Risks and Growth Opportunities

The business environment surrounding KDDI is constantly changing.
KDDI implements measures to quickly anticipate and avoid the many kinds of risks that exist in the changing business environment. At the same time, KDDI aims to maximize corporate value by turning these risks into growth opportunities for business success.
Below is a description of the risks and growth opportunities of particular interest to investors.

Main Risks and Measures to Avoid Risks and Initiatives for Growth

Competition and Rapid Shifts in Markets and Business Environment

Risks

Exodus of customers: There is a risk that the number of subscribers will fall if budget smartphones catch on or new telecommunications carriers enter the business.

Cuts in communications rates: There is a risk that earnings will be adversely affected by tougher competition.

Measures to Avoid Risks

KDDI began offering plans that separate billing for telecommunications and handsets ahead of its rivals in July 2017 in response to these changes in the business environment, and its current telecommunications rates are as much as 40% lower than those prior to the introduction of the unbundled plans.
The au churn rate improved significantly due in part to customers quickly switching to rate plans they prefer.
Before unbundling plans (fiscal year ended March 31, 2017): 0.83%
After unbundling plans (fiscal year ended March 31, 2019): 0.76%
Roughly two thirds of smartphone customers have switched to unbundled plans already, marking favorable progress (as of March 31, 2019).

Initiatives for Growth

As stand-alone domestic mobile telecommunications face more challenges for existing business growth, KDDI aims to establish a presence in new growth areas.
Specifically, KDDI aims for growth centered on existing telecommunications services tied into life design services encompassing commerce, finance, energy, entertainment, and education. While further advancing "the integration of telecommunications and life design," the core of its business strategy, KDDI aims to increase sales on a total ARPA basis by providing new experience value to customers who use au and other services.
Moreover, we are aiming for a deeper engagement with our customers by combining various life design services with telecommunications services that are essential to their lifestyles. This will lead to the maximization of Life Time Value, an expression of the sum of customer numbers (IDs, including Group companies), total ARPA, and customer engagement.

Telecommunications Security and Protection of Customer Information (Personal and Corporate Information)

Risks

Data leaks and hacking attempts from external networks could undermine trust in and tarnish the brand of KDDI.

Measures to Avoid Risks

KDDI protects telecommunications secrecy. To protect customer information, KDDI has established the Information Security Committee to prevent information leaks from within and has drawn up Companywide measures for preventing hacking attempts from external networks. KDDI also complies with the European Union's General Data Protection Regulation (GDPR) and other global regulatory frameworks.

Initiatives for Growth

With data-driven management using big data gaining attention these days, KDDI makes concerted efforts every day to maintain service quality, which is a prerequisite for retaining customers, by ensuring security and protecting privacy through the strict management of customer information, an important asset.
Along with Group companies, KDDI will provide advanced information security and reliable ICT so its customers can focus on their businesses, thereby contributing to the development of a digital society and economy.

Natural Disasters, Accidents and Other Events

Risks

Stoppage and interruption of data communications services: There is a risk that information communications services could be cut off as a result of unforeseen events, including natural disasters, power shortages and outages, cyberattacks, and communications equipment failures and accidents.

Measures to Avoid Risks

To create a management structure for dealing with large-scale natural disasters, KDDI has formulated disaster response regulations and business continuity plans (BCPs), and undertaken a number of other initiatives, including building a disaster response framework. We have also entered into disaster management agreements with the Ministry of Defense, the Self-Defense Forces, and the Coast Guard, collaborating with relevant organizations to further strengthen our disaster response.
Effectiveness is assessed through biannual disaster response training. KDDI works to improve on any issues or problem areas identified through that training, and each year a PDCA cycle is employed to construct a more solid foundation for disaster response.

Initiatives for Growth

Japan currently faces a variety of issues, such as a long-term decline in its population, and waning vitality in regional economies caused by the overconcentration of people in large cities. KDDI is contributing to the advancement of Japanese society by helping to solve these various issues through the provision of high-quality telecommunications services over reliable mobile networks, a crucial component of social infrastructure.
In April 2019, the KDDI Regional Initiatives Fund No.1 was established with the aim of financing local companies and venture firms that promote regional revitalization. This put into place a structure for promoting regional revitalization through 5G and IoT. KDDI's system to promote regional economy will also serve to create and expand new business areas.

Telecommunications Sector Regulations and Government Policies

Risks

Revisions to Telecommunications Business Act: Complete separation of telecommunication fees and handset prices, and the prohibition of excessive enclosure customers, will become law.

Allocation of frequencies: There are risks that network costs will increase when adapting to new frequencies, and that the necessary frequencies cannot be acquired.

Measures to Avoid Risks

In light of laws and regulations concerning upgrade programs, time constraints, and automatic renewals, for example, KDDI intends to change what is necessary and to legally comply by the deadline (estimated to be October 1, 2019).
Moreover, KDDI aims to make steady progress toward its profit objectives for the fiscal year.
In April 2019, portions of the 5G frequencies were allocated by the government in Japan. Based on the ambitious plan it submitted, KDDI was allocated 600MHz in total bandwidth in the 3.7GHz and 28GHz bands, including frequencies likely to be used by other 5G networks around the world. We anticipate major advantages from the standpoint of improvements in cost efficiency, in terms of network development outlays, and terminal procurement costs.

Initiatives for Growth

Although there is a risk that customers will leave KDDI as a result of coverage concerning the prohibition of billing tactics to retain customers, KDDI also anticipates an increase in opportunities to win new customers as market flow is stimulated. By latching onto these opportunities, we aim to increase the number of customers (IDs), including Group companies, in a bid to expand the customer base.
KDDI aims to improve the efficiency of investments in facilities by leveraging the advantages of the 5G frequencies it has obtained, sharing 4G, adding software functions and sharing equipment with other companies.
The Company plans to launch commercial 5G services in March 2020. As smartphone-centric services become more prevalent and data traffic increases alongside the spread of data-heavy content, KDDI views these changes as an excellent opportunity to advance "the integration of telecommunications and life design" and increase total ARPA in the 5G era.

Integrated Report 2019 (Online Version)