© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you very much for attending today despite your busy schedules. We will now start the briefing on NTT's financial results for fiscal year 2020 second quarter.
I'm Fujiki from the IR office and will be serving as today's facilitator. First, I would like to introduce today's attending members. Mr. Sawada, Representative Member of the Board and President; Mr. Shimada, Representative Member of the Board, Senior Executive Vice President; Mr. Nakayama, Executive Officer, Senior Vice President, Head of Finance and Accounting; Mr. Taniyama, Executive Officer, Senior Vice President, Head of Corporate Strategy Planning.
In view of preventing the spread of COVID-19, today's briefing is held via live voice streaming. Please refer to the presentation materials posted on our company IR website.
On the first page of the presentation materials is a point to be considered stated. So we kindly ask you to read through them.
Now Mr. Sawada, President of the company, will explain the financial results outline and take your questions later. Without further ado, Mr. Sawada, please.
Thank you very much. So I would like to base my presentation on the presentation material entitled Financial Results for the 6-month Ended September 30, 2020.
I'll be very brief in my presentation. So please turn to Page 4 of the material. This shows you the fact that we saw a decline in operating revenue but increase in operating income for the second quarter. Yes. So we saw a decrease in operating revenue but increase in operating income. And we made very strong progress in the second quarter, but as the situation is unclear with the second wave of COVID-19 hitting primarily Europe and United States, we will not be changing the annual guidance at the structure.
And also with regard to operating revenue, due to decline in DOCOMO's handset sales and also a decline in overseas system integration revenue due to COVID-19, operating revenue declined by JPY 178.2 billion year-on-year. As for operating income, well, there is decline due to COVID-19, and there is increase in DOCOMO's smart Life business. A question, as for operating income, while there is a decline due to COVID-19, there's increase in DOCOMO smart life business and profit improved global business profitability. So operating income improved from negative JPY 7.6 billion in the first quarter to positive JPY 25.8 billion year-on-year in the second quarter. As for overseas, top line has dropped due to COVID-19, but margin has improved by 0.7%. This is due to streamlining effect.
Now as far as the second quarter results are concerned, the impact of COVID is negative JPY 130 billion on revenue and negative JPY 20 billion for profit. That was the impact of COVID-19 for the second quarter results.
Please go on to Page 5. This shows you the contributing factors by segment. The top shows the operating revenue and the bottom column indicates operating income. The red part shows the areas that are declining, and the blue part shows the areas that are increasing. So as for mobile and data, you're probably familiar with the results already. As for regional communication business, yes, there is decline in both operating revenue and operating income. But then due to strong net sale -- net adds rather in fiber sales, and also there's increase in subsidiaries revenue. So for the second -- on a second quarter stand-alone basis, both entities must have enjoyed increase in both operating revenue and operating income. As for regional communication, we have a guidance of increased operating -- increase of revenue and operating income. So they're making strong strides to achieve this annual target. As for long distance and international communication business, it may seem as though the operating revenue drops significantly. But then it's just that at NTT Ltd., the accounting method has changed. In other words, recognition of revenue for straightforward supply sales and maintenance has been shifted from reflecting and recognizing total amount to posting that demand. There is impacted the JPY 50 billion. And also, there's also JPY 40 billion impact from COVID-19 and currency.
So the operating revenue dropped JPY 114.5 billion. However, as for operating income, due to structural reform, they have been very favorable. So they were able to post increase in operating income at the end of the day.
Let's turn to the following page, Page 6, please. This shows you the medium-term debt levels. We wanted to clarify that for your reference. So let's start from the left-hand side, JPY 4.7 trillion, that is the amount of interest-bearing debt at the end of fiscal year 2019. The ratio is about 50%. Debt-to-EBITDA ratio is approximately 1.54. So very, very clean. And we'll be spending JPY 4.3 trillion for bridge loan rather to acquire NTT DOCOMO, and this may increase up to JPY 9 trillion.
