Operating in a wide range of markets, the Group faces a variety of risks in its operations. The major risks envisioned by the Group at the end of July 2011 that could significantly affect investors' investment decisions are outlined below.
These factors do not include all of the risks that the Group could face in the course of its future business operations. Forward-looking statements were determined at the end of July 2011, unless otherwise stated.
Demand for services and products provided by the Group (including but not limited to telecommunications services and Internet advertising) is subject to economic conditions. Therefore, economic deterioration could affect the Group's operating results.
The Group's primary business domain is the information industry, which is subject to rapid changes in technology and business models. If for some reason, the Group is unable to develop or launch outstanding, up-to-date technologies or business models, its service offerings will lose competitiveness in the markets, making it difficult to acquire and retain customers. This could have an impact on the Group's operating results.
To maintain and enhance the quality of telecommunications services, the Group must continuously increase the capacity of its telecommunications networks based on predictions of the amount of future network traffic. The Group thus plans to systematically increase network capacity. However, if the actual amount of network traffic were to drastically exceed the Group's predictions, service quality could be adversely affected, making it difficult to acquire and retain customers. In this case, the Group would also need to make additional capital investment. These outcomes could have an impact on the Group's operating results and financial position.
The Group makes use of certain telecommunications lines and facilities owned by other telecom operators when constructing the telecommunications networks required for providing telecommunications services. The Group's business development and operating results could therefore be impacted if for some reason it became difficult to continue to use those facilities, or if utilization or connection rates for those facilities were to be increased.
The Group procures telecommunications equipment, network devices, and so forth (including but not limited to mobile devices and servers) from other companies. The Group may be unable to switch suppliers or equipment in a timely manner should problems occur with the procurement of this equipment, such as supply interruptions, delivery delays, order volume shortfalls, and defects. Suppliers may also cease providing the maintenance and inspection services required for telecommunications equipment to maintain performance. Either of these situations could impede the Group's provision of services, making it difficult to acquire and retain customers. This could have an impact on the Group's operating results.
The Group consigns sales activities, acquisition and retention of customers mainly for telecommunications services and the execution of other related operations in whole or part to subcontractors. The Group's business development could therefore be impacted if for some reason these subcontractors are unable to execute operations in line with the Group's expectations.
The Group also has a network of sales agents responsible for the sale of the Group's services and products. Damage to the credibility or image of these sales agents would also have a negative impact on the Group's credibility or corporate image. This could hinder business development and the acquisition and retention of customers, which could impact the Group's operating results.
Furthermore, if these sales agents should fail to comply with laws and regulations, the Group could receive a warning or administrative guidance from the regulatory authorities, or be investigated for nonfulfillment of its supervisory responsibility, and the Group's credibility or corporate image could deteriorate as a result, making it difficult to acquire and retain customers. This could impact the Group's operating results.
The Group makes use of the Yahoo! brand belonging to U.S. company Yahoo! Inc. in certain service names such as Yahoo! JAPAN, Yahoo! BB, and Yahoo! Keitai. If the Group were to become unable to use the Yahoo! brand due to a drastic change in its relationship with Yahoo! Inc. or other reasons, the Group may be prevented from developing businesses as anticipated.
In certain instances, the Group's competitors may have a competitive advantage over the Group in terms of capital, services and products, price competitiveness, customer base, sales capability, brands, or public recognition. If these competitors were to sell services and products that harness these competitive advantages to a greater extent than at present, the Group's competitiveness in the markets may diminish. As a result, the Group may be unable to provide services and products, or attract or retain customers as anticipated. This could impact the Group's operating results.
Moreover, when the Group introduces highly competitive services, products and sales methods ahead of its competitors, the Group's competitive edge may be diminished if the Group's competitors deploy equivalent or better services, products and sales methods. This could impact the Group's business development and operating results.
If the Group's mobile telecommunications and other services were to be used to commit crimes such as bank-transfer phishing scams, the Group's credibility or corporate image could be damaged, and business development could be negatively affected.
Unforeseen situations concerning key members of management – especially chairman and CEO of the Company and Group representative Masayoshi Son – could impede the Group's smooth business development.
In its business operations, the Group handles customer information (including personal information) and other confidential information. This information could be leaked outside the Group either intentionally or accidentally by a person related to the Group or a subcontractor, or through a malicious attack by a third party. An information leak could damage the Group's competitiveness, in addition to having an adverse impact on the Group's credibility or corporate image and making it difficult to acquire and retain customers. These outcomes could impact the Group's operating results.
The Group may be unable to continuously provide various services, including telecommunications services, due to human error or serious problems with equipment or systems.
If such disruptions were to become widespread and/or significant time were required to restore services, the Group's credibility or corporate image could deteriorate, making it difficult to acquire and retain customers. This could impact the Group's operating results.
The Group constructs and maintains telecommunications networks and information systems necessary for the provision of various services, including Internet and telecommunications services. Natural disasters, such as earthquakes, typhoons, flooding, and tsunamis, other unexpected disruptions such as fires, power outages or shortages, or external attacks of some kind such as terrorist attacks or computer viruses could interfere with the normal operation of telecommunications networks and information systems. This could hinder the provision of various services by the Group.
