KDDI CORPORATION

Competition is intensifying due to advances in AI technology, entry by companies from other industries, and new entrants among MNO/MVNO operators, raising concerns about declining telecommunications revenue and increasing sales commissions and customer retention costs. Factors that could also pressure earnings include shrinking demand due to population decline and aging, contraction of voice call revenue due to the spread of free calling apps, and rising handset prices resulting from increased U.S. tariffs. The Group is responding by maintaining and expanding its subscriber base and entering new businesses, but uncertainty remains as to whether the expected revenue can be secured.

The increase in ransomware and sophisticated cyberattacks using AI is raising the risk of service outages and leakage of confidential information, becoming a serious threat that could even affect national security. The Group has established the "KDDI Security Policy" and other policies, and has set up an Information Security Subcommittee under the Risk Management Committee chaired by the Representative Director, President, maintaining a 24/7 monitoring system. However, if unauthorized intrusion results in the leakage of communication secrecy or customer information, or if fraudulent use of services occurs through phishing scams, this could have a material impact on the Group's business results through damage to brand image and increased response costs.

If network systems or communication equipment are disrupted due to natural disasters such as earthquakes, tsunamis, or typhoons, pandemics, terrorism, power shortages, computer viruses, or other causes, this could affect business results through damage to brand image and decreased customer satisfaction. Large-scale billing errors, loss of service provision opportunities due to sales agent closures or logistics disruptions, and reputational damage via social media are similar risks. The Group addresses these risks by formulating disaster prevention policies, coordinating with domestic and international related organizations, and maintaining a 24/7 recovery system, but the risk of service disruption due to unforeseen events cannot be completely eliminated.

Amendments or abolition of the Telecommunications Business Act and the NTT Law, as well as policy decisions, may affect the Group's competitive environment and business operations. On May 21, 2025, the "Act to Partially Amend the Telecommunications Business Act and the NTT Law" was enacted, and the Company is concerned that progressing integration within the NTT Group could impede fair competition. In addition, the Company has been designated as a Specified Social Infrastructure Operator under the Economic Security Promotion Act, and stricter reviews and regulation of specified critical facilities may lead to additional costs or restrictions on activities.

The Group is subject to a wide range of domestic and international laws and regulations, including trade, antitrust, patent, tax, foreign exchange, environmental, labor, financial (such as capital adequacy ratio regulations), and electric power regulations. If these regulations are strengthened, or if the Group or its outsourcing partners fail to comply with them, this could lead to restrictions on business activities or increased costs. The Group is engaged in early collection of regulatory information and implementation of necessary procedures and responses, but uncertainty regarding future regulatory changes remains.

As the Group conducts business activities both in Japan and overseas, it may face unforeseen lawsuits alleging infringement of various rights, including intellectual property rights. The Group strives not to infringe on third-party intellectual property rights, but if litigation arises, it could affect the Group's business results.

The Group is focusing on human resource development and career support in response to technological innovation, but it may take a certain period before the expected effects materialize, potentially increasing human capital investment costs. The Group strives to promote appropriate labor management and work-style reform, but if such efforts prove insufficient in the future, this could affect business results through damage to brand image and trust.

The Group conducts impairment testing of assets in accordance with IFRS, but if business conditions deteriorate in the future, a decline in recoverable amounts could result in impairment losses on assets, including goodwill. Deterioration of the business environment, particularly in overseas operations and new business areas, could be a factor that heightens impairment risk.

Business activities of the consolidated subsidiary KDDI Summit Global Myanmar (KSGM) have been restricted since the political change in February 2021, and foreign exchange control regulations imposed by the Central Bank of Myanmar and other authorities have restricted the collection of USD-denominated lease receivables. The Group has recognized purchased or originated credit-impaired financial assets of ¥27,049 million, and if the assumed circumstances change, this could materially affect the amortized cost amount of these financial assets. Continued geopolitical risk may continue to affect the Group's business results.

An investigation by a special investigation committee found that fictitious circular transactions with no substance had been conducted at consolidated subsidiaries BIGLOBE Inc. and G-plan Corporation, leading to corrections of prior-period securities reports and the submission of an improvement report to the Tokyo Stock Exchange dated June 2, 2026. The Group is working to strengthen group governance, but if some or all of the improvement measures are not properly established and operated, and inappropriate transactions or accounting treatment recur, this could affect business results.