago, our president, Mr. Sawada, when he was appointed as the president, he talked about the road to IOWN. The major pillars are as follows, but the primary pillars are All-Photonics Network, number 2, and also Digital Twin Computing, which is number 3, and the Cognitive Foundation. These are the major elements. Now, this time around, with DOCOMO becoming a wholly owned subsidiary, then the wireless component, this was not connected up until now, but this will now be connected with a very strong connection. Therefore, wireless, All-Photonics Network, Digital Twin Computing, all these functions will come together. That being the case, how can we leverage our strength in these different facets? I would like to talk about this one by one. Let me talk about our strength in wireless.
Right now, the 5G universe is expanded. These are simply area coverage for smartphones on a land basis. 370,000 sq km in area. In Japan, we have the exclusive economic zone. We have 2.45 million sq km if you include the waters, such as the exclusive economic zone. We need IoT world that can cover not only land, but also massive water space. In order to achieve this, it means that we need to further advance the current 5G technology or also pursue deployment in outer space and sky. It's important that we expand the coverage rather into outer space and sky. In the case of space, we have the pace of communication with satellite needs to be further expanded but tenfold. NTT has already verified that.
We have partnered with JAXA, and right now we have various satellites, 10,000 numbers from space, and creating constellation. We have initiatives where we will be able to offer communication through in this constellation version, at 294 MHz, which is the platinum bandwidth. We've used this platinum bandwidth, and with very inexpensive terminals, we'll be able to have communication with space. We're trying to promote that technology. Space-level coverage, we hope that we'll be able to further promote going forward. In terms of under sea, be it aquaculture and also wind farm, it's important that we be able to monitor what is going on under sea as well as above the sea.
If you cannot reach the deep area, there's still many unknowns, but we have 300-meter class or mega class, the high-speed sea exploration technology, and therefore we will combine this technology to have the true IoT wireless network that connects the land, ocean, and lead the world. DOCOMO, the other day, announced 6G, beyond 5G, and so extremely high data rate capacity, extremely wide coverage, extremely low energy and cost, and low latency, high safety, reliability, and this extremely massive connectivity, it will be covered from the outer space, and therefore multiple devices need to be connected at the same time to make this work. The speed and the simultaneous connectivity will be 10 times more than 5G. Furthermore, we have to support the smart society, so the reliability has to be 2 orders of magnitude higher.
Backed by TOB, Z-Wireless, DOCOMO and Research Institute can lead this technology so we can once again take on the challenge to lead the world. We have the core technology to do that. Second point is All-Photonics Network, APN. It is a bit complex, so let me explain. Currently, in this diagram, the IP network at the bottom and PSTN are the mainstream IP network. Why this was so innovative was the DoD, Department of Defense. Even if one communication network is damaged, it can still function. Put in IP packet network, send to the recipient, and look at the POP and deliver. To counter the attack, all the communication data was integrated under this network.
In the sender, plus bit, this is priority, this is highest priority, can be flagged. Voice, which was the biggest profit maker, was put into the IP and send it real-time because it's high priority. Right now IP network integration is now underway, this was very innovative. Going forward, many traffic will become end-to-end. IP weakness is emerging. First of all, to do packaging, there is a delay, and you have to look at the routing. There's routing delay latency. This has to be resolved. Otherwise, this red to blue, the smart mobility, smart city healthcare, as the integrated network, it is still not enough. End-to-end optical network has to be established. In mobility, multiple video need to be reflected to the transportation at low latency.
In healthcare, many people's health information, even with slight smart delay, has to be archived. This is a completely different requirement, and we, in our network, has to provide that to provide digitalization and smartification. That's the kind of communication that we have to realize. With this optical network, what is our strength? LSI. In the optical communication, we have led the world. Fiber is not dependent on coding. With Internet, Global Crossing, when the widespread broadband increased, we led the world to increase the wavelengths. This time, we have to go beyond the limit of Moore and go into the miniaturized world of the opticals to reduce the power consumption and have enough capacity. NTT is leading the world there. More specifically, it is the integration of photonics and electronics.
This strategy is our technological development that we lead the world, and the component level chip 400 GHz transmission equipment is already in the commercialized stage, and we can offer this by next year. Next is chips. Inside chips, we will incorporate optics to chips. The latency to convert to electricity or the power consumption converting to electricity can be reduced. Intel and NVIDIA are now coming on board. Processor, we are starting from the communication device. The computer processor or GPU server, these can be integrated in photonics and electronics for higher efficiency. We are leading this research among the top players in the world. The third component, this is the Digital Twin Computing. This is the world of computer. This shows Digital Twin Computing.
The real world is created in the virtual world and conducts simulation to forecast the future or manage the health or enhance efficiency to digitalize society. Left side is the personal level, and the right side is the national level or town, city level, and globe. The AI data science efforts, for example, in the Smart City, we are doing this in Las Vegas or Woven City with Toyota in Smart Agri and Smart Chain with Mitsubishi Corporation. We are taking on many challenges. We are honing these use cases, and this is the world of competition now. Other than that, we have other strengths too, and that's what I want to touch upon today. Two points. One is for the digital platform. In the digital era, this is a must. Digital map is a must, and we are running at the forefront.
Another is healthcare. Digital data. When we collect medical digital data, it is precise. You need a precise, dedicated sensor. The optical and audio technology is something we have. The device technology is what we are trying to promote. The first digital twin 4D digital platform. For example, Zenrin or HERE, the overseas player, we formed alliance, capital alliance, Google Maps, and others. There are many semantic information, where houses are, where are stores, and what transportation network exists where. That alone is not enough in the digital era because the precision is low. Zenrin map is by meter. It's deviating by meter, but if the person is walking, it's using for walk, it's okay. For autonomous driving or for the infrastructure development to dig underground, then it has to be the error can only be 10 cm at most, otherwise it's not functional.
4D, the vertical and horizontal and depth. The vertical and height. You have to have the map of the height and depth, otherwise Kubota and the heavy machinery manufacturers, you need to have digital instruction to show the height and the depth underground. That's 3D. In addition, timeline. With timeline, you can see the deterioration comparing with past data, the health or the geographic data, or how environment is changing. You can see all that. 4D data digital platform is now used advanced geographic space information database. The right side is the business use case. The navigation, high precision location navigation, and the smartification in industry, and the city design, we are trying to apply in these areas. Next is digital twin device. Various cases here, and some are commercialized. Wearable electrocardiogram with Toray.
Our sensor is embedded in fiber to always take the electrocardiogram vital data. Other than that, the temperature inside the body, and with AI stethoscope, we can have Even if you're not an expert, you can take the pulse very accurately. Implant, sensor is embedded in implant. On digital twin, it can be reproduced. By combining with your heart, we can use this technology. This optical technology, we are leading the world. Terumo and other manufacturers will be making the products, but we have the core technology. That is what we are thinking and pursuing, our core technology that we excel at. Now, one more new area. Wireless and fixed line and computer are integrated in this world. We think this will be disaggregated.
What I mean by that is the computer power, the left side, the red one, currently the network, Amazon and Microsoft Cloud, it's accumulated there and processed there. In terms of collection, it is efficient, but it uses much power and the collected data needs to be converted to electricity again to analyze. The process speed and it is not efficient. Network and computing need to be modularized. Some will be on-premise, some will be end users, some will be core network or Amazon Cloud. It will be distributed. As you see at the top, the computing that can support the society will be required. It says OS. We want to optimize this in totality. The operational scheme in NTT Software Innovation Center is now addressing this challenge. This discussion is now just starting in the world. We want to lead this endeavor.
My time is almost up. I talked about NTT's medium-term strategy, promoting with technology, and I talked about many new developments, the use cases or the progress. On November 17th to 20th, we will have an R&D forum online. President Sawada and Research Lab Center, Kawazoe-san, will do a presentation like we did today in more detail. Show you some actual examples so that you can directly experience. I hope you could enter and attend. That concludes my presentation. Including the large scale deal, we want to support the society and help realize the digital society from technology. We want to lead the technology. I ask you for your continuous expectation. Thank you very much.
The first question is from SMBC Nikko Securities, Mr. Kikuchi. Mr. Kikuchi, please go ahead.
Thank you very much. My name is Kikuchi. Thank you for your presentation. I was able to identify very interesting topics, and I would like to very much study about these topics going forward. If I may ask a question, sir, about R&D organization. Within the group, the operating companies have different research and development organizations. Now there's been a major shift in the transformation through this deal. I would imagine that that is going to be the case, possibly. I know that the specifics of what you're going to do are not determined yet, but if you could share with us the policy with regard to the structure of your R&D going forward.
