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Unknown Executive: Let me start the explanation meeting. My name is Hiraoka from Public Relations Department of KDDI. I serve as MC. Today's meeting, as is disclosed on a timely basis to present preliminary results of the third quarter of the year ending in March 2026 of KDDI. Today's presentation is being distributed on YouTube and other media in addition to the on-site. And we have put up three related materials on the KDDI website. Please refer to the materials at hand. This is the message for the people in the outside audience. Today's attendees are as follows: Hiromichi Matsuda, President, Representative Director, CEO; Senior Managing Executive Officer, CFO, Executive Director, Corporate Sector, Nanae Saishoji; Managing Executive Officer, Director, CSO and CDO, Executive Director, Corporate Strategy Division, Tomohiko Katsuki; Executive Officer, Executive Director, Corporate Management Division, Corporate Sector, Kenji Aketa. These four are in attendance. President Matsuda, please.
Hiromichi Matsuda: Thank you very much for gathering here today despite your busy schedules. First and foremost, we sincerely apologize for the significant inconvenience and concern caused to our customers, business partners, shareholders, investors and many other stakeholders, including our employees due to the suspected improper transactions at our subsidiary. We recognize this matter as a serious issue that could potentially undermine the trust in the entire KDDI Group. As the top management, I feel a profound sense of responsibility for the occurrence of this matter and for failing to prevent it. Today, I will carefully explain the details available at this time and sincerely answer your questions. Please be assured that this matter relates solely to transactions within the advertising agency business and has no impact whatsoever on the provision of communication services, including BIGLOBE. I will explain the purpose of today's preliminary results explanation. As the Special Investigation Committee's inquiry into inappropriate transactions is ongoing, the impact on our financial statements remains undetermined at this time. Therefore, we have decided to postpone the disclosure of our Q3 FY March '26 earnings release. Therefore, today's explanation is titled Q3 Preliminary Results Explanation. We will report on the facts currently recognized by the company, the outline of the financial impact and separate from this matter, the business progress for the third quarter and initiatives for future growth. Please note that the Q3 preliminary results, prior year results and financial impact figures related to this matter presented today are reference values based on facts currently recognized by the company. These figures may be subject to revision based on the findings of the Special Investigation Committee and the audit results of the accounting auditor. Final figures will be reported promptly upon completion of the investigation. At this time, we plan to receive and disclose the investigation report from the Special Investigation Committee by the end of March. Based on this assumption, we will plan to announce the Q3 results at the end of March, and we currently intend to proceed with FY March '26 financial results announcement without delay. I will now outline the key points of today's business performance briefing and preliminary results explanation. First, the inappropriate transactions that occurred at our subsidiary, then the growth of our core business foundations, including mobile in our key focus areas and the growth in the AI era. First, regarding the improper transactions that occurred at our subsidiary. This was disclosed on January 14. It has been discovered that improper transactions were allegedly conducted by employees of BIGLOBE, a consolidated subsidiary of the company and its subsidiary G-PLAN within their advertising agency business. Regarding the advertising agency business, the possibility that sales and other figures had been overstated came to light following delayed payments from certain agencies in December 2025. To clarify the facts and causes related to this matter, we determined it necessary to conduct a more specialized and objective investigation. Accordingly, we established a special investigation committee composed of external attorneys and certified public accountants on January 14. Next, an overview of the fictitious transactions we have identified. Both -- so this is the left side, which we have anticipated. Usually, from the advertiser, advertiser approaches us. Usually, there is a request to the advertising agency. And the web media becomes multiple. So there is another existence publishing agencies. This BIGLOBE and G-PLAN are in the upstream. Advertising agencies and publishing agencies, they are the intermediary. Around 2017, G-PLAN launched this business and BIGLOBE later entered to develop new ventures. You can see the flow here. Within this business, the money is also flowing -- subtracting the fees and the advertisement fee is paid. Within this business, we confirmed suspicions that subsidiary employees conducted fictitious transactions for advertising agency services despite the absence of actual advisers -- advertisers, resulting in the recording of fictitious sales revenue and other figures over multiple years. Now let me use the right side to explain. First of all, the discovery process. The transaction volume increased. So following an internal investigation, KDDI instructed BIGLOBE and G-PLAN to reduce orders to downstream agencies to strengthen management systems and manage business risks. This led to delayed payments from upstream agencies. Within the structure where downstream agencies deducted commissions from payments related to BIGLOBE and G-PLAN's transactions and returned them to upstream agencies, a reduction in payments from both companies decreased the funds flowing to upstream agencies. Therefore, upstream agency became unable to make payments to both companies. So this transaction volume snowballed and reaching hundreds of billions of yen per month in recent periods. Beyond the publishing agencies, there is #3 and #1, the upstream agencies. We understood that those #1 and #3 are identical. And through this fictitious transaction, BIGLOBE and G-PLAN, posting of revenue was excessive. And because it's fictitious transactions, the fee was flowing outside. And the impact is on next page. At the top, as of today, these are the impacts that we recognize. As I mentioned earlier, because of fictitious transactions, we need to cancel booked revenue, part of the booked revenue. And this is before FY '24 March, about JPY 96 billion and for FY '25 March, JPY 82 billion; and FY '26 March, JPY 68 billion, the total of JPY 246 billion. Below that, operating income, reversal of recorded income, about JPY 8 billion or JPY 17 billion and about JPY 25 billion. These profits are to be canceled. In addition, as I mentioned earlier, the commissions, which are outflow, and we have provisioning for that, JPY 5 billion, JPY 11 billion and JPY 17 billion. And as to JPY 33 billion approximate number, we are going to make efforts to recover this amount. In addition, including the prior years, there is a possibility of recognizing impairment losses. At the bottom, next steps. As I mentioned earlier, at the end of March or beyond, we are going to publicize the report of investigation as well as financial results without delay. In addition, in a parallel way, doing and strengthening the company group's governance and examining recurrence prevention measures will be taken. Now this is our commitment to future actions. First, we are fully committed to cooperating with the Special Investigation Committee, diligently uncovering the facts and thoroughly analyzing the causes. I myself will take the lead in actively addressing these issues to restore and strengthen the trust for our group. Our company opposed