However, please bear this in mind, the target for debt will be set to JPY 6 million, and we want to make sure that since the EBITDA for our company is JPY 3 billion, so therefore, we are considering up to JPY 6 billion. The ratio of 60%. That's lower than the average of 80% for single A rating. So that is the target that we want to set. As you know, we have spun out leasing business. So therefore, we've been able to off-balance JPY 1.1 trillion debt. And also, DOCOMO's credit receivables and handset receivables, they will also be securitized. So JPY 1 trillion over the next 4 to 5 years. Right now, JPY 0.7 trillion is very clear. So these are probably expected feasible. So the actual increase in debt will be JPY 2.2 trillion. So if the target is JPY 6 trillion, it means that the amount of debt we need to repay would be only JPY 0.9 trillion after the math.
We take a look at the free cash -- the average free cash flow for the past 3 years is roughly JPY 0.9 trillion. And we can generate and also pay dividend [indiscernible], which means that we are able to generate JPY 0.5 trillion in cash every year. So we believe that we will be able to implement both share buyback and also increase enrichment of shareholder return and also be able to repay in a planned manner while we carry out record investment for the group. So we believe the JPY 0.9 trillion debt can be repaid over the next couple of years, maybe over the next 4 to 5 years. So as a result, we believe that for this fiscal year, we will be able to realize shareholder -- correction, share buyback as part of a shareholder return program.
Now as for the good -- there will be no goodwill from the transaction to make DOCOMO into wholly owned subsidiary firm.
So let's talk about share buyback. For the past 2 years, we have carried out JPY 250 billion worth of share buyback every year for the past 2 years. So that being the case, as we have consistently mentioned, we believe that we are able to continue shareholder return as we have done in a consistent manner and still be able to make repayments. So we want to implement that.
As for EPS, toward the year-end -- we're headed toward the year-end. So we believe that concerning the operation will be able to increase JPY 1 at this juncture.
As for topics, there are 3. One is to create initiatives to create a remote world. We have created a new service brand called the Remote World. This is a new title brand. And I want to do give [ 7 ] services. And I hope that you'll take a look at this slide later on. The second is the owned media DOOR, we will be preparing that. The R&D forum will be held and remotely. So November 17, the R&D forum situation or exhibition. To be able to view that, we are going to digitalize that. Of course, this is going to be a place where people other than NTT employees can attend, and it will be a 3D media. And so the people can experience the remote world.
And next is regarding the progress of the midterm management strategy. There are several of them, and I would like you to take a look at all of them later on. But 3 points here. First is to promote B2B2X model, and it has reached 88. Our target is 100 next fiscal year. So we are in line with our plans. And the second point is that the statutory offices actually -- facilities are converted into satellite offices. We will have employees come here. In October, we have converted Noborito. And in 2020, 10, and by fiscal year 2021, we would like to convert 50 of them.
Lastly, ESG-related matters. We have received the climate change initiative approval for SBT. And we have an asset today together with the National Institute for Quantum and Radiological Science and Technology, in order to have a field demonstration of nuclear fusion energy. We have signed the alliance and partnership agreement today. That's all from myself.
Thank you very much. We will now take your questions. We'll take questions. For those of you who have registered beforehand and also who are connected to the telephone system right now as we have informed you in advance. The operator will now explain and we will be taking your questions.
[Operator Instructions] From SMBC Nikko Securities, Mr. Kikuchi.
Kikuchi here. I have 2 questions, if I may. My first question is about NTT Ltd. You talked about cost reduction benefit. And as a result, you mentioned that the performance has been at the halt, the worsening of the performance. So we have a very good image of NTT Ltd. as a result. But having said that, both Europe and the United States, the COVID-19 situation remains very harsh in these regions. So I wonder how you see the outlook for the second half of this fiscal year against the situation. That is my first question.
First, impact of COVID-19, we believe there'll be roughly JPY 45 billion impact on NTT Ltd. That has been the case so far. So over the short range -- with regard to short range order taking, the many customers are very quick to withdraw their contracts. And NTT Ltd. has a large pipeline of such projects. So as far as operating revenue is concerned, yes, the situation is somewhat challenging. But as I mentioned, cost reduction benefit will really accrue. And we believe that the benefits of cost reduction will continue onto the second half of the year. So declining operating revenue and increase in operating income will probably continue under the current level of COVID-19 impact. So that's one positive factor.