Thank you for that question. As explained in the course of our presentation earlier, as Mr. Kikuchi, you mentioned, the role of R&D will become even more important down the road. At the same time, we're going to have a tender offer for DOCOMO. We want to make sure that we're fully connected to the IOWN, because we had a part which was not yet connected. Because wireless is going to be so critical, it's important that this component be part of the IOWN concept. This is the top priority for us. With regards to reorganization, of course, it's a matter of what type of organization we're going to create. This wireless part, holding companies, R&D will talk about outer space and also undersea Wi-Fi, they're very strong. In the case of DOCOMO, they have strength in 5G and also strength in the 6G, which will follow.
It's whether we converge these two so that in the wireless area, we'll be able to accelerate R&D. Without a doubt, that will be the top priority for us. One other point, with regards to R&D itself. With open innovation, we need to involve various global parties. Therefore, it's important that we accelerate our global activities, and for that purpose, we need to create such a team. We're going to focus on this global-oriented team even more as we go further ahead. It's important that the emphasis of R&D be further strengthened in the management. That is all. Thank you very much. That is all.
Thank you very much. I know that there are a lot of study groups and tours that you're carrying out in various parts of your group, and you are very highly motivated. I'm not sure whether or not this is included, but I hope that with NTT Data as well, I hope that you'll be able to do something that can translate into concrete output. It's important that you provide some economic analysis as well, so that we'll be able to have a dialogue with you. I would appreciate some sort of explanation about how you intend to advance your organization going forward. Thank you very much. Thank you. Yes. Thank you. Thank you for your encouragement. We will certainly do our best. Thank you for those comments.
Thank you very much, Mr. Kikuchi. Next question is Nomura Securities, Masuno-san. Mr. Masuno, please.
I have two questions. First, as you mentioned at the outset, network virtualization, CU/DU virtualization, vRAN. Altiostar is already realizing this. What is the difference and the future progress? How do you see the future progress? You will do this in parallel with O-RAN? That's my first question.
Thank you. As you correctly mentioned, Rakuten and Telit, vRAN with Altiostar is already being commercialized. Our difference with Rakuten is the ones that can build with zero base are introducing vRAN, and other global carriers, including Rakuten, have the existing networks and migrating to virtualization. That's the challenge they have to overcome. We want to build the virtualization that can meet those needs. Altiostar, we will consult with them initially to move forward. However, as I mentioned in this material, what we are trying to pursue is NEC, the O-RAN, CU/DU, not just the virtualization there, but furthermore, core network, white box, and software. We are trying to go that far. Our R&D team will be involved, and with Intel, working with Intel and other players.
Thank you. My second question is about the semiconductor, optical semiconductor. In terms of IR, this is ESG social contribution. The power consumption may be reduced by 100th. After this spring, Intel, Microsoft were invited. A few dozen companies came up with the standard and moving towards the commercialization, taking steps towards commercialization from R&D. This is an aggressive short-term target. The commercialization is targeted in five years' time. The current progress, the current status, and the outlook, if you could update us once again.
Thank you. What is mentioned here, 400 giga transceiver. On the silicon, the optical will be included, and a power consumption version can be launched next year. The next one, interposer. In chips, electrical circuit in chip will be done optically. Chip-to-chip connection will be optical. Package will be made to optical. In the end, we will build chips optically. In the meantime, in the next two to three years, optical interposer device can be realized. We will go in phases, and in the end, the optical and electric will be integrated. This photonic electric convergence will be released as soon as possible. The global standard is already underway. IOWN Global Forum, NVIDIA is now involved. Intel, NVIDIA are now part of us. Open innovation standardization will be pursued, and co-innovation, collaboration will also be established. Various strategies will be utilized as we move forward. Thank you.
That's all. Thank you.
Thank you very much, Mr. Masuno. I'm afraid because of the time constraint, this will be the final question. This will be the last question of the session. Next question is from Citigroup Securities, Mr. Tsuruo. Mr. Tsuruo, the floor is yours.
Thank you very much for this opportunity. I hope you can hear my voice. Two questions. My first question relates to Masuno's previous question about O-RAN. You mentioned that some will start from pure, some will start from brownfield. Very briefly, what are the advantages and disadvantages of these two approaches, starting the pure approach and the brownfield approach? That being the case, how does NTT intend to offset any negatives that could be suffered by the companies who follow the brownfield approach?
In terms of virtualization, the packet core virtualization is something that DOCOMO has already begun to launch significantly. As a replacement, virtualization can be introduced in certain parts. EOL timing. In other words, once the equipment needs to be replaced, then we will be able to replace that. Already in some parts, this is being done. On the other hand, in the case of CU/DU, RU/DU, as I mentioned earlier, this interoperability between these components need to be considered. They have to be ensured. This is the area where regardless of any combination, you have to connect to vRAN, virtual RAN. Sorry, it is not yet done. This is one that we have a decision where everything can be connected to vRAN. Making sure that we ensure connectivity of existing systems with vRAN, and then pursue replacement.
That type of approach needs to be pursued. Right now, 5G is expanding. In the case of rural communities, we can use the greenfield approach. In those approaches, we can actually deliver and introduce and launch virtual from the beginning. It's important we have a good combination between the existing system, reduce the CapEx, and at the same time, make sure that we leverage the strength of the virtual platform. If I could ask a follow-up question. When you make this coordination, do you believe that you'll be able to overcome the gap with companies that are able to follow the greenfield approach? Well, as you point out, what is the pricing? What can we deliver? That's something that we need to scrutinize further.
Thank you. My second question. I'd like to go back to your partnership. I know that.
What is the competing technology vis-a-vis IOWN in relation to 6G? That being the case, in order to have a de facto victory, what are some of the focus, emphasis that you need to focus on? Of course, partnership is important, but what is the emphasis you're bearing in mind when you, as you try to create 6G de facto standard? You're talking about competition between 6G and IOWN? Is that what you asked? No, no. That's not the case. I think in the case of optical semiconductor, this is very important to drive 6G technologies. Is my understanding correct? If that is the case, then is there a standard technology that can compete in the context of 6G? If you want to compete with such technology, what must be done? I guess that is just that my questions.
Yes, perhaps my explanation was not sufficient. In the case of 6G, we are trying to expand to the wireless technology, wireless universe. In the case, the main target for the photonic electronic convergence is to create All-Photonics Network. We want to apply the All-Photonics technology. It is not a direct competition between the two, but the wireless world also needs to incorporate digital signali processor. They need more advanced digital signal processor. That being the case, so photonics and electronics convergence could be applied in that particular area as well. In terms of any competing technology, well, how far can the non-photonic electronic convergence world advance? I guess that is going to be dictating factor. We can say about collaboration, but Intel and NVIDIA might decide to further brush up their existing technology. Class competition is going to be the key.
How advantageous can photonics electronic convergence be? These two companies are now part of the IOWN partnership. That is because we believe that they want a new perspective. They want to be involved in this new LSI development. Unless they're involved in this development, then they will not be able to overcome whatever boundaries or obstacles that may exist. That being the case, I do hope that they will further be involved as partners in this initiative. Thank you very much. That is all.
Thank you very much, Mr. Tsuruo. With that, we will close the Q&A session. Thank you very much, Mr. Shibutani. Next, second theme, global strategy. Global business promotion office, Mr. Ozaki, and Mr. Nakayama, Senior Vice President and Head of Finance and Accounting, will do a presentation. Mr. Ozaki has been involved in the global business all along, and three years from 2016, was in Hong Kong, NTT Com Asia President of local subsidiary. The overseas data center launch and enhancement had been his business. He has led the global business of NTT. In July this year, he became Global Business Promotion Office Head. Today, we will talk about the overseas company, NTT Ltd., that was launched last year, the progress of the business reform, and the future business strategy.
Nakayama, Senior Vice President of Head of Finance and Accounting, will ask questions, and Mr. Ozaki will respond to that. It will be a Q&A session. Mr. Ozaki and Mr. Nakayama, please.
Thank you very much. My name is Nakayama, the Head of Finance and Accounting. As was introduced by the moderator, I would like to pose questions that are heard from investors on a day-to-day basis. Based on that interest of the investors, I would like to ask questions to Mr. Ozaki, who is the Senior Vice President and Head of Global Business, in this dialogue. Also, we will set aside time to accept questions directly from the investors. We hope that you will take part in the Q&A session as well. Without further ado, let's start the session. Mr. Ozaki, first of all, NTT's global business reorganization was carried out in July last year, starting in July, and NTT Ltd. was established anew in July of 2019. Can you talk about the activities of last year at NTT Ltd.? If you could share that with us. Thank you.
Yes, thank you very much. Thank you very much. I was appointed as the Head of Global Business since July this year. My name is Ozaki. I really appreciate this opportunity. As you are aware, in July of last year, NTT Ltd. was established. NTT Ltd. combines NTT Communications, Dimension Data, and NTT Security. 150 companies have come together to create NTT Ltd. In each of these three companies, we had presidents, we also had employees for Dimension Data, NTT Communications, and NTT Security. It's been a great aggregation of a very large number of people and companies. That being the case, it's important that our line of vision are totally aligned among the total employee base. We wanted to prioritize expansion of profit, not scale.