the KDDI philosophy, which embodies the shared values and code of conduct that every individual should uphold. We will create an environment where transparency and fairness underpin our work, ensuring that these principles are communicated throughout the entire group and practiced consistently. By doing so, we aim to foster a culture that enhances both human capabilities and ethical standards to meet expectation and to regain trust, of course, we will make efforts to do everything to avoid any reoccurrence of similar matters. At the same time, it is indispensable for us to continue to develop our business for sustainable business operation. So, from now on, I would like to communicate to you specifically what initiatives or measures we will take. Now this is as reference figures. I present consolidated results for the third quarter FY 2025. And we have revised both prior year and this year because of the impact coming from the matter. Please refer to the bottom column. And we have canceled the revenue and income associated with fictitious transactions. And on the right-hand side, we are showing the numbers as reference values after the provisioning of external outflow. So, in year-on-year comparison with the actual results, the cumulative results for the first three quarters are as follows: operating revenue plus 3.8%; operating income, plus 2% and the profit for the period, plus 5.3%, we are performing well. So that is the cumulative base consolidated results change factors. From the left-hand side, we have the Mobile personal services segment base, plus JPY 27.2 billion and the Finance Energy Lawson, plus JPY 18.2 billion; and DX business services segment, plus JPY 8.5 billion; Technological structure reform, plus JPY 12.9 billion and impact of prior year's promotional expenses, minus JPY 28.9 billion. And based on those numbers, the total of plus JPY 17.4 billion positive. And also the mobile-related revenue grew and it's expanded and the finance and the DX are is moving on smoothly. And this is the Q3 alone consolidated operating income and the factors for change. In addition to each business domain growth, negative impact from prior year's promotional expenses has also subsided. So we are seeing positive growth. And now I would like to explain about this year's topics. The mobile business is making steady progress in structural transformation. building a stable business foundation that will serve as a pillar for sustainable growth. Mobile revenues bottomed out in FY March '24 and growth accelerated on a nine-month cumulative basis in FY March '26 with an increase of JPY 29.9 billion year-on-year. Right side, we are shifting away from excessive promotional competition and focusing on LTV. Structural transformation is also progressing, and we are building a lean and mean operational base with ARPU growth driven by value creation and churn rate reduction through longer contract duration. These are the key points of structural transformation of the mobile business that we explained in our Q2 financial results. We are promoting initiatives to secure long-term contracts by creating value that motivates customers to sign up shown on the left. And refining au's communication quality and differentiated value services shown in the center. This shows creating value that motivates customers to sign up to maximize LTV. Left side, at UQ Mobile, we are focusing on promotions that suggest the optimal device to customers and device bundled contracts, which have higher ARPU and contracts retention rate are on the rise by 4 percentage points. Right side, we are also working to differentiate our plans and services and money activity plan to Ponta pass and Netflix are all performing well, which has increased ninefold. We are enhancing the value of the connected experience, which is the source of our competitiveness. We aim to expand the 5G SA area, which provides more stable communication with stand-alone 5G to over 90% population coverage by the end of the fiscal year, which will be one of the highest in the industry. Right side, au Starlink Direct was launched in April 2025 and has expanded to over 80 devices, 10 million units in less than a year with a number of connections reaching approximately 3.5 million. Recently, there was a report of a fall while ice climbing in Hokkaido and one of them used this service to send SOS, which led to a rescue. Last week, the coverage area doubled, now covering the Ogasawara Islands and all major ferry routes. And in March, the service will be available outside of Japan in the U.S. as well. This shows the result of ARPU growth driven by value creation, which is a factor towards leaner and meaner operation base. Our value creation efforts have been successful as shown on the left. And regarding brand migration, UQ mobile to au migrations finally surpassed au to UQ mobile migrations on a quarterly basis. These factors also contributed to the significant growth of mobile ARPU by JPY 190 year-on-year, as shown on the right. The second factor towards leaner and meaner operation base is churn rate reduction due to longer contract trend. Left side, au contract retention rate is improving as customers are finding the value they receive during sign-up attractive. These trends are accumulating and the momentum remains strong, as shown on the right. The smartphone churn rate in Q3 of FY March '26 fell by 0.01 percentage points year-on-year, showing steady improvement. We are making progress in addressing the financial business, which was identified as an issue in Q2 financial results. In Q3, credit card business mainly drove profit growth with operating income up by 30.5% year-on-year on a cumulative basis. As shown on the right, the bank's deposit procurement capability, which had been a challenge, has improved steadily and the personal deposit balance expanded by 1.3x year-on-year and number of gold credit card members also increased steadily by 24.5% year-on-year. Another challenge for us, namely the Business Services segment. Here, growth was seen in each business area. As shown on the left, the growth of the third quarter alone was plus 7.7%, showing a strong momentum. In particular, the BPO/SI-related services, which had been identified as an issue in the first half, turned around and increased profits in the third quarter. On the right-hand side, IoT drove growth, increasing about double digit year-on-year. And especially IoT, including the SORACOM, the connections exceeded 66 million. On the left-hand side, we have the Lawson and Ikeda City in Osaka, we are working on the development of the town where you can leave in a secured and safe manner. And on the right-hand side, we are using drone to instruct the disaster-related location and we have more 1,000 locations where we have the drone ports, and we'd like to construct very agile and safe system for the disaster. And now the management platform and how to strengthen it. In light of inappropriate transaction of our subsidiaries, we will be even more conscious of the importance of governance. And as you can see on the left-hand side, we have the KDDI philosophy, which emphasizes the human capabilities and the KDDI version of its job-based personnel system has created a mechanism to enhance expertise. And as shown here, with the shift to a new management structure, we will further strengthen our core competencies by combining these with our aspiration to be a company that inspires challenges. To take on challenges, we will introduce systems and programs that celebrate challenges and promote collaboration and advance human resource development in line with our business strategies for growth. Now I'd like to talk about our efforts towards growth in the AI era. As a social infrastructure provider, it is our responsibility to support Japan's digital society and contribute to strengthening industrial competitiveness with both our cultivated communications infrastructure and our new AI infrastructure. As