There's another positive factor. With regard to value-added services, we have found -- we want to make sure the value-added services account for 36%. But now that percentage has increased to 37% of the total revenue. So value-added services has been very strong due to COVID-19. The demand and digital event for remote -- the demand for digital event and remote services are very strong. So we believe that this trend will continue. So that represents another positive factor.
Now having said that, should the lockdown due to COVID-19 become very prolonged, then more than the first half, if the situation were to become more stringent, then that could be a potential negative factor for the second half of the year.
So with regard to your annual guidance, operating income, JPY 5 billion and JPY 4.5 billion for the second half. So the impact as opposed to any upside you have for the annual guidance, will not be that significant. But I think with regards to operating income, I think there's still cushion, right? Comfortable cushion for you as far as the annual guidance is concerned. Would I be correct in understanding that?
Well, thank you for your question. Well, is there a cushion? Yes, I think there is an upside as far as operating income is concerned for the full year. First of all, NTT Ltd., people at NTT Ltd., I think this will be a very positive driver for the people at the NTT Ltd. as they go into the next year. So yes, that is our expectation.
My second question is this. It's about DOCOMO -- making DOCOMO into a wholly owned subsidiary firm. After this is delivered and realized, what will happen to DOCOMO's performance? Generally, the general consensus on the stock market is that since the percentage of noncontrolling interest will be coming down, that should enhance your flexibility for your business operation with fewer noncontrolled interest. So what will be the policy business which you will be practicing control over the operations at DOCOMO, inclusive of the possible rate plans? That's my first question.
You're talking about control at DOCOMO, right?
Yes. That is my question.
For example, you'll be able to review rate plans because you have the ability to weather any potential operating income. Well, that is not in line with our basic thinking. We are listed, as is the case when we -- DOCOMO's listed company. It's important that we have very strong robust governance. So that being the case, there was a transition to Audit Committee based company at DOCOMO, and that practice will continue. And outside directors will remain on Board, and they will be part of the governance at DOCOMO.
Now what will happen to DOCOMO after they become a wholly-owned subsidiary firm? Well, Investor Relations type of activities and interaction with the media and the analysts and the securities firms, we hope that they will continue even after they become a wholly-owned subsidiary firm. So they thought that just become -- DOCOMO becomes part of the group, and we're in the room -- we have the room to accept decline in operating income. That type of thinking is not right.
I see. Okay. So may I say that in terms of -- as part of NTT Holding Company's policy, you will continue your policy of safeguarding the profit at NTT DOCOMO?
Yes. That is the case. Already, the EPS target in the mid-term target and also cost reduction and return on invested capital, we have these targets. And the major subsidiary firms -- well, we're going to assess the second major subsidiary firms in a way which is linked with the target set forth in the medium-term target. So the active valuation will start, but this program has been introduced in the previous year. And this will continue. So again, we -- as was the case in the past, in an integrated manner, we hope that companies will make -- companies will be contributing to increase in operating income. So your interpretation is correct in that context, I think.
So it's important that operating company generate profit. And on a consolidated basis, it's important that -- so you're not going to take the deposits because on a consolidated basis, you have strong operating income, you're going to accept a decline in 1 particular company.
That's right. That is not the case. We want to make sure that there is synergy among the operating companies.
Next, Nomura Securities. Mr. Masuno, please go ahead.
This is Masuno from Nomura Securities. Can you hear my voice?
Yes, we can.
I have several questions. Related to the result this time, the limited restructuring in the full year, cost-wise and value-added-wise, what is the scale that you're expecting? And you said this is going to continue on to next fiscal year. Next fiscal year, what is the upside scale that you are thinking?
Thank you very much. This fiscal year, it's 300. [indiscernible] 300. And next fiscal year, actually, in December, well, we have started the discussion, but entering December, we're going to establish the plan for next fiscal year. And the PMI plan was set for 2 years originally. Therefore, it started from 2019 and up to July of 2021, various PMI initiative are running or implemented. So especially the effect of the IT initiative, we are going to accumulate those effects. So scale-wise, it will be several ten billion yen level is that what we are considering.
Okay. The breakdown of that cost and the value-added contribution, what is the ratio, 50-50?