The second is that we shift to value-added services that are more profitable in nature and deliver value to our customers. Focus on value-added services and shifting to value-added services. The final point was that we implement structural reform by the end of the year. That's what we try to keep in mind. Last fiscal year, we launched the structural reform, and we were able to implement structural reform. In terms of the most recent financial situation, because of the structural reform, last fiscal year, we had very large deficit, but now the structural reform benefits are now beginning to be seen. Therefore, I believe the company is back on track to drive profit. This fiscal year, we have a target of JPY 5 billion as a profit, and we're making efforts as a team to achieve this.
The progress up until August has been very robust so far. Because of COVID-19, the greatest risk is that our sense of urgency become lax. It's important that we not become lax, and that we further accelerate reform. Let me talk about the percentage of the value-added services. If the company is to become further profitable, and if the company is to drive profit in a stable fashion, it's important that we increase the percentage of profitable business, and we have a situation where we have a structure where we can continuously drive profits from value-added services. Last fiscal year, 32% of sales was the percentage, this fiscal year, in the COVID-19 universe, value-added services are actually increasing. 36% of sales will be achieved, by 2023, we hope that 50% of our sales could be driven by value-added services.
That is the reform and improvements which we're trying to drive as we speak. In terms of examples of value-added services, let me try to explain what they are. This is an example from North America. In North America, the usage of cloud is by far most expeditious compared to other regions. These customers, their mission-critical services are shifting from their customer premise to cloud in a safe environment. There's a demand that customers be able to migrate their mission-critical servers from on-premise to cloud, which means that they have a high-performance environment. Not just in North America, but specifically Europe and Asia included, they want to pursue IT reform. That type of demand is quite prevalent. That being the case, in the case of North America, we have private cloud services being used. In case of Europe, we have data centers.
In Asia, Microsoft Azure that was being utilized by customers. We are accommodating multi-cloud environment and offering managed services. That is the type of proposal which we provided to this particular case, and the customers ended up choosing our service at the end of the day. By reflecting value-added services, we were able to resolve customers' issues. We were able to come up with an IT plan together with our customers, bearing in mind for those elements. Next. From March through July this year, we had spread of COVID-19 on a global scale. At NTT Ltd., we offered NTT a safe remote work environment. More than 5,000 remote offices environments were developed, also we offer security environment for the customers. We're involved in this work.
As is the case with the program today, it's very difficult to have face-to-face events, so digital event services is now being proposed to many of the customers. From this point onwards, if NTT Limited is to further drive profitability, what is required? There are two elements. First is sales transformation, and the other is improved business productivity. Let me talk about improving global operation efficiency. This activity has already been launched. It is a shared service center. This is a consolidation center for various operations. In April this year, we decided to establish two such centers. One is in Romania, the other is in Malaysia. Here, operational support services and also personnel and accounting services were consolidated. We innovated the IT system and improved cost efficiency. We are expecting JPY 50 million cost reduction from fiscal 2022 to fiscal 2023.
That is our expectation. What about sales transformation? A question. This is something that reviews go-to-market service and go-to-market strategy, the customers will be more incentivized to use our system. Around 1,700 customers are there, we decided to categorize, re-segment these customers. Digital transformation, IT modernization of all these companies will be coupled with our value-added services. We wanted to put proposals to these companies. That being the case, we decided to recreate the sales system based on this new categorization. Based on One NTT concept from October this year, we'll be further accelerating our sales effort based on One NTT strategy. Sales transformation and go to market, reflecting such services and shifting to value-added services. Also cost efficiency improvements by using shared service center and improving our cost efficiency.
With this, we believe that this fiscal year, as things stand right now, our operating margin is 2.6%, approximately JPY 300 million. That's our profit. We want to improve this to JPY 10 million, and operating margin of 7%. That is our goal. That is all. Thank you very much.
Thank you. Allow me now to ask three questions to Mr. Ozaki. Ozaki, rather. My first question, the impact of COVID-19, that is what I would like to ask. Fiscal year 2020, the guidance for fiscal 2020 for overseas sales is JPY 120 billion impact. Also in terms of operating income, JPY 25 billion negative impact is being foreseen. That number has been disclosed. What is the current situation with regard to such negative impact? Also, I would assume that this might be a difficult question for you to respond to, depending on how the situation evolves. After next fiscal year, what is going to be the likely situation? Can you try to envision what is going to be the situation for the next fiscal year? Thank you very much.
The impact of COVID-19. For this fiscal year, in the first quarter, the impact in terms of sales at NTT Ltd. was JPY 16 billion impact. On a full year basis, we believe that close to JPY 80 billion impact is likely to be there for sales on a full year basis. That is the current plan that we have. On a monthly basis, we cautiously monitor the situation. At NTT Ltd., we've established this plan, and we believe that the situation is very much in line with the plan which we have established. The impact on sales right now, up until the month of August, is roughly very much in line with our projection.
8% in terms of the percentage, in terms of the impact on sales is seen, especially in Asia. We are beginning to see significant impact in sales in Asia. Now, turning to NTT Data. Right now, the financial impact of COVID-19 is not yet prevalent. Primarily based on North America, the order taking is beginning to slow down. Going forward, there could be potential impact. We are cautiously monitoring the situation.
Right.
Second question. The investors' biggest interest is the international global business. The medium-term strategy, what is your financial target in fiscal year 2023 at $25 billion, and 7% operating profit margin. On the last page, you talked about related activities, the image of the activities. If you could quantify this, 2.6% in three years' time will go up to 7%. If you could quantify this a little more, please.
This year, $300 million is the profit target. In fiscal year 2023 is $1 billion. It's a challenging goal, but we will take measures one by one and accumulate block one by one. With that, we think we can achieve this target. As I mentioned earlier, sales transformation will be driven from October around the world.
This activity, from my experience from the front line, will take a little time because the customer's IT challenges need to be heard carefully, understood and planned, and budget need to be secured and have our services used. It takes time for our service to be installed. The activities that we've taken so far will become orders in one year time, and in fiscal year 2022 or 2023, it will have a positive impact on our financial results. I think that's the kind of timeline. The key here is, in the meantime, from now to fiscal year 2021, we need to take measures of the business process optimization expeditiously. By reducing cost, we can have competitive price. If the customers can choose us, then it will lead to profit. This is something we have to do.
By having two wheels of a car, 7% can be achieved in fiscal year 2023.
Thank you. In your explanation, you talked about the sales on the offense side, how the high-value-added service can be grown. This is important, I understand. In your presentation, you talked about the high-value-added service ratio of total sales. The graph, if you could project that slide. In IR Day last year, NTT Ltd., Jason Goodall, CEO, talked about 50% in fiscal year 2023. We are frequently asked by the investors that the 50% high-value-added services, data center, managed service ratio, or the breakdown. We are asked to give the breakdown, rough breakdown.
Could you enlighten us on that? Data center, 30%, managed service, 30%, network, 20%, and cloud communications, this is voice service, is the remainder.
Understood. Thank you. Data center, 30%, managed services, 30%. Those two account for a large portion. One additional question.
Data center, managed services, market size. How do you think the market will evolve? Will this grow strongly? As the player in the market, what do you think is NTT's competitive edge, differentiation that allows us to capture market share vis-a-vis the competitors? What do you think are our strengths?
Thank you. Yes. The market size. The global market size is JPY 40 trillion. Especially the cloud type managed services is now growing strongly. The growth is around 20%, JPY 8.5 trillion, 20%. Data center market size is around JPY 13 trillion. Growth is 10%. Our current status is, in managed services, North America is strong on a year-on-year basis. 30% growth, although the sales is still small. Data center is now also growing at 15%. This is where we stand at. Our strength, as mentioned here, we have global network and data center and cloud service platform that can allow us to offer managed service. The global capability. Another strength is our relationship with our customers, customer intimacy. We can provide good service backed by good technology and automation, and that allows us to generate profit. That model is our strength.
Thank you.
The first question is from Nomura Securities, Masuno-san. Mr. Masuno, you have the floor.
Thank you very much. Two questions. My first question is about the data center. You talked about the strength. You mentioned the strength for the NTT Group overall. With regard to data centers, if the migration to cloud is accelerating, and in the post-COVID-19 universe, I believe that this will continue to project very strong growth. In terms of comparison with your competition, what is your strength? I know that there are variances and differences from region to region, but in terms of Digital Realty Trust, Equinix, what is the difference between your competition? That's my first question.
Yes. Thank you. Well, DRT, Equinix competition. What is the comparison between our competition such as DRT and Equinix? As I mentioned earlier, network cloud data center included, NTT has the capacity to provide total comprehensive services.
