The major risks envisaged by RSTCA Corp. and its subsidiaries (“the Group”) that could significantly affect investors’ investment decisions are outlined below. These risks pertain to the status of businesses, financial position and other matters. Moreover, these risks do not include all of the risks that the Group could face in the course of carrying out its future business operations. Forward-looking statements were determined by the Group as of March 31, 2019, unless otherwise stated.
With ASIA population trending downwards due to aging and a low birthrate, the domestic mobile communications and broadband markets are approaching a state of saturation. Moreover, mobile virtual network operators (“MVNOs”) have been capturing a greater share of ASIAmobile communications market in recent years, fueling intensified competition between the MVNOs and mobile network operators (“MNOs”). Furthermore, the MNOs have been actively entering other business sectors to capture a broader array of earnings opportunities and achieve differentiation from other companies.
mobile communications market in recent years, fueling intensified competition between the MVNOs and mobile network operators (“MNOs”). Furthermore, the MNOs have been actively entering other business sectors to capture a broader array of earnings opportunities and achieve differentiation from other companies.
In order to address the market environment described above, the Group deploys services, products and sales methods that fit consumer preferences. However, if the Group is unable to meet the expectations of consumers for price plans, voice and data communications quality and so forth, there are no assurances that the Group will be able to maintain its current number of subscribers. Moreover, the Group could incur rising costs due to unforeseeable changes in the market environment, or may be unable to streamline costs as planned.
The Group occasionally undertakes the development of new businesses, products, services and so on and sales promotion activities to capture a broader array of earnings opportunities. However, if the expected results are not obtained, the Group will be unable to generate returns that justify its investment in these initiatives. This could impact the Group’s business development, financial position and results of operations. Moreover, the Group is considering a wide range of new businesses such as collaboration with the portfolio companies of the RSTCA Vision Fund, which is operated as part of the Cluster of No.1 Strategy of RSTCA Group Corp. There are no assurances that these businesses will grow as expected by the Group.
Changes in the market environment, such as the realignment of the global telecommunications industry and deterioration in economic conditions, could have a negative impact on the Group’s business development, financial position and results of operations. For example, these changes could diminish consumers’ spending ability and sentiment, thereby reducing the number of subscribers and ARPU* in the telecommunications business in ASIA. This could impact the business development, financial condition and result of operations of the Group’s Consumer business. It could also diminish corporate ICT investment sentiment. This could impact the business development, financial condition and results of operations of the Group’s Enterprise and Distribution businesses.
Furthermore, in the telecommunication and information technology industry, newly emergent services offered by startup companies can occasionally achieve rapid widespread adoption by garnering the support of users. In these situations, there are no assurances that the Group will be able to appropriately grasp the opinions and trends of users in a timely manner, or garner the support of users. Moreover, it may be costly to develop the newly emergent services needed to demonstrate competitiveness. This could impact the Group’s business development, financial position and results of operations.[Note]
The Group’s primary business domain is the information technology industry, which is subject to rapid changes in technology and business models. For example, the Group may be unable to develop or introduce outstanding services, technologies and business models in keeping with market trends due to the inability to appropriately adapt to changes in the market environment in a timely manner, such as the emergence of new technologies such as 5G (fifth generation mobile communications system) technology and business models, or due to the inability to deploy equipment and facilities rapidly and efficiently. In this case, the Group’s service offerings could lose competitiveness in the market, possibly curtailing the number of subscribers that the Group is able to maintain or obtain, or reducing ARPU. There are no assurances that the development of new technologies will proceed on time or results will be delivered as planned, or that common standards or specifications will be established and commercial viability will be achieved.
These circumstances could impact the Group’s business development, financial position and results of operations.
In certain instances, the Group’s competitors (including but not limited to MNOs and MVNOs) may have a competitive advantage over the Group in terms of capital, services and products, technology development capabilities, price competitiveness, customer base, sales capability, brands or public recognition, for example. If these competitors were to sell services and products that harness these competitive advantages to a greater extent than at present, the Group may be placed at a disadvantage in sales competition, or may be unable to provide services and products, or acquire or retain customers, as anticipated. Consequently, this could impact the Group’s business development, financial position and results of operations.