Well, at the beginning, when we are considering the midterm, the cost was 300, and value-added was 400 or 30 billion, 40 billion, but maybe the value-added is going to be in actual, larger.
Value-added in absolute amount is not going to decline?
Correct.
So the total improvement effect is going to start to show.
Well, that is my wishful thinking.
My second question is related to midterm. DOCOMO is going to be a wholly-owned subsidiary company. Regarding the sales, service and finance-related matters, DOCOMO alone, at what time what is going to happen? And the alliance partnership with communications, whatever way it is, at what time and what way is that going to be done? I'm asking this question several times. But the size or the timing or the content of this, if anything, that you can share, I would like to hear.
Well, as reality, this is not that has been thoroughly considered because we're still in the [indiscernible] period. Mid this November, [indiscernible] will be completed. And then from there, we are going to have thorough discussion. So at this point, there's nothing that I can share with you.
However, generally speaking, well, DOCOMO, compared to its competitors, they're behind. That is because the fixed line network or the corporate customer side, they don't have the NTT Communications type of parts in their business. So how should I say this? Before it becoming a wholly-owned subsidiary, we need them to continue to actively work on that part. And in terms of the sales activities, if it becomes deeper together with NTT Communications, then the pie of the corporate customers is going to be larger. So that will be the next step.
But on the other hand, the NTT Communications side, they didn't have that much of a wireless solution. So as the sales activities for NTT Communications, they'll be able to sell integrated services. So that's going to be 1 synergy effect. And as I have mentioned to you before, the network or the facilities and equipment, that side, how much are we going to integrate is the question? And looking at DOCOMO alone, for the various service developments, comm and communications, in an agile way, are developing it. And in the several months, they can provide service in of the solution. So how are we going to provide that also?
So explaining what the scale will be at this point is difficult. However, as the President of the group or CEO of the group, I want them to put their full efforts out there.
I just want to check that with the communications of sales activities, collaboration, that is going to be able to come true at the field?
Yes. However, DOCOMO, or rather say, the prohibited actions, there are some regulations that are imposed. And that probably is going to be discussed further. So it will depend on how that discussion goes.
Okay. And also on the finance part, Page 6, the interest-bearing debt level -- target level. If you look at the actuals, it's JPY 4.7 trillion. However, you have cash also. So the net debt, I think it's the JPY 1 trillion less, JPY 3.7 trillion. So in reality, this target of JPY 6 trillion and net debt is going to be a JPY 5 trillion. So I think you still will have some more buffer or room is what I think. So how are you looking at this?
You're exactly right about JPY 1 trillion of buffer we have. However, as explained to you, our basic business is the telecommunications business. Therefore, natural disasters or some unprecedented natural disaster, if that happens, we will have to be -- we want to secure the capability that we alone will be able to respond to such disasters. So cash or capital on hand, we would like to have a comfortable level of that buffer.
But as you say, the working capital or that part, how much can we allocate that to lower the debt or improve the capital efficiency or cash efficiency is some challenge that we have to take on. So we would like to continue to review this.
Next question from Citigroup Securities, Mr. Tsuruo.
My name is Tsuruo from Citigroup. I'm also looking at Page 6. So could we talk about Page 6? So you mentioned you have debt repayments of JPY 0.9 trillion. You talked about 5 years in the previous sessions. Can you elaborate on the debt repayment program? You have assets -- idle assets or unused assets. If you sell off those unused assets, you'll be able to accelerate debt repayments. Is there such a buffer? If there is such a buffer, what options will be available for you? To the extent possible, I'd appreciate some hints, clues.
Thank you. Well, securitization of assets, we are not reflecting that on this slide. For example, data centers or real estate, those elements are not incorporated into the slide, but that would be part of the target. And we're giving this matter consideration as we speak. We're not able to have concrete numbers. That is why they're not reflected on this page, but I believe there is some sort of cash that can be available to be allocated for debt repayment purposes.
Well, can you give a certain range? Is there a certain size that you'll be able to give us? And also what about the time frame? If you could give us some pointers, we would appreciate it.
Well, the overall program will take roughly 4 to 5 years, in our opinion. But there is share repurchase, and also, there's going to be requirement of cash for investment for the future. That might be the case. So several tons of billion of yen on a per annum basis, I think that would be one possibility. So...