In the facilities that we deliver, we're able to provide very robust management and deliver that to our customers. We believe that represents our strength. The customers' demands and requirements are changing. For example, back in 2016, when I was in Hong Kong until 2009, this was at a time when customers were beginning to explore the possibility of cloud in Asia. At that time, we had data centers and cloud migration, and we were trying to drive migration to cloud. We provided very meticulous technical support to our customers, and we were able to support customers' migration to cloud. We actually offered the implementation of cloud as well. This is something that we really cared about and we emphasized. Well, in the case of North America, I think you'll begin to see increasing capacity for hyperscalers.
You talked about JPY 100 billion data center CapEx. You mentioned that you're going to continue this caliber of CapEx for data centers outside Japan. How sustainable is this investment? Also, as NTT and DOCOMO work together, I know that there are possible talks about selling some of the assets and incorporating REITs. What about the possibility of taking off balance some of those assets going forward?
Well, first of all, with regard to the investment, the requirements of the hyperscalers continue to be very robust. Up until 2023, we believe that this will continue to a certain degree. At the same time, though, it's important that we become an asset-light operation, that we have that very strong mission. Taking assets off balance, that is something that we're pursuing in parallel as well.
I see. Thank you very much. That is all.
Thank you very much, Mr. Masuno. Next question is from SMBC Nikko Securities, Mr. Kikuchi. Mr. Kikuchi, please.
Kikuchi speaking here. My question overlapped with Masuno-san. It was about the expansion of the scale of the data center, but it was answered, so I'm fine.
Thank you very much, Mr. Kikuchi.
Next question is from SBI Securities. Mr. Moriyuki, please.
Can you hear me?
Yes.
Earlier, you talked about your strength, managed services. What do you think your weaknesses are vis-a-vis your competitors? In what time frame, how do you plan to resolve those weaknesses? Yes. Private cloud service is our core to deal with the cloud, migration to cloud. Our customers, some have needs to migrate to public cloud. In case of migration to public cloud, our customer support and the various automated performance monitoring and patch for security problems, these are routine tasks. Customers, as managed service, we do these businesses for them. Our cloud service is making profit automating this at high efficiency. Once there's migration to public cloud, we cannot do all these services for them. It's a market trend, so public cloud security strengths will be explained. We will explain our strength in private cloud and support the public cloud too.
We can support to a certain extent. That is what we will do in the sales activities. Any initiatives on the public cloud side? You will continue what you are doing now after migrating to public cloud, or are you going to take any particular actions in public cloud? We announced a strategic alliance with Microsoft the other day. Our strategic partner, Microsoft Azure service, will be offered to those who want public cloud. That's our policy. A managed service can be provided in that opportunity. You will expand that going forward? Yes. This strategic alliance, to go to market, service development, it covers a wide range of areas, so we will drive this forward. Thank you very much.
Thank you very much, Moriyuki-san. I'm afraid in the interest of time, this will be the final question of the session. Next question is from Daiwa Securities, Mr. Ando. Mr. Ando, you have the floor. Please go ahead.
Thank you very much. I wanted to ask a qualitative question. I would like to ask about your feeling as an actual management of NTT Ltd. Let me first ask a question about the organization. Are you going to revisit your reporting line going forward? Have you already completed the restructuring of a reporting line? That's my first question.
Last fiscal year, this organization was established, the head office was located in London, the management team has been active since July of 2019. In principle, based on that management team, we're pursuing our business and operations. For example, depending on regions, starting from yesterday, actually, in the case of APAC and Australia, was integrated into one region. Very close as a region. The requirements of the customers are very close. Depending on the situation, the organization will be revisited, but the basic policy will follow the situation we established last July, which is having head office in London and having hub offices in other regions. That principle structure remains unchanged.
Is it correct to understand that the reporting line follows a very well-entrenched top-down system?
Well, let's say that with regard to integration policy and the intentions of the management team from the head office be projected to the various regional sites, that needs to be important. Yes, it has to be directional in support that we get, we'll be able to get feedback from the people on the ground. That is very important in terms of the governing structure. Compared with the time that we launched the system last year, I think that situation has really significantly improved.
Thank you. My second question. Especially in North America, we see a market that is very dynamic and very rapidly changing. If you could just share with us your impression. You mentioned that value-added services accounting for 50% of the sales going forward. I guess my question is, as you try to migrate to this platform, if you are making progress, do you believe that you are in a position where you're able to reach your targets ahead of your competition? Do you believe that the targets you have set are simply in line with the prevailing situation? In the case of North America, we have companies that operate data centers, we have managed service operating company, we also have a network company as well. We have the head office, and we have a very robust sales team there.
Up until now, in the context of NTT Ltd., we would provide proposals to the customers. We are now beginning to receive orders for value-added service projects, inclusive of value-added services and data centers. We believe that going forward, together with our sales force at NTT Data, NTT Ltd. will be able to propose value-added services to NTT DATA's customers. We want to accelerate One NTT team activities going forward. I hope that you look forward to the results. It might take a bit of time, but if we start now, we believe that by next fiscal year, we'll be in a situation where we're able to provide very positive proposals that also reflect value-added services. That will lead to new order taking, and we hope that this will further bring about results in 2022 and 2023.
That is my expectation, and that, I believe, is the expectation on the part of NTT Holding Company, and we want to make sure that we drive this. Thank you.
Thank you very much.
Thank you, Mr. Ando. With that, we will end the Q&A session. After this, we will have a Q&A session, so please ask more questions there. Mr. Ozaki, Mr. Nakayama, thank you very much. Thank you very much for your attention. Next topic will be NTT's governance reform. Senior Executive Vice President, Mr. Shimada, and Independent Director, Mr. Sakakibara, will be joining us on stage, and we will have a dialogue-style presentation format. Mr. Sakakibara served as the President and Chairman of Toray Industries. For four years after 2014, he served as the Chairman of Keidanren, Japan Business Federation. He was involved in the delivery of Japan Society 5.0. He contributed to the development of Japanese economy.
Ever since he was appointed as the Independent Outside Director of our company in 2012, over the past eight years, he has provided very constructive and very candid, valuable advice from a very objective position. Today, he will share with us his thoughts about the situation of NTT's efforts to reform governance, and also he will share with us what his thoughts are. We're looking forward to a very wide-ranging dialogue. I'd now like to invite Mr. Shimada, Senior Executive Vice President, and Outside Director, Mr. Sakakibara, to the stage. Thank you very much.
In this session, we would like to focus on NTT's governance reform. When we take a look at the history of Japanese corporate sector's governance, how has NTT addressed corporate governance along the way?
As I mentioned earlier, Mr. Sakakibara has been our Independent Outside Director for quite some time, and we have invited him to the stage as our guest. Without further ado, shall we start our session? How was the corporate governance code introduced in Japan? In 2012, Abe administration was formed. As one of the third era of Abenomics, the government was trying to drive private sector investment. Therefore, in 2013, Japan Revitalization Strategy was formed. One year later, in order to further fortify this policy, strengthening of corporate governance was actually positioned as part of Japan's growth strategy. This was incorporated into Japan Revitalization Strategy.
At around the same time, at a study group under the Ministry of Economy, Trade and Industry, or METI, the investors and companies, it was pointed out that enterprise value being incorporated and enhanced through further dialogue with the investors and the private sector. The so-called Ito Report, Ito review, was announced. This report recommended that ROE target should be set at 8%. I know that the investors community had positive view of Ito's review. Many investors at that time pointed out that they very much like to see the Japanese companies deliver 8% ROE. In 2015, in a very speedy fashion, the corporate governance code was introduced. The task force under the Financial Services Agency and TSE, Tokyo Stock Exchange, together created this corporate governance. That's how corporate governance code was established in Japan.
This was at a time when Mr. Sakakibara was leading Keidanren as the chairman. Can you talk about how the business sector addressed the corporate governance question?
Thank you very much. As you pointed out, under the second question, in December of 2012, the second Abe government was formed, and revival of the Japanese economy was the top foremost priority for this administration. At the same time, under the Cabinet Office, Industrial Competitiveness Task Force was also established, and Prime Minister Abe himself chaired this session. The relevant ministers and also several representatives from the private sector took part. I also took part in the Industrial Competitiveness Council as the representative of the private sector, and we discussed the growth strategy. The issue presented by the business community back in 2013 was that the competitiveness of Japan was being undermined by six factors.
There were six factors that actually undermined the growth of the Japanese economy, that needs to be resolved. First was the strong yen. It was the JPY 80 to the dollar, we need to resolve the strong yen. Also the corporate tax was already at 35%, the highest in the world back then. Also, EPA, Economic Partnership Agreements. Compared to neighboring countries such as the Republic of Korea, we have very few. Also the energy cost, environmental regulation issues, and also labor code issues. We outlined six challenges that they need to be resolved in order for the Japanese competitiveness to be enhanced. That was the view from the business community in Japan. At the same time, we wanted to ensure growth by securing competitiveness. At the same time, it was important that we need to be more profitable as business community.