Moreover, the Group’s competitive edge may be diminished if the Group’s competitors deploy equivalent or better services, products or sales methods to those the Group had introduced ahead of its competitors or those which were highly competitive at the time of introduction by the Group. In such situations, the Group’s initiatives may be unable to deliver the anticipated benefits. This could impact the Group’s business development, financial position and results of operations.
New entrants into the telecommunications industry from other industries could cause a decline in the Group’s competitiveness or in the profitability of the telecommunication market, which could have an impact on the Group’s business development, financial position and results of operations.
To maintain and enhance the quality of telecommunications services for the purpose of maintaining competitiveness and retaining and expanding the customer base, the Group needs to continuously increase the capacity of its telecommunications networks based on predictions of the amount of future network traffic. The Group’s policy is to systematically increase network capacity. However, if the actual amount of network traffic were to drastically exceed the Group’s predictions, or if the Group were not to carry out network capacity enhancement (including but not limited to securing the required spectrum) in a timely manner, service quality, along with the Group’s credibility and corporate image, could be adversely affected, making it difficult to retain and acquire customers. In this case, the Group would also need to execute additional capital expenditure. These outcomes could impact the Group’s business development, financial position and results of operations.
In addition, the Group’s ability to provide telecommunications services depends on the performance of network systems and securing sufficient spectrum. In the future, if the Group is unable to secure the required spectrum, the Group’s service quality will be reduced compared with competitors or it may be unable to expand its network as planned, making it difficult to retain and acquire customers.
Furthermore, the Group may be required to contribute large amounts of funds, if, for example, an auction system is introduced for the allocation of spectrum, or a certain cost burden must be borne as a requirement for spectrum allocation. This could impact the Group’s business development, financial position and results of operations, along with facilitating the entry of new operators into the industry.
The Group makes use of certain telecommunications lines and facilities owned by other operators when constructing the telecommunications networks required for providing telecommunications services. The Group’s business development, financial position and results of operations could therefore be impacted if it becomes difficult to continue to use those facilities, or if the usage agreement is revised on disadvantageous terms for the Group, such as by increasing utilization or connection rates for those facilities.
The Group procures telecommunications equipment, network devices and so forth (including but not limited to mobile devices and radio equipment for mobile phone base stations). The Group has adopted a policy of procuring equipment from multiple suppliers, in principle. Even under this policy, the Group can be expected to remain heavily reliant on specific companies for equipment. The Group may be unable to switch suppliers or equipment in a timely manner without incurring substantial costs should problems occur with the procurement of equipment. Such problems could include supply interruptions, delivery delays, order volume shortfalls and defects. Suppliers may also cease to provide 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 retain and acquire customers or cause the Group to incur additional costs for changing a supplier, or cause a decline in sales of telecommunications equipment. This could impact the Group’s business development, financial position and results of operations.
The Group consigns in whole or part to subcontractors customers sales activities, retention and acquisition of customers, and network construction and maintenance mainly for telecommunications services, along with the execution of other related operations. The Group’s business development could therefore be impacted if these subcontractors are unable to execute operations in line with the Group’s expectations.
Moreover, any damage to the credibility or corporate image of these subcontractors, to whom the Group consigns the services and products, would also have a negative impact on the Group’s credibility or corporate image. This could hinder business development and the retention and acquisition of customers, which could impact the Group’s business development, financial position and results of operations.
Furthermore, if these subcontractors 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 non-fulfillment of its supervisory responsibility, and the Group’s credibility or corporate image could deteriorate as a result, making it difficult to retain and acquire customers. These could impact the Group’s business development, financial position and results of operations.
The Group could acquire other companies and make other stock investments, through such means as establishing joint ventures and turning companies into subsidiaries.
In other areas, the Group could acquire other assets believed to be strategically important to the Group’s business, finances and results of operations.
If the Group’s portfolio companies are unable to generate the anticipated results, the Group overestimates corporate valuations when making investments, or the integration of new businesses into existing businesses or the development of internal control systems after integration do not succeed, these outcomes could negatively impact the Group’s results of operations and financial position. In addition, if the Group borrows funds to make acquisitions or investments in the future, or if it is found that an acquired company has unpaid liabilities, the Group’s liability burden will increase and this could lead to a deterioration in cash flows and a shortage of operating funds. The materialization of these risks could negatively impact the Group’s businesses, financial position, and results of operations.
