OKINAWA CELLULAR TELEPHONE COMPANY

Due to strengthened competition-promotion policies and new entrants from other industries, service and pricing plans among telecommunications carriers have diversified, causing significant changes to the operating environment. Concerns include a decline in telecommunications revenue due to pricing-reduction pressure, increased sales commissions and customer retention costs, and shrinking voice call revenue due to the spread of free calling apps. The Company holds approximately 50% share of mobile and approximately 30% share of FTTH within Okinawa Prefecture, but there is a risk that its competitive advantage could be undermined by new MNO/MVNO entrants or the expansion of business areas by other operators.

There is a risk that the secrecy of communications and customer information could be leaked due to virus infection from cyberattacks or intentional or negligent acts by employees. If an information leak occurs, it could result in damage to brand image, enormous compensation costs, and fines, as well as lead to continuous cost increases for establishing protective systems. The Company has implemented security management measures such as access authority management for customer information systems, retention of access logs, and prohibition of copying to external memory devices, and conducts continuous education for all employees as well as audits and education for sales outlets.

There is a risk that services may be suspended or interrupted due to natural disasters such as earthquakes, tsunamis, and typhoons, pandemics, cyberattacks, or malfunctions of communication equipment. If a service outage occurs, in addition to damage to brand image and decline in customer satisfaction, there is a possibility of large-scale billing errors or miscalculations and loss of opportunities to provide products and services due to closure of sales agencies. The Company has established a system to ensure communication connectivity and early facility restoration 24 hours a day, 365 days a year, and maintains close coordination with relevant organizations.

Amendments or abolitions of laws and regulations relating to telecommunications and installment sales, or policy decisions, may adversely affect the Group's financial position and operating results. There are various uncertainties, including revisions to the calculation method for interconnection fees between operators, revisions to the frequency allocation system and radio wave usage fee system, business regulations on the NTT Group, and rules related to economic security. Depending on the direction of competition policy, there is also a risk that the Company's competitive advantage could be relatively undermined.

The Group is subject to a wide range of laws and regulations, including those related to trade, antitrust, patents, consumer protection, tax, environment, labor, finance, and electricity. If these regulations are strengthened, or if the Group or its outsourcing partners fail to comply with such regulations, business activities may be restricted and costs may increase. The Company gathers information related to regulations at an early stage and implements necessary procedures and responses, but responding to future regulatory tightening remains a challenge.

There are concerns about increased network costs due to base station construction for new frequency bands and the rapid increase in data traffic, as well as intensifying competition from new high-speed data wireless technologies. There is also a risk of dependence on specific technologies in communication methods, terminals, networks, and software, and if the Company fails to respond promptly to technological changes, its competitiveness could decline. In addition, there is a risk that if the necessary frequencies cannot be acquired, it will become difficult to maintain service quality.

KDDI CORPORATION, the parent company (holding 53.2% of total issued shares), is in a position as a majority shareholder that can influence management, and the Company is highly dependent on KDDI for much of its telecommunications equipment development and operation, research and development, and terminal procurement. If KDDI's financial position deteriorates significantly, its policies change, or its brand image is damaged, the Group's financial position, operating results, and business development could be affected. Furthermore, if KDDI carries out an absorption-type merger or makes the Company a wholly-owned subsidiary, the Company's shareholders may be forced to change their status as shareholders.

While appropriate staff reinforcement and enhancement of internal control systems are necessary in line with business expansion, if the Company is unable to promptly secure and develop appropriate and sufficient human resources or take organizational action, business operations may be disrupted. Human resource investment costs may also increase in the future. Furthermore, if appropriate labor management and responses to work-style reforms are insufficient, damage to brand image and credibility could adversely affect the Group's financial position and operating results.

The Group may incur impairment losses in the future depending on the usage status of fixed assets and other holdings. Assets related to telecommunications infrastructure and new businesses (such as plant factory operations and e-commerce operations) may be subject to such impairment. Although the securities report does not specify the degree of likelihood of impairment occurring, it is recognized as a risk that could adversely affect the financial position if changes in the business environment or sluggish demand continue.

Litigation may be filed alleging unexpected infringement of various rights, including intellectual property rights, which could adversely affect the Group's financial position and operating results. In addition, in the plant factory business and e-commerce business, there is a risk that if product incidents occur due to food poisoning, safety and hygiene accidents, or labeling errors, this could lead to damage to the corporate image and payment of damages. The Company strives to protect intellectual property rights and prevent infringement of third-party rights, while treating the assurance of food safety as a top priority.