Members of the academia pointed out that in the case of companies in Europe and the United States, ROE was around 10%-15%, but the Japanese companies' average ROE back then was 5%. Why the gap? They analyzed the reason. The corporate governance was the key. In the case of companies in Europe, their perspective was based on interest of the investors. Outside directors were very much involved in this decision related to management strategy of the companies, in particular, growth strategy, portfolio review, and productivity improvement. They had very lively debate among the management and investors, and that led to the company's ability to drive profitability. In order to realize revitalization of the Japanese economy, corporate governance was indispensable. Therefore, one of the outputs of this Industrial Competitiveness Task Force was indeed this corporate governance related recommendation.
In 2016, the Japan Revitalization Strategy came up with this new policy. I was the chairman of Keidanren at the time corporate governance code really came into being. It's not so much the government showed the way. The government and the private sector together created this code. The industrial community was very much involved. Unless they pursue this code, they could not secure the growth of the industry. That's how this code was established. At the time of the corporate governance code, I was responsible for this issue within my company. Within a very relatively short period of time, it was spring that TSE announced this, and already in summer of this year, it was implemented. This was unprecedented, very high-speed implementation in Japan. The members of the Keidanren, how did they react to this?
Well, I was the president of Keidanren, and to the member companies, I tried to plea to the importance of the corporate governance reform. As you pointed out, it was very speedy. Within a very short period of time, we had to come up with a concrete plan. There was a sense of course, many in the business community in Japan were perplexed. Also back in 2014, there are a lot of different forms of corporate governance, Japanese way, European way, American way. Many Japanese companies felt that there was a Japanese way. One other point was that in the case of independent outside director, the significance of having outside independent director. How could independent outside director who was not well-versed in the management of the company contribute to the decision related to management policy?
Many Japanese executives questioned the ability of such independent outside directors. That is no longer the case. Therefore, introduction of outside directors initially was not done in a very smooth fashion. However, we had the corporate governance code, and concrete numerical targets were set. As a result, in a very short period of time, introduction of outside directors were implemented. For example, in 2015 back then, companies with more than two outside directors was only 20% among the companies listed on the Tokyo Stock Exchange. Now in 2020, 96% of the companies already have more than two outside directors on board. Also, 60% or more of the companies have more than one-third outside directors on board. There is the current situation. That indicates, I think we now have a very good situation.
That is because the corporate governance code, it was delivered as a concrete model by the government and to help equate the situation. That, I believe, is one of the outputs and results of the administration. I'm sure we'll come to this later on. We have form, but what is the substance? In terms of substance, do we have a situation for strong corporate governance management like the ones we have in U.S. and Europe? That, I believe, is the challenge.
Okay. Moving on to the next point. Corporate Governance Code has various principles. Especially regarding the board of directors, the responsibilities and the transparency are important themes. From your view, Mr. Sakakibara, which point do you think is particularly important? T
he top one is evaluation, the effectiveness of the board. The board is the most important, highest decision-making body of the company. The corporate strategy needs to be deliberated sufficiently there, and outside directors need to take part from the shareholder and society view. Leading the discussion from the societal view, shareholder view is important. In pursuing Corporate Governance Code, the company's growth strategy, profit generation will be pursued. From outside directors, the shareholder's view needs to be included to pursue the growth strategy. Compliance, it needs to be overseen, supervised. That is the most important role of the board.
Another point is the nomination and compensation committee. The growth strategy is an important component of the company, but nomination or denial, rejection of the executive from the shareholder's view. Rejection of the CEO may be necessary in some cases, and that takes time frequently in U.S. and Europe. The outside directors need to play a role there. At the same time, as you see here, for remuneration, transparency and the objectivity and the strategy viewpoint is required. The outside directors need to supervise from shareholder and social view. These principles listed here, to realize them, the outside directors have a big role to play.
Understood. Now let us review what NTT has done so far. Sakakibara-san, you talked about this as the most important thing, the effectiveness of the board, evaluation of the effectiveness of the board.
From around 2015, NTT has had the involvement of Mr. Sakakibara. The independent outside directors and the independent auditors had discussions. NTT DATA and NTT DOCOMO's outside directors and holding companies' outside directors had discussions. In various formats, of course, discussion with the executive side too. We've had many rounds of discussions. In addition, from 2018, directors and auditors survey questionnaire started. In the 2018 questionnaire, governance, organizational design, whether we should study organizational design more or not. For this question, 80% - 90% replied yes. We've been discussing this topic for one or two years now. How did you see this as you were involved in the discussion?
Yes. As you mentioned, from around 2015, the governance had been discussed in many fora. In the past two years after Mr. Sawada became the president, governance reform has progressed significantly, I think.
Us outside directors have been involved in many areas to be involved in the discussion on strategy. For governance reform from around 2 years ago, we started the discussion. In the course of this discussion, a company of NTT's size and a company that will pursue global expansion going forward, NTT's governance structure, organizational design, eventually need to have companies with nomination committees. Needless to say, the executive side and the supervision side is clearly divided. The 3 companies, nomination, remuneration, and audit committee, will have the independent authority, and the majority members will be outside directors. The overall outside director will account for a majority in the overall directorship. The supervision, that is the ultimate form of well-supervised format. That is what we suggested. You conducted the organizational design this time.
As you mentioned here, the company with corporate auditors is maintained, but you have a big reform. You have the executive outside. You had 15 members before the change and two outside directors. After the change, the total is eight directors, of which four are outside, four is internal. One is non-executive. Executive is three, non-executive is five. This is a well-governed director structure, we think. One female in the outside director and two in the audit. In terms of gender diversity, we are making good progress. Another important point is this nomination and remuneration committee's role is enhanced. The transparency, objectiveness are ensured in the discussion. It was established in June, so we just got started. Starting June, NTT's governance structure has stepped up, I think.
Yes. As you just correctly mentioned, starting this summer, strategic discussions have become deeper because we optimized the size of the board. Another important point is diversity. Among the directors and auditors, of the 13, three are female. Under NTT Law, you have to have the Japanese nationality to be a director. Unfortunately, those with foreign nationality cannot become the director of NTT holding company. Instead, we established global intermediate holding company, and four foreign nationals are appointed to capture our global insight and knowledge. What do you think about that?
Yes. In this NTT's organizational reform, the directors and auditors, total three females are appointed. I think this is highly significant. Gender diversity is very important in the decision-making. In the U.S. statistics, female directors, companies with two or more female directors and the ones who don't, if you draw a line and compare the ROE between the two groups, there's a gap of 2%. Companies with two or more female directors, ROE is 2% higher. If the female are involved in the executive, the discussion becomes more active. The management decision-making quality is enhanced, and this is proving it. In the June organizational reform, three female executives are coming on board. I think it's an important step.
Originally, foreign nationals should be part of the structure. It would be the best. As you mentioned, in the case of NTT, foreign nationals cannot take part. It's such an issue for the future. As we are going to pursue global operations further, then it's important that foreign nationals be on the board as an independent director. I think that's the structure you should aspire to achieve. It's an issue for the future. We have two officers as executives as well, so we are trying to enhance that. Let's go on to the next topic then. Mr. Sakakibara, earlier you talked about the appointments and compensation committees, and that they have a very critical role to play. In the case of NTT, in 2005, we already had voluntary appointment and compensation committee.
Especially over five times, we had discussions for this subcommittee over personal management, and also with regard to compensation remuneration question as well. What are your impressions about the discussions taking place in those subcommittees?
In 2012, when I was appointed as the outside independent director of NTT, I've been a member of the appointment and compensation committee along the way. In the initial couple of years, we had the forum. What would happen is executives would present a personal plan. That was the nature of the meeting. As I mentioned earlier, under Mr. Sawada, we began to have more substantive discussions at the appointment and the compensation committee. Appointment and compensation committee plays a very critical role, especially when it comes to appointment. They play a very critical role, and that is the expectation, in particular for the company.
Appointment of CEO and President, this is extremely critical. That has to be determined with the viewpoint of the investors in mind. Decision of CEO, that should be fully deliberate at the appointment and compensation committee. It's not just a matter of presenting proposal. It's important that you have a long list, bearing in mind the candidate for the future. You should explain the long list of candidates. Along the way, through discussions, you should narrow down, then appoint the candidate. If you settle on the candidate of the CEO, that's the process which we proposed. In any event, that was the process which you actually took into consideration. I think I was able to play a role as a member of this committee.