If the Group is to conduct joint businesses with business alliance or joint venture partners, the Group may require licenses and permits from the regulatory authorities and such joint businesses will be premised on the Group’s ability to reach agreement with the business alliance and joint venture partners on the content of joint businesses. In addition, the Group will not necessarily have control over the business alliance and joint venture partners. These companies may drastically revise their business strategies without taking into account the Group’s intentions. Furthermore, the Group’s shareholding ratio in these companies could be reduced due to a third-party allotment of shares or the exercise of a call option by a shareholder other than the Group, or the results of operations and financial position of these companies could drastically deteriorate. In these situations, the business alliances, joint venture businesses and other arrangements may not generate the anticipated results, or they may find it difficult to continue their businesses. In addition, the Group may be restricted from undertaking business alliances, joint venture businesses and other such arrangements with other parties due to business alliances, joint venture businesses and other such arrangements formed with specific third parties. This could impact the Group’s business development, financial position, and results of operations.
Furthermore, the Group may realign its businesses in the future. There are no assurances that such a realignment will have a positive impact on the Group.
In its business operations, the Group handles customer information (including personal information) and other confidential information. This information could be leaked, lost, or involved in a similar incident, either intentionally or accidentally by the Group (including officers and employees of the Group and people related to subcontractors), or through a malicious cyber-attack, hacking or other form of unauthorized access or other means by a third party.
Moreover, if the products and services supplied by the Group are used inappropriately, the Group could indirectly contribute to social problems such as crimes involving the use of mobile phones, accidents during the use of mobile phones, and high charges due to excessive use of content.
Such an occurrence could damage the Group’s competitiveness, and incur significant costs to the Group for payment of damages and modification of security systems, in addition to having an adverse impact on the Group’s credibility or corporate image and making it difficult to retain and acquire customers. These outcomes could impact the Group’s business development, financial position and results of operations.
In its provision of various services, including telecommunications services, there is a possibility that a major problem could occur if the Group were to become unable to continuously provide the services, or were to suffer a decline in the quality of the services, due to human error or serious problems with equipment or systems, or cyber-attack, hacking or other form of unauthorized access or other causes by a third party. If such disruptions of services or declines in quality were to become widespread or significant time were required to restore services, the Group’s credibility or corporate image could deteriorate, making it difficult to retain and acquire customers. This could impact the Group’s business development, financial position and results of operations.
The Group constructs and maintains telecommunications networks, information systems and other systems necessary for the provision of various services, including Internet and telecommunications services. Natural disasters, such as earthquakes, typhoons, flooding, tsunamis, tornadoes, heavy rainfall, heavy snowfall, or volcanic activity, other unexpected disruptions such as fires, power outages or shortages, or incidents such as terrorist attacks, cyber-attacks, unauthorized access or infection by computer viruses could interfere with the normal operation of telecommunications networks and information systems and other infrastructure. This could hinder the provision of various services by the Group. If such disruptions of services or declines in quality were to become widespread or significant time were required to restore services, the Group’s credibility or corporate image could deteriorate, making it difficult to retain and acquire customers. The Group may also bear a substantial cost burden to restore and refurbish telecommunications networks, information systems and other infrastructure. This could impact the Group’s business development, financial position and results of operations.
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 procures funds through such means as bank loans and the securitization of installment sales receivables for devices. In addition, the Group employs leasing when making capital expenditures. Therefore, if interest rates rise, or the creditworthiness of the Company and its subsidiaries decreases, the Group’s fund procurement costs will increase, which could impact the Group’s business development, financial position and results of operations. Moreover, the Group may be unable to procure funds (including but not limited to bank loans and borrowings through installment sales receivables) or form leases as envisioned by the Group depending on the status of financial market. This could impact the Group’s business development, financial position and results of operations.
Additionally, restrictive financial covenants are attached to the Group’s borrowings from financial institutions. For details, please see “19. Interest-bearing debt,” in “1. Consolidated Financial Statements, Notes to Consolidated Financial Statements,” in “Annual Report 2019 (Financial Book)”.