I see. Then if you're able to accelerate the debt repayment, then how will be that cash be utilized? For example, debt repayment, are you going to allocate that for dividend or share buyback or any other purposes? How are you going to intend such cash at that juncture?
Well, thank you for the question. Well, first, we have not reflected the impact from synergy on this page. So how much synergy can we generate? That is up to a consideration study from now on. Depending on the level of synergy, there might be need for future investment or there might be need to increase R&D expenses. We want to consider that possibility as well. So compression of assets, then also compressing working capital and also by improving efficiency, then we will be able to generate some benefits. And we'll be able to accelerate debt repayments, which will mean less interest burden. So if that's the case, we want to be able to allocate that for shareholder return and also for other purposes.
And also, if I may add, in this calculation, in this formula, when it comes to cash, well, we talked about JPY 0.9 trillion, but we want to work with EBITDA and bring this back to JPY 3.2 trillion. That is the case that we'll be able to do this much earlier, and then we'll be able to have greater cash available for shareholder return purposes. So paid out dividend is already JPY 400 billion. This is factored in. Paid out dividend is already factored in this calculation, which means that cash-wise, we have many potential pockets and capabilities available for us.
If I may, one other question, one additional question, and this will be the final part of my question. This might be a sensitive question. So to the extent possible, if you could give us pointers. Among DOCOMO's assets, when JTOWER listed, you talked about carving out base stations at that juncture. This, I believe, represents one important factor for debt repayment. Is my understanding correct?
Well, realistically, I don't think we'll be able to make such a move quickly, but that is a possibility. That is a possibility. But then we are not progressed that far as far as the consideration of the scheme is concerned. So that factor is not factored in, in the current debt repayment plan we have.
Next question is Daiwa Securities, Mr. Ando.
Hello. Can you hear me?
Yes. We can hear you. Hello.
My first question also is related to Page 6, share buyback, JPY 250 billion. You've done that. And this repayment plan, we'll keep an eye on this plan or regarding EPS, DOCOMO will become a wholly-owned subsidiary. It's going to go up by JPY 50 or so. So considering that, this JPY 250 billion in a midterm perspective, is this becoming a reality level? Or this year, there are some factors involved, so you have added some additional factors to this and come up with JPY 250 billion?
We up till now about this amount is the share buyback that we have conducted in the open market. So the message we want to convey is that, as already mentioned to you, this JPY 4.3 trillion, even though we borrow this, as we have been doing till now, shareholder return in terms of dividends and share buyback, we are going to continue that. And we are actually practicing that. That is the major message that we want to convey.
And in the midterm perspective, whether this amount is going to be too much or less, are we going to increase it more? I'm very sorry, but it will depend on how much synergy will be achieved. Or when we think about the new midterm management strategy, what is the effort that is going to be generated from each company is going to be considered. Therefore, at this point, there's nothing that I can share with you at this point.
Okay. My second question is regarding the pressure from the Japanese government to lower the mobile phone rates. KDDI and SoftBank for the 20 gigahertz through the sub-brand, they're responding to that pressure is the current situation. However, for your company, with the Japanese government, I believe that you are sharing your thoughts and having discussions with them. This 20 gigahertz, JPY 5,000, basically, this time in a short-term perspective, it seems sufficient. And as DOCOMO, on their own, are proactively going out there to take more market share. Is that the background story on these actions?
This 20 giga, you do the international comparison and compared to the major cities around the world, the rate is high. That seems like the standard of the guidance that the government is saying. And the other competitors rate is around JPY 4,000. So the consensus we have is how are we going to respond to that. And furthermore, as you have mentioned, marketing-wise, how are we going to expand our market shares, and in DOCOMO's case, it doesn't have a sub-brand. So there's some cannibalization may occur. So what kind of impact is going to occur, including those factors, they are examining various points. And we have not have seen specifics yet at this point.
Next from Mr. Kinoshita from BofA Securities.