AI becomes more widespread in a variety of settings, an AI infrastructure that can process data securely with low latency will be important. Left side, with an eye towards such era, we ensured sovereignty and began operations at the Osaka Sakai Data Center in January as a data hub for securely processing corporate data. We have achieved efficiency gains by utilizing the existing space. And following Sakai, we plan to launch the Miyazaki Network Center in February as a communication hub, leveraging the knowledge gained at Sakai to expand into an AI data center. So we will expand operations in the counter region and Kyushu and so on. and utilize our existing landing stations to connect AI data centers with our strong communications network, building an AI digital built, a nationwide low latency network and AI computational infrastructure. We will also utilize the landing stations and submarine cables across the country to enhance the value of the AI digital belt. And we are going to create a hub by connecting landing stations and submarine cables. KDDI possesses some of Japan's leading know-how and assets covering everything from submarine cable installation to maintenance with over 60 years of experience, 360-day availability and landing stations across the country. We also strengthened Universal Joint connection technology for optical submarine cables and possess world-class technological capabilities. By leveraging these assets, we will develop landing stations near AIDCs and expand accessibility by AI computation infrastructure to overseas locations, thereby capturing global demand. Today, at the Board of Directors meeting, we decided we resolved to launch a new AI integration business cooperation. The communication platform on top of that, we need this AI platform. We have lots of contacts with customers. So the AI is -- in order to deliver AI as part of the labor force, it is very important to have solid platform. And for that, we are going to utilize our expertise and technological prowess. And also, we will integrate consulting professionals from the headquarters. And based on that, we established KDDI iret. And going forward, we will also call upon more engineers from outside, targeting at about 3,000 personnel by fiscal year 2028. Next is today's summary. First of all, the Special Investigation Committee will continue its investigation into the inappropriate transactions while the company reviews and strengthen its group governance and examines recurrence prevention measures. As to the impact amount, it is expected to include the reversal of fictitious sales and profits as well as provisions for amounts that flowed outside the company. The company will make every effort to recover the externally flowed portion. As to the schedule, as I mentioned earlier, targeting at the end of March, Special Investigation Committee is going to issue report on the investigation. And based on the results of investigation, corrections to prior financial statements and FY '26 March Q3 results will be disclosed by end of March and FY '26 March full year results will be disclosed without a delay. In the third quarter, core businesses performed very steadily, especially mobile structural reforms progressed as planned and the business foundation, including focus areas, continued to grow solidly. AI social implementation initiatives, including the AI digital build and the AI development platform are making steady progress. Even with the impact coming from inappropriate transaction, our business is performing well. And also, there is no revision to the dividend forecast for fiscal year '26 March. Thank you very much.
Unknown Executive: We will now move on to the Q&A session. [Operator Instructions]. We will take questions from front.
Unknown Analyst: Koma is my name. So about this fictitious transactions, I do not have the full understanding. So let me ask you a question. So about the amount. So maximum amount is this amount that you have shown here?
Hiromichi Matsuda: Thank you for the question. As of today, the amount that we have confirmed, the impact on revenue is this amount and the profit impact is minus JPY 50 billion. And there's a possibility of additional impairment, but the Special Investigation Committee and the audit firm will confirm and there may be a possibility of revision going forward.
Unknown Analyst: And this external flow, JPY 33 billion, if you could explain the scheme once again. So, this external flow, so upstream advertising agency and the three subcontracted party, was this external outflow from to those parties? Or was there an investment by the employees?
Hiromichi Matsuda: Yes, if you could turn to the scheme diagram. Basically, this was a fictitious transaction. The agencies received the commissions of the transaction. It subtracted the fee. So the amount is this external outflow recorded as fees? I see. So this is shown here. So, to five companies, the fee was provided in this fictitious transactions, the advertising fee that goes to the publishing agencies was also returned. G-PLAN and BIGLOBE commission was also external outflow within the group. G-PLAN and BIGLOBE fees that were deducted fees was posted, but that was fictitious. And so the sales and profit was reversed. So that's shown in orange on the upper half.
Unknown Executive: Next questions? D3 on the internal side, please.
Unknown Analyst: Kobayashi from Yomiuri newspaper. I want to clarify some facts. This [indiscernible] the booking, when did it start? And also, how many employees have been involved? I ask those questions.
Hiromichi Matsuda: So multiple number of years, that's a recognition. As a result of internal investigation, G-PLAN, this business started in 2017 and BIGLOBE, they started this business from FY 2022. This time, there are some fictitious transactions and non-fictitious ones. But the amount shown in the materials, they are all based on it, all of them are fictitious transactions. And as to the number of employees involved, G-PLAN, two, I understand that the other two are involved from the G-PLAN. And these two are seconded to the big globe and these transactions were conducted by them. That's our current recognition.
Unknown Analyst: So these two people, 2017 and onward, they booked inappropriately. And the total is JPY 246 billion. Am I right?
Hiromichi Matsuda: From the very beginning, when the advertising business was started, it is included in that amount. But from when and from where the investigation committee is still investigating it. And those numbers are as far as we recognize. So the more precisely, the committee will receive the report.
Unknown Analyst: Am I right to understand that the employees of the KDDI are not involved, right?
Hiromichi Matsuda: As to this, the commercial flow, we have already confirmed that no employee from KDDI has been involved.
Unknown Executive: [Operator Instructions] Fourth from the front to the exit, please.
Unknown Analyst: Sankei Newspaper, [indiscernible] is my name. First question. So when it started, this overlaps with the previous question, but the business started in 2017. And since then, this has been conducted. So from before the business started, the scheme was anticipated and started the business on top of based on that? Or did the business start first and then this fictitious transaction started? What do you think? What does the investigation look like so far?
Hiromichi Matsuda: According to our understanding, the amount started becoming big in recent years. And so we said we have to have a control -- tighter control internally. So until when the transaction was authentic and correct, this is still being investigated by the investigation committee.
Unknown Analyst: One more question. With this scheme, #1 and #3 were the same entity. And these agencies had to be part of the collusion. So the recovery of JPY 33 billion, will you request for the damage compensation to the agencies? Or will they be sued for criminal lawsuit?