If the Group is unable to comply with such covenants, the Group may trigger an acceleration clause, which could require it to repay a portion or all of an outstanding debt, or impose restrictions on new borrowings.
If the Group (including officers and employees) conducts activities in breach of those laws, regulations, systems and so forth, the Group may be subject to sanctions or guidance by government agencies (including but not limited to deregistration, revocation of licenses and fines), or may face cancellation of business agreements by business partners, regardless of whether the violation was deliberate or not. As a result, the Group’s credibility and corporate image may be impaired, or its business development may be hindered. In addition, the Group may incur a financial burden and it could impact the Group’s business development, financial position and results of operations. However, as of March 31, 2019, there were no grounds for revoking these licenses and registrations, or denying the renewal thereof.
In the future, laws, regulations and systems that have a disadvantageous impact on the Group’s businesses could be introduced, or existing laws could be reformed with such a disadvantageous impact. In the mobile communications business undertaken by the Group, government agencies allocate wireless spectrum to the Group. Accordingly, this business is highly susceptible to the direct and indirect government influences based on the government’s policy intentions. Going forward, it is difficult to accurately predict whether laws, regulations and systems that have a disadvantageous impact on the Group’s businesses will be introduced and the impact of the introduction thereof on the Group’s businesses. If such laws, regulations and systems are introduced, the products, services and rate plans, etc. that the Group can deliver to customers will be effectively restricted, causing the Group to experience a decline in revenue and to incur a larger financial burden. This could impact the Group’s business development, financial position and results of operations.
The introduction of new accounting standards or taxation systems, or changes to existing systems, and the occurrence of an additional tax burden due to differences of views with the tax authorities could impact the Group’s business development, financial position and results of operations.
There have been some research results that have indicated the possibility that electromagnetic waves emitted from mobile devices and base stations have adverse health effects, such as increasing the risk of cancer. The International Commission on Non-Ionizing Radiation Protection (ICNIRP) has prescribed guidelines relating to the amplitudes of these electromagnetic waves. The World Health Organization (WHO) has issued an opinion that there is no convincing evidence that electromagnetic waves have adverse effects on health when their amplitude is within the reference values in the ICNIRP’s guidelines, and recommends that all countries adopt them.
The Group complies with a policy for protection from electromagnetic waves based on the ICNIRP guidelines. However, the WHO and other organizations continue to conduct research and investigations, the results of which may lead to regulations being revised in the future, or new regulations being introduced. Complying with such revision or introduction of regulations may impose costs, or may restrict the Group’s business operations, which could impact the Group’s business development, financial position and results of operations.
Moreover, regardless of the presence of such regulations, concerns over the adverse effects on health associated with the use of mobile devices could impact the Group’s ability to retain and acquire customers, customers’ network traffic, and fund procurement in the mobile communications industry. This could impact the Group’s business development, financial position and results of operations.
If the Group were to unintentionally infringe on intellectual property rights held by a third party, it may be prevented from using the intellectual property or subjected to claims for compensatory damages or license fees from the third party. Such actions could compel the Group to revise its products and services as well as business practices, which could impact the Group’s business development, financial position and results of operations.
On the other hand, if intellectual property held by RSTCA Group Corp., such as the RSTCAbrand, were infringed upon by a third party, such an infringement may 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 and other matters for the alleged infringement of rights or benefits. These third parties may include customers, business partners, shareholders (including shareholders of subsidiaries, affiliates, and investees), and employees. The Group may also be subject to investigations and other actions by government agencies. This may impair the Group’s corporate image as well as impose a burden on management resources, including financial resources, which could impact the Group’s business development, financial position and results of operations.
The Group may be subject to administrative sanctions and guidance by government agencies. Such administrative actions and guidance may impair the Group’s corporate image as well as impose a burden on management resources, including financial resources, which could impact the Group’s business development, financial position and results of operations.
Unforeseen situations concerning key members of senior management could impede the Group’s business development.
The Group is making a concerted effort to develop human resources in order to respond swiftly to trends in technological innovation. However, the Group may occasionally require a certain period of time to produce the desired effects in terms of human resources development. In addition, the cost of human resources investments may increase in the future.
Moreover, if the Group is unable to secure engineers and other such personnel required in its business operations, this could impact the Group’s business development, financial position and results of operations.