If these impacts were to become widespread and/or significant time were required to restore services, the Group's credibility or corporate image could deteriorate, making it difficult to acquire and retain customers. This could impact the Group's operating results.
The head offices and business offices of various Group companies are concentrated in the Tokyo Metropolitan Area. The possibility therefore exists that a major earthquake or other force majeure event in the area could incapacitate these business locations, impeding the continuity of the Group's business.
The Group conducts business and investment overseas in Asia and other regions and countries. The enactment of or revisions to the laws or regulations of these countries or regions could prevent the Group from conducting business activities as anticipated, or delay or prevent the recovery of the Group's investments, with a consequent impact on the Group's operating results and financial position. In addition, such enactment of and revision to laws or various regulations could also restrict the Group from engaging in new businesses or investments, or prevent the Group from carrying out its strategy as anticipated.
Moreover, a change in the political and social conditions in such countries and regions could prevent the Group from carrying out its business activities or could delay or prevent the recovery of the Group's investments as anticipated.
The Group conducts investment activities for the purpose of setting up new businesses, and expanding existing businesses, including corporate acquisitions, establishment of joint ventures and subsidiaries, and investments in operating companies and funds. If an invested company is unable to conduct business as anticipated at the time of the Group's investment, the Group's business development and operating results could be impacted. The Group may also book valuation losses and other charges in the event of a decline in the value of equity interests and other assets acquired through investment activities. This could impact the Group's operating results.
Additionally, the Group occasionally provides financial assistance to invested companies through loans and other means. However, if the invested company is unable to conduct business in line with the Group's expectations, this could impact the Group's operating results.
The Company invests in overseas companies directly or through its overseas subsidiaries, and via other means. The Company may incur a foreign exchange loss if it sells its equity interests, including the stock of such overseas companies, when the yen is stronger than at the time of investment. A foreign exchange loss may also be incurred if overseas subsidiaries and so forth repatriate proceeds from the sale of shares and other equity interests to Japan when the yen is stronger than at the time of investment. Such foreign exchange losses could impact the Group's operating results.
The Group procures the funds it requires for developing its business by borrowing from financial institutions, issuing corporate bonds, and other sources. The Group also makes capital investments utilizing leases. The cost of procuring funds could increase because of rising interest rates or a decline in the Group's creditworthiness stemming mainly from the downgrading of the credit ratings of SOFTBANK CORP. or its Group companies. Such an increase in fund procurement costs could impact the Group's operating results. Furthermore, depending on financial market conditions, the Group may be unable to procure funds or structure leases as planned. This could have an impact on the Group's business development, operating results, and financial position.
The Group is subject to various laws and regulations pertaining to general corporate business activities, as well as laws and regulations governing specific business operations, such as the Telecommunications Business Law and Radio Law in the telecommunications business. Revisions to such laws and regulations, or the enforcement of new laws and regulations, could prevent the Group from developing businesses as anticipated.
The revision and establishment of mainly the following government policies for the telecommunications sector in Japan, along with the revision and development of accompanying regulations, could have an impact on the Group's business development and operating results:
a) Regulations regarding the status of business management and operations of the NTT Group;
b) Designated telecommunications facilities system (rules on open access to optic-fiber facilities, etc.);
c) The scope of universal service and the universal service fund system;
d) Regulations regarding access to the next-generation networks (NGN) and other infrastructure of Nippon Telegraph and Telephone East Corporation and Nippon Telegraph and Telephone West Corporation;
e) Regulations regarding access charge calculation formulas for mobile telecommunications services;
f) Regulations and rules concerning the mobile communications business model (SIM Lock*1 regulations and rules on promoting new entry by Mobile Virtual Network Operators (MVNOs));
g) Radio utilization fee structure;
h) Spectrum allocation system, such as reallocation of spectrum and introduction of an auction system;
i) Entry of new operators into newly allocated spectrum bands;
j) Regulations concerning the effect of radio waves on health;
k) Regulations concerning personal information and customer information;
l) Regulations concerning the presentation of advertising for telecommunications services;
m) Spam regulations;
n) Regulations on responses to unlawful and harmful information on the Internet and access to such information;
o) Regulations concerning the improper use of mobile phones.
If the Group were to unintentionally infringe on intellectual property rights held by third parties, it may be prevented from using the intellectual property or subject to claims for compensatory damages from the third party. Such actions could hinder the Group's business development.
On the other hand, if intellectual property held by the Group, such as the SoftBank brand, were infringed upon by a third party, such an infringement might have a negative impact on the Group's credibility or on its corporate image.
The Group faces the possibility of lawsuits by third parties claiming compensatory damages for the alleged infringement of rights or benefits. These third parties may include customers, business partners, and employees. Such lawsuits could hinder the Group's business development or may impair the Group's corporate image, as well as create a financial burden. These outcomes could have an impact on the Group's operating results.
The Group may be subject to administrative sanctions and guidance by government agencies. Such administrative actions may hinder the Group's business development and may create a financial burden that could have an impact on the Group's operating results.
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