Hiromichi Matsuda: Thank you for the question. First of all, we will wait for the result by the Special Investigation Committee. And according to that, we will take appropriate measures.
Unknown Executive: Any other questions?
Unknown Analyst: One please. [ Fujita ] from Asahi Newspaper. I would like to clarify some facts here. So this diagram of the fictitious transaction 1, 2, 3, the advertising agency, is this just a single agency or only #2 is a different agency. Multiple number of agencies are involved. #1 and #3 are the same. There's a note on the right-hand side. So that #1, #3 are the same entity. It's just one company, you mean.
Hiromichi Matsuda: Yes, we have just confirmed one and others are yet to be investigated. G-PLAN 2017 and BIGLOBE from 2022, #1 and #3. So it's not about this #1 and #3, the same entity. The 2017, when we calculated the amount, we just assumed that from the very beginning, everything was fictitious. So, back then, this entity is the same entity. We are still investigating it. So going forward, there's a possibility that there is non-fictitious transactions might be detected. That's right. As to the amount to be canceled. So about those amounts, it's not that everything is based on fictitious transactions. Well, basically, when the amount started to bigger, we thought that they were because of fictitious transactions. But as you can see at the footnote, it is either on the total sales amount or the pure sales amount. So, recently, the profit the cancellation that is getting canceled more and the transaction itself is getting bigger.
Unknown Executive: Next question, please. So A4 towards the MC.
Unknown Analyst: [ Niki Subo ] is my name. In the last financial results briefing, there was challenges you mentioned, the deposit procurement capability. I have a question on that. And then about AI-related question. First, on the deposit procurement capability. You said you are enhancing the capability. Could you elaborate on that?
Hiromichi Matsuda: Thank you for the question. So, Jibun Bank program, we are trying to enhance the benefit, but not only that, the channel, there are multiple channels. And so we're trying to appeal and working with securities brokerage partners, enhancing that to expand the deposit. And the other is plan benefit. So money activity too is launched. On the bank side, we are focusing on the plan. And so the individual personal deposit is increasing on that side.
Unknown Analyst: Next, a new AI company. You're working on the implementation, you said, trying to establish the development infrastructure. In the financial industry, the AI is used more and more. So, in the financial industry, what kind of implementation are you working on or planning?
Hiromichi Matsuda: Katsuki-san would like to respond.
Tomohiko Katsuki: Thank you for the question. AI implementation. In various industries, there are common areas. First, contact center and the fraud detection, AI will start from those areas. In our financial group, we are studying, examining the possible implementation and working with other financial institutions to conduct the POC, proof-of-concept.
Unknown Analyst: So, SoftBank has been on that, the contact center. So if you could say a little more about what you're trying to do in the new company, what is the significance of this new company?
Hiromichi Matsuda: Well, this new company is not solely for financial industry. And as we announced the Sakai last time for pharmaceutical companies and others, data, internal data and know-how that Japanese companies have will be used, managed for AI analysis. So we are being approached by pharmaceutical and other industries. Katsuki-san just talked about the financial industry, but that is the initial step. The call center is the first step. So thank you. I hope you could understand.
Unknown Executive: Next question, please. The D2, please.
Unknown Analyst: [indiscernible] As to the inappropriate transaction, the two people from G-PLAN, and they was seconded to BIGLOBE from when?. And these two employees, are they managers or executives?
Hiromichi Matsuda: Thank you for the questions. It's related to their privacy. So I would like to refrain from answering those questions, sorry.
Unknown Executive: So, B3, please.
Unknown Analyst: [indiscernible] About this matter of inappropriate transaction. These two people, they were seconded to BIGLOBE. That means that they had authorities to work both for G-PLAN and BIGLOBE. They were seconded from G-PLAN to BIGLOBE and the BIGLOBE launched this new business and these two were working on that new business. And during the secondment period, they will also be able to work for Jan as well?
Hiromichi Matsuda: Yes, usually, yes.
Unknown Analyst: As to KDDI, to reduce the downstream the ad publishing, the request to reduce it, when did it happen and why?
Hiromichi Matsuda: It was the mid-December last year. Back then, in order to strengthen the control because the amounts were getting larger and also we need to identify the risks for business. So, as to these two companies, we issued such instruction to reduce the volume. That means back then, you knew that there had been some the fictitious transactions. The specific doubt, we reduced the orders and the other payment was delayed from upstream. When that happened, we thought that we had some doubt beginning -- well, beginning to have some doubt about those transactions. In October 2025, the auditing firm pointed out some potential the fictitious transactions. And this is the table of the research. So we involved the outside the auditor and the internal auditor together started some -- the investigation. But back then, they could not get any specific evidence.
Unknown Executive: Thank you. Next question please. We'll move to the online for now. [Operator Instructions]
Unknown Analyst: Thank you. So about the fictitious transactions, so the external outflow portion, this is #1 and #3 companies. It's the amount that is paid to #1 and #3. Is that what you mean by external outflow? Or were there a possibility of outflow to other parties as well other than #1 and #3?
Hiromichi Matsuda: Thank you for the question. So you can see this on the screen. On the right side, it says external outflow. This is the gray area. So #1 and #2 -- well, #3 and #1 are the same. So #1 and #2 paid as fees of the transaction. But this transaction turned out to be fictitious. So this is the area that is outflowing -- outflow externally.
Unknown Executive: Another question from online from [ Toizai ].
Unknown Analyst: Question about inappropriate transaction. At this moment, why did it happen? How are you looking at the reason? The investigation committee is yet to come up with the conclusion. But at this moment, what is your thought?
Hiromichi Matsuda: Thank you for the question. As to the reason why, of course, we are doing investigation about it. And at the same time, the times, for example, are there any signs for such a matter to happen, we need to avoid reoccurrence of similar matters. So, in December -- I mean October 2025, there were some points made. But as to the documents, the billings and the receipts, which are the evidence of the transaction existed, and there were no problem about the impairment and outpayment, and we were told that there was no problem from the big as well. And in this advertising and the business, there are lots of people involved from downstream to upstream. And we didn't look into a very extreme of the floor. So I think that's part of the reasons this kind of matter happened, and that's some -- I think that we need to make improvements.
