Questions and Answers at the 29th
Ordinary General Meeting of Shareholders
The 29th Ordinary General Meeting of Shareholders was convened on June 16, 2020 (Tuesday) at Hotel New Otani. In the meeting this year, under the chairmanship of President & CEO Kazuhiro Yoshizawa, an explanation on the matters to be reported and matters to be resolved, which was kept concise from the perspective of preventing the spread of the new coronavirus (COVID-19) infections, was provided at the outset.
Following the opening statement, prior to taking questions from shareholders attending the meeting, President Yoshizawa answered to the questions received beforehand via the internet, including those relating to shareholder returns and shareholder perks, the P/L impact from the COVID-19 outbreak and the projected profit contribution from the launch of 5G service.
After this, the questions from eight shareholders concerning the Company’s customer attendance policies, IoT, 5G, corporate bond, disaster preparedness measures, shareholder returns, customer return measures and interconnection rates were handled by members of the Board of Directors. This was followed by a vote on the six items of business that required resolution, i.e., “Appropriation of Retained Earnings,” “Partial Amendments to the Articles of Incorporation,” “Election of ten (10) Directors who are not Audit & Supervisory Committee Members,” “Election of five (5) Directors who are Audit & Supervisory Committee Members,” “Determination of Compensation for Directors who are not Audit & Supervisory Committee Members” and “Determination of Compensation for Directors who are Audit & Supervisory Committee Members,” and all six items were resolved as proposed.
Principal Questions and Answers
Announced on June 16, 2020
Below provides the gist of questions from shareholders and the responses made by the Company’s Directors.
*Some questions from shareholders include descriptions that have not been confirmed by the Company.
Question received beforehand No. 1
Q1 What are your views concerning shareholder returns?
Question received beforehand No. 2
Q1 Do you have any plans to offer shareholder perks through “d POINTs” like NTT?
Question received beforehand No. 3
Q1 Please explain the P/L impact from COVID-19.
Question received beforehand No. 4
Q1 How do you estimate the profit contribution of 5G service?
Questioner No. 1
Q1 This is a question concerning NHK subscription fee. I was sold a smartphone compatible with one-segment broadcast service without any explanation regarding the necessity of paying NHK subscription fee. Your recent product brochure contains a description “NHK subscription contract is required in some cases,” but I have not received any explanation on this requirement before I saw the brochure. When I asked the electronics mass retailer if they had provided any explanation on this issue, they answered “no,” which implies that no one was aware of the need (of a subscription contract) for one-segment broadcast or car navigation services.
I am sure that things like this cannot be helped to a certain degree, however, when NHK commences streaming broadcasting service in the future, I am afraid that some reps may explain that “a subscription contract is necessary” only for having an internet access environment. In fact, at present, we are told that a subscription contract is needed even if we do not own a TV set. How does DOCOMO plan to take measures against this problem?
I believe you can reduce troubles, for example, if you attach on the applicable device a QR code that indicates “NHK signals are not received” by the device in question. Unless you take proper measures to communicate to customers that “NHK subscription fee is not required for this type of usage,” I believe you will see recurrence of similar troubles.
Based on a reflection of “causing inconvenience” with one-segment broadcasting service, when NHK starts signing up subscriptions for their streaming service in the future, I hope you will prepare a system that enables the sales reps to recognize that “NHK subscription fee is not required only for owning a DOCOMO mobile phone or smartphone if certain conditions are met.” What are your views on this matter?
Questioner No. 2
Q1 Let me ask about “NB-IoT”. I believe you announced its service termination on March 30 and stopped offering the service on March 31, so I construed that you had no users at all subscribing to this service. Having not a single user after spending costs for its development appears to be a huge waste. Please explain when and how you made the decision concerning its development.
Questioner No. 3
Q1 For your commercial 5G service that you have launched, I believe business partners, or enterprises, are always involved in the different usage patterns of 5G, such as “B2C”, “B2B2X” and “M2M.”
Because the services offered by each carrier are expected to become similar over time, what do you think are the primary reasons for your business partners, i.e., enterprises, to choose DOCOMO over other carriers like SoftBank or au?
Questioner No. 4
Q1 I have a question about your corporate bond. On April 3, Moody’s and Japan Credit Rating Agency provided a rating on your domestic shelf registration of corporate bonds. Was this done upon a new request from DOCOMO? Or is this the result of a periodic review by the rating agencies?
I am also worried by the large maximum issuance amount of 1 trillion yen, which is quite sizable compared to your current outstanding bond balance of 50 billion yen. Did you set this large ceiling of 1 trillion yen because there is a large-scale M&A deal on the horizon? Please share us your thoughts and views.
