QAs from earnings release meetings and others

August 7, 2019: 1Q FY2019 Results Briefing

(*) This is a summary of questions and answers took place at the Briefing.

Question: You had good 1Q19 financial results. Are you going to revise your disclosed financial targets upward?

Answer: Due to seasonal factors, our financial results tend to be small in a first quarter and large in a fourth quarter every fiscal year. We just finished a first quarter; we do not have such an idea or judgement at this point.

Question: When do you expect M2M and IoT related subscriptions to largely increase?

Answer: Along with full-MVNO services, launched at the end of March 2018, we have been accumulating subscriptions of M2M and IoT. Net increase for "IIJ Mobile" subscriptions includes these newly acquired M2M and IoT related subscription as well as an impact from an existing customer’s migration to other service vender due to its business transfer.

Question: Please explain what impact the revised Telecommunications Business Law will have on IIJ's mobile business.

Answer: We believe "the separation of devices and communication charge" and "stronger protection for consumers" will be among the requirements. While the details will be decided from now on, we fundamentally welcome the revision as opinions of MVNOs are reflected in some items.

Question: How are users reacting to your eSIM services?

Answer: As a first eSIM service lineup, we are providing Beta version to consumers from mid-July. There have been strong interests as our service is very unique and a strong differentiation point from competitors as the service can be offered by full-MVNO; we are the only full-MVNO in Japan. We plan to focus more on service developments and expansion of service line-ups as we believe eSIM can create great synergy for IoT usages and enterprise mobile projects.

Question: Please explain in detail about Network services’ circuit-related and outsourcing-related costs.

Answer: 1Q19 circuit-related costs decreased as purchasing volume of circuit decreased along with a decrease in WAN service revenues. As for 1Q19 outsourcing-related costs, mobile interconnectivity charge increased along with an increase in mobile subscriptions and traffic, change in cost recognition category along with accounting policy revision (data center rent costs which used to be recognized in outsourcing-related has changed to be recognized as network operation-related costs as a deprecation cost of right-of-use assets)

Question: As competitive landscape for mobile market is expected to become tougher including Rakuten Mobile's entry to MNO business, please explain what is IIJ's mobile business strategy.

Answer: Our basic strategy for mobile business is to offer highly reliable and high quality service as well as continuous expansion of sales channel. Also, we differentiate ourselves from competitors by leveraging our position as the only full-MVNO in Japan to provide SIM life-cycle management and/or eSIMs.

Question: I heard that mobile business of DMM.com is going to be handed over to Rakuten Mobile. I understand that DMM.com is one of IIJ's MVNE clients. Will your subscription decrease due to this business transfer?

Answer: The details of the business transfer including the timing of migration is uncertain as for now. We shall continue to focus on executing our MVNE strategy.

Question: What is contributing to strong systems integration business?

Answer: We think it is a reflection of slowly but surely change in Japanese enterprises' attitudes toward IT adoption. We believe the enterprise demand is strong as mainstream adoption of cloud services is visible, and necessity to have IT systems that supports greater business and work productivity and business innovation is strong.

Question: Please tell us the project time period and profitability regarding JPY1.34 billion of systems construction revenue which were recognized along with construction progresses.

Answer: 1Q19 profitability is JPY0.1 billion based on conservative estimate. Project time period are mostly around 1 year.

Question: New enterprise shareholders of DeCurret Inc. though a private placement include insurance companies. What do you think of their intent?

Answer: We believe they are interested about the potentiality that digital currency has for future settlement method.

Question: Please explain what made revenue and profit increase for ATM Operation Business in 1Q19.

Answer: The number of placed ATMs has not changed largely from that of March-end, 2019. With a decrease in operating costs due to continuous cost reduction efforts and others, revenue and profit grew.