I would like to ask several questions, if I may. First, with regard to the future. To the extent possible, if you could share with us, as it relates to DOCOMO and NTT Communications. Are -- do you have -- is there a possibility -- or do you have a plan to integrate these 2 companies? So I think you talked about the possibility of integrating the business of these 2 companies. But then because of DOCOMO not being able to carry out certain activities, would that represent a problem for closer integration between the 2 businesses? As far as DOCOMO is concerned, they -- after they become an integrated company, will they be forced to offer equitable treatment to all partners? And also furthermore, even without any regulatory issues, is -- does the current scheme allow for the integration of these 2 businesses?
Well, integration of DOCOMO and NTT Communications, that is not the assumption that we have. We talked about collaboration between the 2 businesses. One possibility is to bring NTT Communications under the wings of DOCOMO, but we are not even considering that at this moment. So as far as topic is concerned, the discussion for integration of these 2 businesses. So it's very difficult for me to respond to that.
Now generally speaking, we have to scrutinize the situation because any further integration could involve certain regulations. So I think we need to -- again, this is going for -- this is down the road, but I think we will probably have to discuss with the regulators about the regulation. So full integration of the 2 companies -- when it comes to full integration of the 2 companies, 2 separate entities in vertical fraction will that be a separate issue? Again, that probably will give rise to a whole set of new issues. As for the competition, in the context of fair competition and also the continuity of policies, they have been focusing on these elements through their communication with the media. So again, it's a matter of how MIC responds to these questions, I think we need to bear that in mind.
All right. And then after the tender offer is over, is there any possibility that due to regulations or rules, you will not be able to make DOCOMO a wholly-owned subsidy firm, is that a possibility?
Well, that's something that we are not -- we're in a position to know. But generally speaking, one wouldn't assume such a scenario to occur.
I see. So I suppose there's very little risk of that scenario, then that is my interpretation. Okay then. Let me now ask about the rate plans. In the previous session, you talked about the launch of the rate plans at DOCOMO. And due to the press coverage, Mr. Sawada, I understand that you made a pep talk to DOCOMO to be more bold in the rate plans.
Now going back to what you mentioned earlier, this time around, DOCOMO is still giving this matter a consideration. I believe that it was gist of your comment. May I take it that in principle, DOCOMO as consulted beforehand? And so I suppose after the tender offer is over, you can make a comment. But have they consulted beforehand? And has NTT Holding Company given the green light to the rate plans? So DOCOMO will submit their rate plans after they received approval for NTT Holding Company. That's how things will evolve from now? That's my second question.
Well, thank you for your question. First of all, I think the media was quite mischievous when they talk about how they report that -- give a pep talk. I was not that upset when I talked to DOCOMO. I did say, though, that you are much more capable, I did -- when I talk to people at DOCOMO. Yes, I did encourage them that they were more capable, but I think the media coverage was somewhat sensational.
When it comes to the rate plans, when Mr. Suga became the Prime Minister, at that time already, we had already had talks with the MIC on this matter. So we did communicate to them that we will not be able to say anything while the tender offer was being conducted. We're not sure about how they responded to that. We're not sure what the MIC's position is and what the response is. But at the end of the day, KDDI and SoftBank, in this order, they gave indications for rate reduction. So these are the facts.
If I may ask, the final decision will only be reached after consultations between DOCOMO and NTT Holding Company?
No. No. In principle, it's DOCOMO decides the rate plans. But of course, there's always the relationship between the company. So we do have discussions. We do talk about them.
Next, SBI Securities, Mr. Moriyuki.
This is Moriyuki from SBI Securities. Regarding cost reduction, this time, the factor to push up the operating income, the cost reduction, are there any emergency responses type of cost reduction incorporated in that? When the COVID-19 settles or comes to end, is it going to further come back or improve is the background of my question? Or the -- are you saying that cost reduction is going in a front-loaded manner, so it's not going to happen? But if there's like an emergency, a major type of cost reduction, I would like to know.
I don't have the actual figures with me right now. However, the factors incorporated is that the operation center is going to be centralized. That's going to have an effect permanently. And we've done quite of a streamlining, especially for the backyard operation, the overhead and all the overlaps in that area were all streamlined. So that's going to be effective for a permanent manner. But traveling expenses due to COVID-19, there's no traveling expenses that are occurring. So there is a possibility that, that may return or recover in a way, but we don't know the size of it. I don't think it's going to be that large. It's global, so it's probably in the range of about JPY 1 billion. But it's just around that level. That's going to be the range or the scale.