Unknown Analyst: Another question. So there is a governance issue. You have many subsidiaries and your business is diversified. So a company, what kind of governance issues do you recognize? And what kind of actions you would like to take about them?
Hiromichi Matsuda: Thank you for the question. We have been expanding our business, including outside directors. the corporate ethics that should be better actually that we received such point from the directors. And since last year, we have been working on that and still this kind of matter happened, and I feel very sorry about it. I think there are two things. We have KDDI philosophy to raise a spirit to improve our mindset. The KDDI and group companies together, we would like to make repeated efforts so that the philosophy will be well embedded in the organization. And also how to prevent such the matter, that process for that is yet to be established. We need to brush up our detection capability to see any signs.
Unknown Executive: [Operator Instructions]. Line B4 towards the exit, please.
Unknown Analyst: Yomiuri newspaper. [indiscernible] is my name. So my question is also on fictitious transactions. So in this scheme, #1 and #2 agencies. So it was elucidated because the payment was not done. Did you contact these companies? Is the business continuing? So that's my first question. And number two, in the scheme, how involved is this company in the fictitious transaction? In this business flow, were they used -- or did they collaborate? Did they contribute to the fictitious transaction?
Hiromichi Matsuda: Thank you for the question. The transaction is, of course, stopped. It's suspended. With some agencies, there were collaborations, but we think -- but this accuracy is now being investigated by the Special Investigation Committee. So number two, so you think some of them were collaborating, but I don't know a big picture. The big picture is now being investigated by the Special Investigation Committee.
Unknown Executive: Any other questions? B2, please.
Unknown Analyst: I am from Nikkei Newspaper. As to detection process, JPY 250 billion, the fictitious transactions. Why was it possible? I wonder. What kind of supervision did you take in the past?
Hiromichi Matsuda: You mean the supervision on the results?
Unknown Analyst: Yes.
Hiromichi Matsuda: The billing and other slips documents were there and G-PLAN and BIGLOBE based on those documents, they did issue results.
Unknown Analyst: Understood. In this -- the commercial flow, so two companies, the parent and subsidiary were involved. Is there any particular reason for that?
Hiromichi Matsuda: The BIGLOBE came into the picture not from the very beginning. So, compared to G-PLAN, because of the level of the trust and the credibility, the BIGLOBE has started its operation as a new business.
Unknown Executive: Next question, please. B3, third row towards the exit, please.
Unknown Analyst: Sankei newspaper, Fujia is my name. So my question is on fictitious transactions. So it's cumulative, but JPY 246 billion impact on sales. So this is quite large. Each individual transaction was large amount or just accumulated to be this big. So number of cases or the transaction volume value, I don't -- I know you cannot go into much detail, but just a rough image, if you could elaborate to -- for us to get a better image, please.
Hiromichi Matsuda: Thank you. So as I mentioned earlier, recently, a few tens of billions of money had been circulated back. In the scheme based on the assumption that the amount goes up month after month. And so it gradually increased and amounted to a few tens of billions of yen. So including previous years, JPY 246 billion. So this is the size of the transaction.
Unknown Analyst: How much per case? If you explain this may be too much detail, but the advertisement, how -- what's the size per case of transaction?
Hiromichi Matsuda: So it's -- I understand that it was circulated back in its snowballs. I understand that, but still the amount is large though. You are right. Basically, there was the report, the -- so we validated the validity of the transaction. But this is the fee for the posting of the advertisement and paid to each advertisement agency. So it was not for each individual advertisement.
Unknown Executive: Any other questions? Question from B1, please.
Unknown Analyst: Two questions. Yesterday, NTT DOCOMO, Mr. Maeda, President said that there is a very intensified competition. But previously, the announcement of the results, you made a shift to the LTV from the excessive competition. As to new customers and the competition for new customers, are you slowing down your efforts? Are you slowing down your speed a little bit?
Hiromichi Matsuda: As I mentioned in my presentation, the mobile revenue is increasing. And the promotional cost, I said the last time, the year-on-year basis, our promotional cost is flat. So it's not that we are using a lot more compared to the previous year. And the impact -- as to the impact, for example, the handset replacement program, there should be a good balance there. But in the third quarter, the [indiscernible] plan that is producing the good benefit for this year.
Unknown Analyst: My second question, Rakuten Mobile exceeded 10 million contracts to the end of last year. And I think roaming I think there are some difficulties, but could you please talk about the direction and your thought on this area as well?
Hiromichi Matsuda: I cannot talk about the other companies, but the competition and collaboration for roaming included, and we are also competing with them as well. So, in September this year, we are discussing with them for the roaming for September this year. The other day, the Rakuten was faced with some communication failures. And that pushed a lot of traffic toward us. The areas, in other words, are overlapping. And that should be sorted out. So -- and we are going to suspend the part of via the communication in the due course. Thank you.
Unknown Executive: Line A row 1 towards the exit, please.
Unknown Analyst: [indiscernible] is my name. I have a question on your business. On Page 17 of your presentation, you talked about the Netflix, the differentiated service subscriber is now 9x bigger. So the pricing plan, subscription, how much track record do you have as au? And regarding Netflix, LYP premium, [indiscernible] is now launching a new plan, so Netflix can be used. So what do you -- how do you see the impact there?
Hiromichi Matsuda: Thank you. So the original -- it's not the original Netflix bundle, it's subscription. So 20% point back if you subscribe and maximum five months, you get free. So that's the campaign. au and UQ customers. And of course, there's the product appeal of Netflix that attracts these users, but we want this to be used. So, from March and April onward, we will continue. And as I showed, this will lead to the long-time usage. So this is a bit different. The users may be a bit different from our peers' program.
Unknown Analyst: One more question is on your CapEx, your thinking on CapEx.
Hiromichi Matsuda: In yesterday's NTT DOCOMO briefing, they said in their CapEx, they're increasing from last year and FY '26, they will build the base station quite aggressively. And by next year, they said they will catch up with the other competitors. So not all base stations will directly lead to the communication quality, but you will be caught up.