With regards to executive officers, in the case of selection of executive officers, as was pointed out here, clarification with respect to missions and specifications needs to be done. It's important that we have a selection of diverse candidates. It's important that we select members from diverse candidates. As Mr. Sakakibara pointed this out, at the appointment and compensation committee, I believe the nature of the discussion in this committee really evolved. Let me go on. Procedures to determine the remuneration of executives. As you pointed out earlier, it's important that the corporate performance will be determined by the remuneration of the executives. Right now, the monthly remuneration and the bonus, we have 30% monthly remuneration and 30% performance-linked remuneration. That is the breakdown. In the midterm target, we pointed out various KPIs in the medium-term financial management strategy. We deliberate on these KPIs.
In terms of the KPIs which were set, what are your thoughts? If you could share that with us, Mr. Sakakibara. Well, fixed remuneration, monthly remuneration, and performance-linked remuneration bonus, you categorized into two. That represents a major progress. Also when setting performance-linked remuneration, you clarified KPI. That was very important. In the case of NTT Holding Company, you have a very wide-ranging business operations, all the way from IT to real estate, and also to global. Setting of KPI requires a lot of creativity. It has to be fair, clear, and transparent. Also, the KPI should be very productive, that's how you should determine the KPI to be adopted. That needs to be presented to the investors as well. That's how you'll be able to ensure transparency. That's the management design which we would like to see.
Well, right now, in the case of stock remuneration, this is an ongoing discussion, and I do hope that we'll be able to take a look at various global companies and also take a look at blue-chip Japanese companies to use them as a reference and deepen our discussion on this point. That is what we would like to achieve. I'm afraid we are running out of time, so let us now take a question from the audience.
Can I just say one last word? NTT and others, the corporate governance reform has progressed significantly. This is not the final form. The form, the shape is in place. More than 94% of companies have two or more outside, one-third significant majority. The operation that allows the proper function of outside directors, some are doing, others are only having the shape, the form, but not substantially, not in substance. Outside directors express the opinions for president's proposal, but do not oppose in some cases. In order to enhance the growing capability, it has to have good discussion. The outside director needs to be involved from the shareholder and society's view to allow for a high-quality strategy. COVID-19 has not settled, but in post-COVID era, what will the world be like? What will be the management challenges?
The post-COVID will be a completely different world. How should the management strategy be pursued? Until now, the shareholder profit had been a very important point, in post-COVID, of course, shareholder value is important, but society, contribution to society, will be very important. Environment, equality, or the narrowing of gaps, disparity, and SDGs. Companies need to address these challenges. Outside directors need to have the view of the society and view of the shareholders, and express their views clearly. This is the challenge for all the companies. This is what I have in mind recently. NTT's medium-term strategy is the resolution of social challenges. I hope you could look at us rigorously so that we can work harder.
We will now take questions. Mr. Shimada, Mr. Sakakibara, thank you very much for engaging this dialogue. Mr. Sawada, about the management strategy, I know that you will be leading the company for many years to come. I wanted to ask about the structure of the organization. To be more specific, you might say, "Oh, not about NTT Data again." You might, not again, but my understanding about NTT Data is that for the past 15 to 25 years, very little synergy was realized with that company. That is because the structure of the company, and the elements of the operation, there are many factors. I think it's going to be impossible for you to realize synergy with NTT Data, so there's a very strange demarcation in both, and you're actually a drag on each other. Why not sell off the company?
Why not find a new partner? I think that's probably better for the growth of the respective companies. That's my view, especially in the recent. It's been a couple of years since you became the president of the company. The latter half of Mr. Unoura's administration, they had a task force. Despite those deliberations, you have no concrete output, and I really can't expect any concrete output going forward. What is the meaning of hanging on to NTT DATA? What are your thoughts about my proposal that you sell off your stake in NTT DATA? I would appreciate your response. Thank you. Thank you, Mr. Kikuchi, for this question. It's a very bold view. To be quite candid, as far as NTT DATA is concerned, have I ever considered selling off of NTT DATA? I have given that a thought.
NTT Data from your perspective, and NTT Data from my perspective, probably are different. I think we view NTT Data in a different way. What about the future? NTT Data is thinking that they want to focus on consulting, and the world of IT is shifting to software. For example, Everis is right now providing the back end system for Telefónica. Naturally, this can be delivered in the 5G world as well. We are now partnering with NEC in creating various systems. That system can now be sold by Everis, could be sold by NTT Data. That model is becoming more visible. When we take a look at the future, there is indeed a universe where such synergy can be more easily created. Right now, the focus is on consulting. System integration that is focused on consultation and consulting.
It's important that they be part of NTT Group. It's important that we have such system integration player within the NTT Group. Actually, I'm hoping that this player will become the central player in NTT Group. Is there a possibility that the company could be sold off? That possibility is part of the many possibilities. However, for myself, I want to make sure that we hang on to NTT Data, so that we'll be able to deliver further synergy for the future. Have I responded to your question? You mentioned the future. What about the timeline? What about the sense of speed? Do you believe that while you're still at the helm of the company, some sort of output or results can be visible? Is that your sense? Yes, I believe it can become visible.
For one thing, for example, with Toyota, we are involved in Smart City initiative. We're trying to create a platform for NTT Data development team, NTT Labs, working together to create and develop such a platform to drive this autonomous drive platform. This is going to become part of the platform. We just talked about platform. It's important that various systems be implemented, introduced into the course, and this will require 5G system to drive this. Managing the system, that requires the capacity of NTT Communications. That being the case, the application that is developed by NTT Data, that could be actually, together with partners outside the group and also with the app companies, be sold off to other players.
NTT Data is going to be at the core of the B2B2X model, and we believe that this is something that can be delivered within the next couple of years. Thank you very much. If I may add one other word. With Mitsubishi Corporation, we're involved in value chain innovation. That also involves NTT Data. By expanding that, we believe that IT modernization can be pursued in both wireless and fixed line environment. This could be driven by NTT Data. This could be delivered much earlier on, I believe. Thank you. I just wanted to add that. Thank you very much for that. NTT Data, do they have the willingness to become the central player in NTT Group? I never felt that intention on the part of NTT Data. What about you?
Well, it's been two years since being the president of NTT, I've been talking about this quite repeatedly. I think Mr. Honma, the president of NTT Data, is now having that type of recognition. It's true that in the past, I would say NTT Data should be at the center.
They would say, "No, we want to be at the margins of the group." Right now, that type of discussion is no longer there. They are now saying that, yes. NTT DATA is saying that they are considering how they can support NTT in the collaborations. I think they're gradually coming to the center of NTT Group. Thank you very much. We're looking forward to that. Thank you very much.
Thank you, Mr. Kikuchi. Next question is from Macquarie Capital, Mr. Yamashina. Please.
Yes, this is Yamashina from Macquarie. Thank you very much. I have a question on the long-term view on R&D. DOCOMO, after becoming a wholly owned subsidiary, the Yokosuka and Musashino R&D roles and responsibility in IOWN, are there changes in the roles and responsibilities? Do you have any thinking there?
In IOWN, and the positioning of NTT DATA was just asked earlier, NTT DATA's positioning in IOWN, how should we understand that? Thank you. Thank you. First, including Docomo, the holding company's R&D and Docomo's R&D, will mission and assignment change? We have not decided on anything. We need to discuss that going forward. It's one of the important agenda items. I think we need to change. In other words, the basic research will be holding company R&D and Docomo combined, a new organization or holding company done by itself. The fixed line and mobile need to be covered both. The basic research need to cover both. On the other hand, Docomo will develop service and applications, and develop areas that are close to our customers. That will be done by Docomo R&D in a more enhanced manner.
NTT Comware and NTT Com R&D members will support that. I think it will be polarized. In IOWN is very broad-based. NTT DOCOMO is focusing on wireless format, next is 6G, but wireless software platform that is integrated behind the scenes. Shibutani-san talked about the integration. There is this integrated part. We want to work on that together, the mission will change in that direction. NTT Data's role, the system construction capability and the know-how and capability and expertise, Data has strong expertise there. NTT Data does not do basic research. Rather, with customers, with partners, the system will be built. The seeds in the R&D will be captured by Data in the downstream. Different from the past, the elemental technology developed in R&D will be developed into a solution, into data, by Data. For example, the system to detect abnormalities.
NTT Data is developing the solutions and sell them. data can be captured in upstream and downstream. Does this answer your question?
Yes, I understand. Thank you
. Thank you very much, Mr. Yamaguchi. Next question from Daiwa Securities, Mr. Ando. Mr. Ando, you have the floor.
Thank you very much. Ando here. I have a question about R&D and IOWN in particular. It's a very large and very lofty vision. In order to have global talent to commit to this, how do you intend to communicate this? Your ability to provide a narrative, what do you intend to do about it? For example, NVIDIA. Do you believe that if they work well, then you'll be able to get the global talent? Are you going to create a resource center so that you'll be able to capture global talent? Can you share with us your thoughts, if you will, and your policy about how to capture global talent?