Okay. Understood. And also, for NTT DOCOMO, DOCOMO is aimed to further increase their profit and conduct their business. And as the synergy effect from NTT Communications, they'll be able to improve their competitiveness. But listening to your explanations, for the corporate customers, it seems that there will be an effect -- a positive hit coming of the synergy.
But for the consumers, unless they sacrifice the profit, I don't think that they're going to recover that quickly. But they're not going to sacrifice the profit that much. That stance hasn't changed for consumer side. The consumer side is going to gradually improve, that's the image. But first, the corporate side will improve rapidly and boost up the profitability. Well, if we separate from consumer and corporate, we will see and it's easy to understand the positive impact for the corporate side.
But in the mass consumer side, the COVID-19, how should I say it? The smart life business, which is not the telecommunications-related business, they have that smart life business. So how much will communications or commerce software and solutions can help out that part, including the marketing activities?
And the other point is that traditional or conventional telecommunications services towards mass consumers. And for communications, they have OCN, they have OCN Mobile. So in telephones, for businesses as they have the toll-free services also that they provide. So for the telephone services or the mass consumers services, they have various services on hand. Even though it's a legacy type of service, DOCOMO, when compared with our competitors, they don't have the fixed and mobile combined service, meaning that they don't have the PTSN (sic) [ PSTN ] combined service.
So just having the lineup of such a thing, as a base load, there are a certain amount that they will be able to recover is what we think. But as you mentioned, the new non-telecommunications area, it's not that immediately we'll see some sort of a positive effect. I'm sure they will -- it will require some money.
So if I may summarize, and it was asked you before the second brand, whether you're going to have that or not. So it means that the collaboration is going to become stronger with OCN brand, and they're going to become sort of a second brand in the near future. Well, that is one discussion topic, is that what we think. And at this point, from my side, I cannot share anything with you regarding that question.
But you sacrifice the profit and try to differentiate themselves by price, that strategy is not going to be taken?
Yes, of course, because we have to secure a profit. However, increasing the market share, and if we can say that the backyard part has also become inefficient, that maybe that factor may be incorporated into such a thing.
Next question from Morgan Stanley MUFG, Mr. Tsusaka.
Tsusaka here. Well, I would like to ask one question about DOCOMO and another question about a different topic. The cost synergy as a result of incorporating DOCOMO is part of the group. So if I may, I would like to share with you some comments about impressions that I have as a result of observing DOCOMO for a long time. I felt that in order to enhance the competitiveness for DOCOMO, they needed to do reform, which might actually relate to some painful sacrifices on the revenue. I don't think they will be able to restore competitiveness just by a little halfhearted attempts here and there. So therefore, the short-term risk as far as revenue is concerned -- well, to be very blunt with you.
If, for example, you were to introduce a second brand, which is one of the shortfalls for DOCOMO, I think this might be very painful because DOCOMO is such a big company. That is my personal impression. But what are your thoughts? As in the context of group management, how do you intend to control the operations at DOCOMO from that perspective?
And also, is that even necessary? Or do you believe that, that's not even necessary, that you believe that you'll be able to -- that things will be just simply adjusting a little bit the current system? I would appreciate hearing your thoughts.
And my second question, if I could go on to my second question as well. Back in 1992, well, I think you had a philosophy back in 1992. NTT DOCOMO was considered a totally separate company in terms of the network, in terms of various systems included, DOCOMO had to be operated as a totally independent company. So that being the case, operation-wise, there are some redundant parts from the context of NTT Group. That is my view. But after this integration is over, how much cost synergy do you think you'll be able to realize as a result of incorporating DOCOMO as a wholly-owned subsidiary firm? If you have any numbers that are available through your brainstorm exercises, I would appreciate your pointers. Those are my 2 questions.
Thank you for your questions. So let me go on to your first question. Indeed, the competition are very strong. The competition are very strong. And the needs of the market and the needs of the customers are very dynamic, and that pace of change is even accelerating. So there need to be flexible to cater to that market. At the same time, there is need for agility in our decision-making process. That is being required, but that is very difficult to do.