Unknown Analyst: So based on that assumption, what is your thinking on your CapEx? Any changes there? Or will you just keep your CapEx plan unchanged? If you have any questions, please -- if you have any comments, please.
Hiromichi Matsuda: So we think this area expansion is the source of competitiveness. So we will continue executing and continue being the winner by the outside rating evaluation companies. Regarding 5G, we did quite a big investment last year. And so it's well built, and it has peaked out. So instead, we are now moving -- focusing on AI infrastructure and thinking of keeping the capital expenditure flat.
Unknown Executive: Any other questions? The person at C1, please.
Unknown Analyst: [ Ishikawa ] freelance journalist. The net increase in smartphones compared to the DOCOMO compared to the last time, it seems that the number is rather low. Are you satisfied, Mr. President?
Hiromichi Matsuda: Thank you. This is related to structural reform. There are pros and cons, we need to strike a good balance. The smartphone, the numbers, 33.3 million. That's the target toward the end of the year. And June and September, plus 30,000 plus 20,000 and this time, plus 70,000. And in the fourth quarter, we will see more growth. Rather than taking excessive increase, we would like to focus on the contribution to lifetime value. So those numbers alone are not the basis for us to increase the number. Yesterday, DOCOMO talked about the following thing, the performance aggravated because too much the competition for the handset.
Unknown Analyst: As to the replacement, do you have a good control on the replacement program or the purchase support program and the [indiscernible] is also revisiting the issue. Are you changing any thoughts?
Hiromichi Matsuda: As this slide shows, we think that we have a very well-balanced control. In the past, we struggled a little bit, and that is because why we are controlling it a better way. And of course, new functions and new handsets, we would like to deliver those new things to the customers and striking good balance.
Unknown Analyst: When you say control, exactly what are you doing?
Hiromichi Matsuda: From the customer's point of view, I want something new. And after 24 months, it gets more expensive. If that's the case, of course, the customer comes in to replace it with the new one. The first such -- we -- in the past, we did not understand what could happen correctly, but we made some adjustments. And based on the plan, we are building this the scheme of control.
Unknown Executive: So, next question, please. Line B row 2 towards the exit, please.
Unknown Analyst: [indiscernible] is my name. So I would like to go back to the fictitious transactions. Earlier, you talked about the two members from G-PLAN. So I have a question on those two members. So these two were originally in G-PLAN or -- so when this intermediary business was launched, they joined. So my first question is that.
Hiromichi Matsuda: I am sorry. We have identified the two, but I'd like to refrain from mentioning that because it has to do with their privacy. So those two, from around 2017 until this was discovered, they were in this intermediary business throughout. We want to wait for the investigation result on that as well. Basically, as I said earlier, from 2017 onward, it's been recorded. So we are trying to understand how much of that was correct and how much is fictitious. So this needs to be elucidated through the investigation.
Unknown Analyst: My last question is those two for the disciplinary action, are they G-PLAN staff? Or are they already fired? Are they former employees?
Hiromichi Matsuda: We are still contacting them. So they are staff employee.
Unknown Executive: Any other questions? Please raise your hand. A person at C3, please.
Unknown Analyst: [indiscernible]. So number one, #3 or #2, the external flow to whom or to what kind of company like sector or business form size, is it possible to share some information?
Hiromichi Matsuda: As to the other companies that the flow went to, the committee is investigating it, and I would like to refrain from talking about specific names. It is not -- but it is not large ad agencies. The anti-social organization or suspicious of the kind of status is involved. And that also is being investigated. At this moment, there's nothing we can talk about it.
Unknown Executive: Next question, please. A1 towards emcee, please.
Unknown Analyst: [ Nakamura ] is my name. I have a question on the fictitious transaction case. So the two that are suspected to be involved, what was the motive or reasons or trigger? Have they talked about that?
Hiromichi Matsuda: We want to not impact the investigation of the Special Investigation Committee. So allow me to refrain from mentioning that today.
Unknown Analyst: Yes. One more question is going forward, so in the -- where a large amount of money is involved, if there was a falsification of the document, that may be another crime. So have you submitted the damage to the police or have you taken actions?
Hiromichi Matsuda: Yes, we are aware of that. We have not consulted with the police yet, but depending on the progress of the investigation, we will consider that and take appropriate actions.
Unknown Executive: Any other questions? Next D1, please.
Unknown Analyst: [indiscernible] As to money coming in, the advertisement and the fees move together. And recently, it's the level of dozens of billions per month, including fees. And the fees are the ones which are counted as revenue?
Hiromichi Matsuda: So it's about the gross amount or net amount. So it looked like the revenue canceled decreased, but it is based on net basis. So as you said, it's correct that the fees are counted as revenue. I think there should be some fund, the initial fund for advertisement, right? The amount increased dramatically to a very big amount. BIGLOBE and G-PLAN, they had fund at hand. And also, we have group finance mechanism. For the whole group, we have surplus and KDDI kind of concentrated and at headquarters. And from the headquarters, we lend money to the other companies. So the group finance was executed for BIGLOBE. The telecommunication-related investment and last year, JPY 57.9 billion or so lending was extended to BIGLOBE last year -- last fiscal year in the group financing. And so group finance is -- might be used -- might have been used as part of this incoming money.
Unknown Analyst: And as to these two employees involved, both of them were seconded BIGLOBE, but they are G-PLAN employees. And at this moment, you have not confirmed any other employees involved.
Hiromichi Matsuda: Yes, your understanding is correct. At this moment, we have not confirmed any other employees involved. But that is also subject to the investigation by the committee.
Unknown Executive: Next question, please. Line D towards the emcee, please.
Unknown Analyst: [indiscernible] is my name. So fictitious transactions, #1 and #3. there's #2 in the middle. So number three, other -- unless the order goes to the #3, the money does not circulate. But was the scheme such that the money will always go from #2 to #3? Is there #1 company and #2? Usually, I think it's multiple. But in this fictitious scheme, was there one particular company that was in charge?