Well, in terms of development, I think there's a need to consolidate those centers. That is true. Before we get to that stage, NTT Laboratories and NTT DOCOMO need to collaborate, and maybe we could create such a central organization where NTT DOCOMO and Labs can cooperate. Center for development and working with partners, that type of organization will be required.
As a precursor to that, IOWN Development Center, IOWN Development Office. IOWN Development Office is now established with an entity holding company. That needs to translate into concrete centers going forward. As you mentioned, Mr. Ando, to promote that and to provide a narrative so that people can understand what we're doing, that is an area where we have not done sufficiently. Are we going to do this? We're going to do this based on our own team or not? Quite recently, I hope that we'll be able to make some sort of announcement about what we're going to do. There's a third element. Right now, domestically, we have enormous amount of facilities, but All-Photonics Network that will be developed through IOWN, how will this be introduced? When we sell this outside Japan, what type of migration plan can we present and propose?
It's important that we set a very concrete implementation plan, and we need a team to promote implementation. Development, promotion, and introduction and delivery. I think we need 3 types of organization ahead, as we go forward. I hope I've answered your question. Well, in the case of NTT, I know that we can expect a lot from efforts to be made on the part of NTT holding company, but your ability to communicate globally based on English language, how do you see your capacity to provide such a narrative in English? Well, we have teams such as NTT Ltd., NTT DATA team also in Japan that are already out there. Also, the ability to promote IOWN. I think there's a distance between the two. Are we going to create such an organization or team together with our partners on a joint venture basis?
I think we're not yet at that stage. For the next year or two, it's important that we pursue opportunities whereby we make joint announcements. By the way, in the case of IOWN Global Forum, everything is conducted in English. All the participants must communicate based on English language. I believe the members who are participating in the IOWN probably will not feel any stress about communicating in English. I see. My second question relates to the first question. In the case of optical chips, when it comes to chips, technologically speaking, what type of chips need to be developed? It's very difficult to see from people outside the group. When we look back in history, behind the development of semiconductor, there's a large contribution from the development of SPEs.
In the case of photonics, in terms of cost reduction and mass production, de facto technology needs to be developed and need industries to support this initiative. What are some of the challenges you see as you try to further spread and develop the required chips down the road?
It is as you pointed out. When we take a look at the current semiconductor chips, there are a lot of complicated, long process involved in semiconductors and chips. The etching component, the etching part will be done through electronic form. No, that's not the case. We want to add photonics component on top of the chips etching. We don't want to use photonics, electronics rather. In principle, it's a semiconductor type of process. How do we implement the photonics-electronics convergence of component?
The device for the technology needs to be developed in parallel. NTT Laboratories and NTT Electronics, that is a subsidiary firm, they're already creating semiconductors. Although we have the ability to develop and produce photonics-electronics convergence, although not on a massive scale. How do we introduce such a line? We have a very small-scale line already. How can we expand that in the future? Naturally, Intel and NVIDIA, both companies are now shifting to fabless production. How do we identify production technology and with whom? That's going to be a major issue. Yes, I think your question is very much on the mark
. Thank you very much for that.
Thank you very much, Mr. Ando.
Next question is UBS Securities. Mr. Takahashi, please.
Yes, this is Takahashi from UBS. Thank you. I have two questions. First, in the first R&D presentation, the virtualization and IOWN were explained. As business, I think virtualization will be launched sooner as the business. Once again, including your global vendors, we are all moving in the similar direction. NTT, NEC collaboration, where is your strength, your competitive advantage, and what timeline do you have?
To have a positive impact on your financial results. The point I would like to communicate is this collaboration with NEC, and we are also in discussion with Fujitsu too. Japanese vendors in 4G and 5G device, we are still small. As Shibutani said today, in the vertical integration structure, we had little room to enter because of lack of the sales and engineering. On a global basis, we lack in sales and engineering capability, and we cannot expand this overnight. O-RAN equipment, there are not so many O-RAN equipment around the world. If the O-RAN is discussed, many formats will come into play. I cannot name the carriers, NTT equipment is one suggestion.
In that case, NTT will support as an SIer, and NEC will become the manufacturer, and the software will be combined, and the carrier will be used. There are no other comparators, if you will. If the carriers say, "We want to introduce O-RAN," NEC and Fujitsu have the advantage to begin with. Altiostar vRAN may be the competitor. The RU or CU/DU, the interface, the interoperability is not ensured yet on a software base, so we are still on equal footing. Timeline will be one to two years. We think this will expand in one or two years.
Thank you. My second question is, core virtualization. PSTN and IT network will be integrated, you said. East and West network will be included here. They will also be part of this virtualization. Any legal impediments or obstacles?
East and West are now, we are thinking of them as wholesaler. The basic node wholesale part that East and West uses, and the service part that the mobile carriers will use on top of that, the core software, I think, will be divided into two. As has been informed, in 2024, PSTN will be migrated to IP, the FLET's optical side. We are talking about beyond that. Will we use the optical phone forever? No, not really. The communications Line phone and Skype phone are already changing. The critical voice communication still remains. That's also a fact. The node, the core net, what kind of combination will be needed? Maybe it will be mobile-centered with a fixed line critical. As I said earlier, East and West will have some part and the operating companies will have the other parts. We think there will be a division.
Yes, I understand. Thank you.
Thank you very much, Mr. Takahashi. Next question from Merrill Lynch, Mr. Kinoshita. Mr. Kinoshita, you have the floor.
Thank you very much. Kinoshita here. I hope you can hear my voice.
Yes, we hear you clearly.
Thank you very much. I would like to ask several questions, if I may. I know that there have been repeated questions about O-RAN and vRAN. Let me ask a question about your philosophy or thoughts. In principle, NTT DOCOMO will be positive in addressing O-RAN and vRAN, but at the same time, though, Nokia and Ericsson, they are not earnest about this. At the end of the day, we see the situation being stalled. I think that is the prevailing situation, or that's the image that I have. In the case of incumbents, they have a certain scale of operation.
Nokia is very reluctant to come on board, and Ericsson seems to have no intentions. Can you really introduce O-RAN with the presence of those carriers? I'm somewhat skeptical about the possibility of O-RAN and vRAN, so if you could talk about that.
Thank you for your question. I suppose that's one way of putting it. When we take a look at the various trends in places like U.S.
U.S. government authorities understand that O-RAN is beginning to move. At the same time, though, they understand the presence of vRAN. Players like Nokia and Ericsson, they already have vertically integrated model, and they're trying to recommend that. In the case of Samsung, Verizon wants to use Samsung. That also represents a bit of vertical integration as well. I think it's going to really be a competition between these camps. In the case of DISH, it's a combination of RU. Will it be O-RAN, will it be vRAN, will it be a combination, will it be vertical integration? I think carriers will continue to lead the situation. It's a competition of which models offer the greatest advantage. In the case of NTT, as a carrier, one of the reasons why we believe O-RAN is most positive is because you're able to have control over your software.
You're able to strengthen your competitiveness under the O-RAN model. Going forward, the hardware will be white box, but value added can be captured. Offering inexpensive hardware dedicated system, that's our intention. Carriers that are in line with this thought probably will come on board for O-RAN, or maybe they'll skip ahead to vRAN eventually perhaps. I know that this is not a direct response to your question. You mentioned that you're skeptical. This will be all determined by the market, it will be determined by the competition, and we have to make sure that we don't lose out in this competition. Let me go back to what your comment. DOCOMO has the technological capacity, but non-Japanese carriers, do they have sufficient ability to control softwares? The carriers in developed countries, they want to be able to exercise control over their software.
That seems to be the situation. Outside Japan, carriers and vendors are very close, and the management team actually hop between the two. There's a different factor at play. In the case of developing economies, they probably have a preference for full turnkey, and that's a possibility. At the end of the day, it's all about cost performance. Security, whereby you're able to exercise your own control or a free hand, whereby you'll be able to drive growth. It's a trade-off between the two, control and growth. Right now, a very limited number of developed economies, perhaps, are involved in this whole discussion. I see. Point taken. Second question, let me confirm. This goes back to Mr. Ando's question earlier. In the case of optical chips, photonics chips.
As far as the chips are concerned, you mentioned that competition is primarily with existing systems who are able to extend their limitation. Is that the case? Is that the only competition that you have? When you produce optical or photonics chips, are there other potential production methodologies? Is there a possibility that a different type of production methodology could emerge as a competition to the current photonics chips? Is there a possibility that you'll not be able to take the lead, and that you'll lose out from benefiting from a mass scale production? If you could clarify the situation for us. Thank you for that. In the case of photonics-electronics converged chips, NTT was covered by Nature's article last year. The reason why Nature, the journal, covered this is because this is already being implemented.