Up until now, both DOCOMO and NTT Holding Company, we really were dependent on one single pillar. For example, in the case of DOCOMO, it was mobile communications. In the case of NTT Holding Company, it was the fixed line business. So I think we need to be more multifaceted. We need more division. So DOCOMO needs to expand throughout their business. They're trying to expand their smart life business. But on top of that, it's important that they enhance their corporate business and also work with the partners and also in corporate platform and also go on to system integration and also go to software development. They need to expand into that.
Also in terms of the retail business, they need to expand into the finance business, financial business and also respond to the requirements of the power business and also deeper partnerships with construction business. So there are a lot of evolutions that could take place.
In terms of geographical footprint, I believe outside Japan global business could be another possibility. So it's important that there is a need for reform of the governance and the mindset. So they need to be multifaceted. They need to follow multiple tracks at the same time. That is my thinking at this moment. On the other hand, you mentioned that from 1992, we were a separate company. That is true. As far as operation is concerned, when it comes to long distance communication, yes, we have seen duplication as a result. So we believe that there is potential benefit from that. So -- and according to simulations, the benefit could be as high as several hundred billions of yen.
So how can we integrate that? So that's one possible agenda for discussion between DOCOMO and NTT Communications going forward.
And as far as buildings and facilities are concerned, the number is not many, but there are separate buildings and facilities run by NTT Communications and DOCOMO. So how do we deal with that? And also as far as operation is concerned, the size, the scale of NTT Communications is not all that sizable. But I suppose if the 2 companies are combined, the impact of this size could be in the range of tens of billions of yen, hundred billions of yen. Some tuck-in generalities here. So what step can we take and what synergies can be generated? After the tender offer period is over, we would like to set up a working team and then give these matters consideration. So that is how you should understand the current situation.
Next question, Mizuho Securities, Mr. Hori.
I'm Hori from Mizuho Securities. I have 2 questions. Last time, DOCOMO 2019 in April, they came out with a new rate. At that time, it seems that you, Mr. Sawada, your tone was in a way that they have to be more proactive, more aggressive is how I understood it. It was the tone of go and get your customers. So it seems -- is it better to think that your tone has changed slightly?
Basically, it hasn't changed. However, in reality, they've done the new rate for 1 year. And how should I say this? Whether they are increasing their market share or not, they are struggling. Therefore, we need them to think reality and come up with measures and consider measures is what I want them to do. It's not that my tone has become softer or anything like that.
So you are thinking the reality, too.
Yes.
Okay. Then my second question is that when it becomes -- when you had the meeting regarding the wholly owning NTT DOCOMO, towards the midterm plan, the minority shareholders profit being able to incorporate that, that you'll be able to add JPY 50 to the EPS. That was the calculation that you've done is what I've heard. And currently, you are in the middle of [indiscernible] period and DOCOMO's rate. How is that going to respond and something that's going to discuss moving forward?
And as asked as a question right now, the synergy part also, all that being considered is reflected in this JPY 50, or is it going to be more than -- or an upside of JPY 50? The midterm plans, EPS target, all those numbers, after they all come out at the year-end result announcement, can we have expectations that you will have some sort of a guidance as such?
That is the target I have for the actions to be taken moving forward. So timing-wise, it will be May. But regarding the content, the target is JPY 320 right now. This JPY 50, if that's an incremental, that's not the fact. It is one of the measures, but this JPY 50, the minority shareholders incorporated a JPY 200 billion increase, and there's an EPS of JPY 50 increase. That's true, but that's that.
It's the same way of thinking of when we conduct M&A. So including this point, our midterm management strategy, how much of an increase can we have there? I think that's the way to think of this.
So you are meaning that's not just this, but this synergy that's becoming more realized, and there are some upside factors?
Yes.
Thank you very much. I think we have taken all the questions that were registered. Are there any additional questions from those of you who are connected? [Operator Instructions] It seems that there are no additional questions. So at this juncture, with this, would like to conclude the presentation of the second quarter results for fiscal year 2020. Thank you for attendance. Thank you very much, ladies and gentlemen.
Thank you very much, ladies and gentlemen.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]