Questioner No. 5
Q1 I received two toy cars, which looked like a van for relaying radio signals, when I came to the General Meeting of Shareholders a few years ago. In the subsequent years, there was a tragic landslide in Hiroshima Prefecture and more recently a series of typhoons hit Chiba Prefecture. I believe the relay vans were not able to access the disaster-stricken areas in these two prefectures, if they were accessible only by foot. If so, is there a meaning in dispatching relay vehicles when access is barred, for example by flooding as was the case in Tohoku?
Questioner No. 6
Q1 I hope you will continuously raise your dividends this fiscal year and in subsequent years. I believe shareholders will be very disappointed if you maintain your dividend for the current fiscal year unchanged from last year after many years of continuous hikes. Shareholders evaluation of the Company will be completely different between continued dividend increase and maintaining status quo. I sincerely hope you will continue dividend hikes.
For you to provide a dividend hike of 10 yen, the required incremental funding is merely 10 billion yen. Even if you raise your annual dividend by a total of 20 yen (i.e., 10 yen each for interim and year-end dividend), the incremental amount required is still only 20 billion yen.
With 4.4 trillion yen in retained earnings, which is comparable to your annual operating revenues, I believe you are sufficiently funded. Your financial performance is outstanding, which I believe demonstrates President Yoshizawa’s splendid management skills. Because you successfully increased your retained earnings by 250 billion yen over the last 12 months to currently 4.4 trillion yen, I do not think you need to seek further expansion.
On the other hand, I do not want you to carry out share repurchases this fiscal year after executing a 300 billion-yen share buyback program in the previous fiscal year. Share repurchases do not provide returns to shareholders. The shareholder interests can only be represented by the share price and dividends, and share repurchases do not make any positive contributions to the share price and dividends.
It is often said that share repurchases brings about a favorable impact on share price as it enhances the value per share. However, in many cases, any rise in share price induced by share repurchases is only short lived, after which the share price remains sluggish. I investigated approximately ten companies that carried out a share repurchase program recently, and most of these companies’ share price underperformed the Nikkei Average and suffered a drop.
The funds used for share repurchase are the company’s retained earnings which essentially can be used for dividend payment. If this is used for share repurchases, the source of dividends will be lost forever. Share repurchase and dividend payment conflict with each other.
The idea of share repurchase was conceived to induce abandonment of huge number of shares worth billions or tens of billions of yen by corporate managers in the United States. It was also intended for the profit of activists eying a short-term increase in share price. It therefore does not serve as a means for shareholder return for retail and institutional investors seeking long-term share ownership. Dividend payment is the only solid way to provide returns to shareholders as it will be certainly delivered to and consumed by the shareholders, which in turn will bring about a positive impact on the overall Japanese economy. Dividends are also directly reflected in the company’s share price; the higher the dividends, the higher the share price.
Companies that have raised their dividends continuously enjoy high share price without exception. In contrast, share repurchases produce no impact and only dries up a large sum of money from the company’s pool. I want you to carefully consider if share repurchases truly provide returns to shareholders and not to blindly introduce ROE or other indicators without questioning the consequences.
I also urge you to pay attention to the fact that share repurchases are causing a negative outcome of capital outflow and undercapitalization. Since share repurchases do not provide shareholders with returns, I hope you will scale down or terminate this exercise and use the savings for a dividend increase instead.
Questioner No. 7
Q1 I have a question about your rate plans, something that I have not been able to figure out for some time. Occasionally, I see articles reporting the complaints raised by the regulator about the unfairness of mobile rate plans. Previously, when the mobile service charges were more expensive, I was able to get a new handset for free when I upgraded to a new phone.
Now that the rates have been lowered, I guess you are encouraging people who possess loyalty points to use them, or people who do not spend a large amount of monthly communication charges to pay the full price, upon the replacement to a new model. But I still believe people who frequently switch carriers receive more benefits even under the current scheme.
As a shareholder, I want many more users to sign up for your service. Please share with us your future policy regarding this matter.
Speaking about myself, I am currently using “FOMA” (3G) service, but I am aware that “FOMA” service will eventually be terminated. Because I thought “it was about time to switch to a new phone,” I made an inquiry. It seemed that staff was not sufficiently prepared for my question, and I was informed that I must “pay” for the replacement. If I can no longer use my existing phone due to a change of communication system, you must employ measures to support your customers from early on. I basically believe retention of the existing customer base is the most fundamental and important challenge for the Company. I am sure that a certain number of carrier hoppers will continue to switch between carriers, so please explain how you plan to solidify the remaining base of customers.
Questioner No. 8
Q1 Regarding the interconnection charges for MVNOs, as you may be aware, your rates, which used to be the lowest of all operators, will now become one of the highest for the three years starting FY2020 as a result of the introduction of future cost method. I would like to ask the following question relating to this topic.
Due to this change, MVNOs who previously used your network may switch to other network operators. Also, the highest interconnection rate implies that you have the highest cost of service, and therefore making the least efficient use of capital expenditures. Can you provide us with your views and prospects about this issue?