IBM, Huawei, these players, in relation to digital signal processing, wanted to adopt photonics-electronics convergence. I understand that they actually produced this. They were not able to spread that technology. Technological breakthrough needs to make sure that on top of silicon, photonics is introduced. How do you place photonics on top of the silicon? NTT has that edge. In terms of competition within photonics-electronics convergence, NTT is one step ahead, without a doubt. Also, as mentioned by Mr. Shibutani earlier, we're talking about six nano to seven nano universe. We're talking about the etching. This could probably come down to two nanos eventually. The level of concentration could actually improve. However, the situation with regard to temperature will still remain. Energy consumption, power consumption, is the key. After photonics-electronics convergence is delivered, it's a matter of power consumption.
It's a trade-off. Within photonics-electronics convergence, we are ahead. In terms of comparison with existing chips, it's a discrepancy between the performance. The limit will come. Eventually, photonics-electronics convergence will probably go ahead compared to the existing chips. I see. Thank you. In terms of your technology presenting photonics-electronics convergence, I know that you have not disclosed this. Unless you have a third-party manufacturer and involved industries, the base for this technology probably will not spread. Are you going to consider licensing for this technology? Is that the case? Yes, I take your point. We're not yet at that stage. When we talked about photonics, electronics converged chips, the first usage will probably be in the digital signal processing, but the interposer needs to be converted into photonics. Later on, we need multilayer for the chips. That model is already visible.
Placing photonics-electronics converged material on top of the silicon, it will come later. What type of value chain will be created for the industry? That needs to be organized beforehand. Let me rephrase this. Interposer connecting chips. Interposer will probably be developed within the next couple of years. We have to consider whether or not we're going to produce this and see this as an industry. It's important that with players like Intel and NVIDIA, we discuss that. My personal view is that maybe, hopefully, we'll have the ability to produce that eventually. It's not yet determined.
Is there a possibility that you'll become a fab?
Well, as I mentioned earlier, we already have a fab. It's a startup, one of the subsidiary firms. This is limited to chips. We already delivered that to Huawei. Because of the National Defense Authorization Act question, we stopped delivering that to Huawei last year. We are manufacturers, so we have that ability. Please bear that in mind. Thanks.
Thank you.
Thank you very much, Mr. Kinoshita.
Next question.
Next question is from Citigroup Securities, Mr. Tsuruo. Mr. Tsuruo, please.
Thank you. Thank you for this opportunity. This may digress from today's topic, I want to ask you a question about power in the resource. You will do the offshore wind power generation, you said. As of now, including J-POWER in the power generation, what kind of investment are you thinking of in the next 10 years? J-POWER, what kind of return are you thinking of?
The power source development. The regional grid, we want to do this direct current. Anode, this is the one terminal on direct current, that is the basis. In power generation, there was some miscommunication. Power distribution was how the mass media understood and wrote the articles on, we will work on the power generation of renewable energy, that will be JPY 600 billion in 10 years. JPY 600 billion is not just our own cash. We will work with partners and to take this off balance and go up to JPY 600 billion. Right now, it's a little less than JPY 300 billion profit. In it, and its resale, by having the power source, we can improve the operating margin. Because of the nature of the power, this will not go up that significantly.
In the next 10 years, we will use renewable energy. We only use 4%, we will rise this to 30% and deliver this through Anode. Use that as a base load, and when the oil supply stops, we can generate power on our own. That is the energy vision along with the environment vision, and this has started.
Understood. Thank you very much. Another different theme. If you cannot answer, that's fine, because it's during TOB. NTT DOCOMO on the subscriber base is largest, but are third player in terms of profit, there's a structural problem in price. That was the price, if you align yourselves with other parties. Sawada-san and NTT executives, what do you think is the opportunity in your cost structure?
Others have the long distance and international and wireless together. In case of Docomo, when it separated in 1992, the facilities had to be owned by themselves. That was ordered by the rule. This discussion on Docomo was judged that it is not a legal judgment, and therefore, Com's backbone is the largest in long distance, and Docomo backbone want to be combined, integrated. In buildings, Docomo is newer. Docomo's building will be used as node, and Comm will be integrated into that. The first point is the total cost of facility. Group can work to reduce the cost there. Second is IT system. This is also a discussion centering on cost reduction. We have a company called Docomo Systems, and the ERP that is developed there is used within the group.
In the next few years, SAP, we are trying to shift to SAP Cloud. Comware will drive this. Docomo Systems and Comware need to discuss. Collaborate or merge or combine. By combining them, we can reduce more cost. We want to start studying that. At this point, I just have this in my brain. We have not discussed it yet. These facilities and IT cost reduction can be possible.
I understand. Thank you very much.
Thank you very much, Mr. Tsuruo. I'm afraid that the time to conclude the session has come. Our apologies, but this will be the final question for the session. We apologize. Next question from Nomura Securities, Mr. Masuno. Mr. Masuno, you have the floor. Mr. Masuno, I think you're on mute.
Oh, yes, my apologies. Thank you very much. I know that this is the final question. My question is this. It's not so much about NTT, but inclusive of I want to talk about the future of the IT industry, telecom industry, inclusive of your competition. Well, with fixed and broadband spreading, and with the smartphones having 80% penetration, and there is a price-related pressure. In the case of open internet, new smartphone-based payment is now emerging, and we see enormous payment business emerging, and they're converging.
Retail power contents are now being integrated in the form of super applications. In terms of this consumer-related trend, how should telecom industry change going forward? That's my first question. My second is about business. We're now in the 5G, 6G era, and I think it's only natural that fixed and mobile network be converged. If you put on top of that data center, then network added value will increase. Also, large data cloud, data service operators are now beginning to come into this area. Against this business environment, how should the telecom industry change? How should they address this ongoing trend? I would appreciate your thoughts about the industry as a whole.
Thank you very much. Let me talk about the retail, individual users. Docomo is pushing, of course, the Smart Life business.
In the case of fixed line business, in the case of mobile as well, they try to generate profit. Now, the prices is based on flat rate, not so much usage rate. It's not so much based on usage rate system. Once the market becomes mature, you shift to a flat rate system. The upper layer contents and payment business naturally is emerging on the other hand. In the case of payment, it's all about finance and money, and there's going to be a lot of demand. In the case of healthcare, it's about life. This is also going to be a very major segment. Also, the emotion and the mental universe. In other words, how do you deepen communication? The other is about comfort, a sense of comfort. We come to robotics. This also involves mobility as well.
In order to make individuals' lives more safe and secure and even richer, from that perspective, up until now, elements that were outside the telecom industry has now begun to be part of this universe. That, I believe, is the situation of the discussion pertaining to the consumer side of the business. Telecommunication is simply one of the elements. In the case of healthcare, medical, it's very large. Wearable devices are very now increasing. If implantable devices are to be incorporated, the situation will really change. On the other hand, when it comes to business, as you pointed out, what we're offering as cloud is primarily private cloud, and it's very customized. In the case of public cloud, we were involved in public cloud, but AWS, Google, and Azure, we could not be victorious against those players.
We shifted our thinking, and we decided to offer this as a hybrid fashion. We decided to deliver solutions that offer it at a hybrid. That alone would not be sufficient to compete against these giants. These are players in the application front that really have global dominance. In the case of Oracle and VMware, what comes after Oracle and VMware? They're beginning to engage in the software side of the equation. I believe that some say that we should compete against these players because they are now entering the telecom field. Why do we need to compete with them? I think the telecom industry's weight in the business community will increase going forward. For example, all things will be connected, and this applies to autonomous drive as well. It applies to the functions in the cities and urban settings.
It also applies to implantable devices and all aspects of individuals' lives. Offering connection and platforms. These players are trying to make platforms their own. As far as telecom carriers are concerned, it is important that we offer those platforms on our own to the world. Therefore, that is going to be the competition going forward. Communication for the business, this is going to be essential. This is the most essential component as we try to deliver value. I hope we're on the same page.
Yes, thank you
. In terms of consumers, it's a very detailed question, I apologize. In terms of consumers, when it comes to the new approach, I think healthcare and life is going to be very important, especially in, of course, COVID-19 universe.
Also in terms of dealings with business, as you pointed out right now, we have no idea who is controlling the software. Is it the vendors or is it the service operators? I think that's the universe that we're headed to. How you dominate the market is going to be very critical. Yes, thank you very much. I take your point. Yes, trying to take the piece of the market, is it going to be the manufacturers? Is it going to be the likes of GAFA? Is it going to be the conventional, traditional carriers? Is it going to be even customers? Is it going to be devices like Apple? I think all possible scenarios are out there. This applies to both the business market and to the mass market.
As you pointed out, Mr. Masuno, I think we are beginning to see a global competition that is transcending various boundaries. The focus is going to be on this type of global competition that transcends various boundaries. Thank you very much for that.
With that, we will close the Q&A session. President Sawada, thank you very much. Thank you.