Hiromichi Matsuda: From BIGLOBE and G-PLAN, the upstream companies contract and the contract with the publishing agency. There were two types of contracts. And I mentioned the business practice, commercial practice. And what's beyond this downstream publishing agency, we usually don't see that. We were not looking at what's beyond the publishing agency. Now the money stopped coming in from the top. And so we heard from the employees. And after we heard from the employees, we found out that it was subcontracted from #2 and 3 and #1 and #3 were identical.
Unknown Executive: Any other questions? The person at B1, please.
Unknown Analyst: [indiscernible] freelance channel. Starlink related question. This year, other carriers are going to start the satellite telecommunication service within this year. You had a lead time of about one year. What is the advantage? Do you think that there is an advantage for you? And how are you going to differentiate yourself this year? Are there any specific measures?
Hiromichi Matsuda: There is something that you can look forward to. I would say, Starlink Direct or area, we would like to deliver it right away. And with that in our mind, we have been developing area and Starlink the direct as well. The sooner, the better for customers. As to the lead time advantage, without thinking about other companies, as a frontrunner, we would like to work on something new. not just at area, but Starlink Direct, we would like to make advancements with something new all the time.
Unknown Executive: Line B4 towards the emcee, please.
Unknown Analyst: [indiscernible] Sorry for asking you another question. Just one clarification. So fictitious transactions, the impact on your financial results. Earlier, you said from 2017, the business started and sales, you mentioned full amount. But as the investigation progresses, the fictitious portion and the actual transaction will be clearer. So this amount is the current estimated amount or this amount is subject to change as investigation progresses?
Hiromichi Matsuda: For now, this is the maximum amount that we are expecting. But the fictitious transaction started increasing in recent years. So we think fictitious portion will account for a large portion. So now -- so this is the amount that will be reversed. Is this already fixed? Of course, it depends on the special investigation committee and the audit firm's audit. So this is subject to change. But we understand that this is the maximum amount. So we are showing you the approximate amount.
Unknown Executive: Question from online.
Unknown Analyst: [indiscernible] Jibun Bank and the deposit funding and the improvement and the impact of the money activity too. You talked about other reasons as well -- factors as well. What is the impact coming from the money activity? You talked about the reimbursement, if it is over 500,000 and so on. Any impact there you've seen? And also card business is also growing. Is also driven by the money activity or any other factors?
Hiromichi Matsuda: Katsuki-san, anything?
Tomohiko Katsuki: As to deposit funding, there are two factors, as I mentioned earlier, the bundled -- the deposit bundled plan, the money activity two and au Jibun Bank's own campaign during the bonus season, for example. such deposit collection campaign worked. And as you can see later, the operation data, you can look at Page 36 of operation data. Y-o-Y deposit increased significantly, especially retail deposit. As you can see -- so it's not really the growth coming from the money activity. We do not disclose it. Please bear with us. And the credit cards, especially for money activity too, the growth of gold card is paying off. As you can see on the screen, -- we are seeing good effect coming from that. are you okay with that?
Unknown Executive: So another question from online.
Unknown Analyst: Yes. I think this question has been raised a few times, and I'm sorry about the impact of the fictitious transactions. So, 2024 March, so JPY 96 billion before March '24. So G-PLAN started -- since they started the advertising business, this has been posted. So the fictitious transaction started from the start of the business. Is that how this was recorded? Or there was a starting line when this started. And you summarized the amount up to March '24. So what is the time line.
Hiromichi Matsuda: Thank you very much for the question. As an internal investigation, we found out that before year ending March '24, each company -- so all transactions since they started the advertisement business has been summarized. So in case of G-PLAN from 2017 and BIGLOBE 2022, they started the advertisement agency business. So it's a summary of all the amounts. So it started from -- not from there onward, but from the very beginning, the fictitious transaction was likely to have happened from the beginning of the business. Well, the authentic correct transaction and fictitious transactions are now being separated, but now we're seeing an increase of the fictitious transaction portion. So -- we are looking at all the transactions with a view that there is a possibility of future transactions.
Unknown Analyst: Understood. So including those cases that were correct in the past, you are checking all cases. You don't know when the starting line was, but you're including everything.
Hiromichi Matsuda: Yes.
Unknown Analyst: Including the ones that may be correct. So the maximum amount is a revenue of JPY 246 billion and JPY 33 billion, the external outflow, is this maximum or at least or this is the maximum amount.
Hiromichi Matsuda: So this time, this is the external outflow. So we are provisioning this amount shown on the table. We think this is the maximum amount.
Unknown Executive: One more question online. Horikoshi-san of Nikkei business.
Unknown Analyst: Horikoshi speaking. Two questions. First, in appropriate transaction. So, within this, the scheme diagram, #2, it could be involved from the very beginning with #1 and #3 or it could be involved later. So in the supply chain as a whole, my question is why you did not detect such the transactions?
Hiromichi Matsuda: I think it is because of failure of the control scheme.
Unknown Analyst: So do you -- could you please share with your thought?
Hiromichi Matsuda: So, the group governance, and it is related to the responsibility of supervision. So Monthly transaction itself has the vouchers and slips, accounting slips, which verify that the transactions occurred and they were continuing this business as normal transaction. And the BIGLOBE also gave us some information about the appropriateness of the transactions as well objective. But the objective evidence was not detected about the inappropriate transaction. So it took time for us to detect all that. So as I mentioned earlier, group finance is part of the picture. Ad network accounts for most of the amount. that is currently being investigated. So I do not make any comments on that.
Atul Goyal: And second question is about the Miyazaki data center. Two years ago, you did some construction work. What is the size of the investment? And what is the size of data center?
Hiromichi Matsuda: As you can see on the screen, AI digital belt concept or initiative, you have about -- there are about three big data centers.
Unknown Analyst: Are you going to open three big data centers in Japan? Or what about Tohoku and Hokkaido area? Is there any possibility for you to go to those areas as well?
Hiromichi Matsuda: Thank you. The belt diagram is showing that there is no coverage in the north. But actually, we are constructing the but in the north as well. Putting aside whether it's big size or not, what kind of AI data center should be there that is in our mind. The AI processing will be happening in the different locations. So it's not that everything will be concentrated on big data centers. So the connection like mesh and as a whole, the belt, which covers the whole -- the Japanese archipelago, that's what we are thinking about. Miyazaki, we have secured the adjacent land so that we can easily expand this location as well, watching closely the demand level, we are going to make next moves. In the next midterm strategic -- midterm strategy, we are going to give you more details. Thank you.
