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Nippon Telegraph & Telephone (NTT)

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We reiterate our Underperform recommendation for Nippon Telegraph & Telephone (NTT), following the company's disappointing fiscal 2011 financial outlook.

We remain concerned regarding the less-than-anticipated sales of mobile handsets due to weak economic conditions in Japan, together with significant declines in ARPU as subscribers migrate to discounted service plans. The company is also facing intense pricing pressure from smaller telecom service providers.

KDDI and Softbank are gradually improving their mobile networks with 3G/4G technologies. Near saturation of the Japanese wireless market also remains a major problem. Severe competition together with NTT's leveraged balance sheet may restrict higher valuation levels over the near-term.

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