Unknown Executive: So next question, please. D3 towards the exit, please.
Unknown Analyst: Yashi is my name. Sorry to ask you. So JPY 33 billion external outflow is my question. In Q3 -- up to Q3, JPY 17 billion has been provisioned, if my understanding is correct. And maximum JPY 33 billion has flown outside. So in KDDI's P&L, how much will eventually be posted as loss? So that's my first question.
Hiromichi Matsuda: Thank you for the question. So this year impact. We need to wait for the result by the Special Investigation Committee for the amount to be fixed. But for now, this amount that is shown vertically will be posted on our P&L. So JPY 33 billion, and there may be additional impairment. For this fiscal year, JPY 17 billion is provisioned. So reversal of profit is JPY 25 billion. And other than that, there is a possibility of impairment in addition.
Unknown Analyst: So then JPY 33 billion can -- may not be your loss. So of the JPY 33 billion and JPY 17 billion, I'm not understanding the difference between the two. Are there prior year portion? So how can I sort this out?
Hiromichi Matsuda: So this table is grouped into #3. First, March '26 is up to Q3, the provision up to Q3, this is JPY 17 billion and JPY 33 billion to the right is including the prior years, it's the total of prior years. So including that, it is JPY 33 billion. And this is assuming that we cannot recover the entire amount. So we will provision this for once for now. But if we can recover, of course, we're trying to recover. And if the amount can be recovered, the recovered portion will be added to the profit in the following years.
Unknown Analyst: Then at this point, JPY 17 billion loss is provisioned or is assumed for this fiscal year.
Hiromichi Matsuda: Yes, this is the expected loss.
Unknown Analyst: One more question, please. So there are a few advertisement agencies. So those that were involved in the fictitious transactions, do you know how many advertising agencies were involved?
Hiromichi Matsuda: We only know that multiple are involved, but we don't have the exact number or the names that is left in the hands of the Special Investigation Committee. Is it 2 or 3 or maybe 10 agencies? I'd like to refrain from mentioning that as well.
Unknown Executive: Any other questions? Since there are not many questions left. The two people are raising their hands. So starting with A4, the person at A4, please?
Unknown Analyst: Last week, DOCOMO using DOCOMO shop, they will give support for financial business. I think they already started it actually. What about your company, for example, the opening account for the Smart Securities or are you planning to use shops for providing similar support? Could you please talk about your thought?
Hiromichi Matsuda: au Jibun Bank and we have been providing support using the au shops as the other agencies for the au Jibun Bank. In addition, we have credit card business as well. So I think your question is about the -- based on the securities and the salesperson qualification. For that online intermediary securities, SBI SECURITIES using the au Jibun Bank, that kind of alliance is our current focus. So when it comes to the securities sales rep, which requires special qualification and development of such personnel on real world, we are not thinking about it at this moment. I answered your question.
Unknown Analyst: It's not only about securities account, for example, the various services of the au Jibun Bank or mortgage loans in those areas, what is your thought? And of course, always we are reviewing every potential possibility. There are various financial services and some new emerging financial services, especially au Financial Holdings, as to their operating areas, we would like to give serious thought. Have I answered your question?
Unknown Executive: So the last question, C3 towards the entrance, please.
Unknown Analyst: [indiscernible] again. So regarding the fictitious transaction, so the two employees were involved, you said. So if I could put this in perspective, the two are still seconded to below. They are -- yes, G-PLAN employees seconded to below. So seconded to below -- and there are multiple -- so they are belong to G-PLAN. So they're seconded to G-PLAN. But why despite the absence of the two, can this transaction continue?
Hiromichi Matsuda: So they're not in G-PLAN, but why can they operate G-PLAN's transaction or can be involved in G-PLAN transaction? So they're dual headed. They're seconded, but there is a proportion between the second destination and the source company. So they are dual headed.
Unknown Analyst: I see. So the two employees, so they were not checked. The transactions that the two were involved.
Hiromichi Matsuda: So the transactions that only two of them were involved were fictitious. So this fictitious transactions, we have elucidated up to now this much fact is already clear. There are authentic or correct transactions as well. So we're trying to draw a line between the two. And for the ones that were involved in BIGLOBE and G-PLAN, they are fictitious transactions. That is our understanding. So we're trying to have the special investigation committee -- check the accuracy of that. #1 and #3 were identical companies. That's one company. So yes, one entity, we want to refrain from saying how many companies they were, but the hearing or the entry withdraw money and digital forensic is utilized and understood that 1 and 3 are the same. That's what we're saying today.
Unknown Analyst: And last question. So in your investigation so far, have you heard any motives or reasons to this were pressured to have large sales? Or were they just trying to invest all the money or the special investigation committee is investing that it's their scope.
Hiromichi Matsuda: So I want to refrain from saying anything here. But of course, BIGLOBE is a business operating company. So the development of the business plan and the target management is done. But from our company, we have a medium-term plan. We are in the final year of the medium-term plan. So communication and financial or DX and enterprise business, energy, these are our main businesses. So this advertisement agency business is not a driver for us to achieve the medium-term plan target. Now the amount that you found out this time in each year, BIGLOBE and G-PLAN, what is the proportion of this in BIGLOBE, G-PLAN's revenue? BIGLOBE and G-PLAN are consolidated. BIGLOBE revenue is around JPY 230 billion. And this is last fiscal year and of which this is JPY 82 billion.
Unknown Executive: With that, we would like to conclude the Q&A session.
Hiromichi Matsuda: Lastly, I'd like to say a few words. Again, we are very sorry for this matter. And of course, we are going to avoid reoccurrence and strengthen our governance. And at the same time, we are going to solidify our business platform to grow our business. And that is the path that we need to take to take our responsibility. And I will take the lead in making efforts, and we will continue to make advancements. Thank you for your continued support.
Unknown Executive: We will conclude this meeting. Thank you very much for joining us today.