Japanese

Presentation Materials

• ARPU/MOU/No. of Subscribers

  Q1 It seems that you are projecting a steeper year-on-year decline in ARPU for FY2007. Explain the reasons.

  Open

  A1 The ARPU for FY2006 increased temporarily because the portion of "Nikagetsu Kurikoshi" (two-month carry-over) allowances that are projected to expire were included in revenues. If this irregular factor is corrected, we believe the pace of decline will slow.

  Q2 Your data ARPU has grown remarkably. What are the reasons behind the growth?

  Open

  A2 Data ARPU posted a solid growth because the negative impact on revenues resulting from the introduction of the flat-rate service began to subside, and the usage of volume-based users has been growing. As for concrete services contributing to the growth of data ARPU, the impact of the i-channel service is certainly large. Other than that, various other factors, such as the downloading of i-appli applications, are also considered to have boosted data usage.

  Q3 How do you foresee the pace of decline in MOU going forward?

  Open

  A3 MOU for FY2006 dropped by approximately 3% year-on-year, because new subscribers tend to use mail more frequently than voice calls. We are projecting a similar rate of decline in FY2007.

  Q4 The number of your net additional subscribers for FY2006 was approximately 1.48 million. You are expecting a smaller number of approximately 1.27 million in FY2007. What are the reasons for this decrease?

  Open

  A4 In FY2006, the overall demand in the market increased as a result of the introduction of Mobile Number Portability (MNP). The extension of the duration for counting active prepaid subscribers by other carriers also impacted the total number of net additions. The subscriber growth in the overall market in FY2007 is expected to be smaller, as such irregular factors will not exist. Our target market share of net additions is set higher than our performance in FY2006. Please note that the number of "2in1" service subscribers is not included in our net additions forecast.

  Q5 What are the challenges you think you need to overcome to regain the No. 1 position in the monthly share of subscribers?

  Open

  A5 The primary reasons why our subscribers switched to other carriers using MNP are considered to be billing plans and network quality. Our billing plans are actually no more expensive than those of au. But there is a general perception in the market that our service charges are more expensive, partly due to high handset retail prices, so we need to work to get rid of this misperception going forward. As for the network, we have not been able to completely eliminate the negative image relating to FOMA's connectivity, which was a problem during the initial phase immediately after its service launch. We therefore believe it is important to more aggressively promote our improved network quality by, for instance, changing our marketing approach, etc.

• International Services Revenues

  Q6 How much do you think you can grow your international services revenues going forward from the current level?

  Open

  A6 Our ambition is to grow our annual international services revenues from the current size of 34 billion yen to approximately 100 billion yen in the future. International roaming (WORLD WING) service is posting a faster growth compared to our international dialing (WORLD CALL) service. We are studying the implement action of GSM capability, in addition to W-CDMA, in some of our future handsets as a standard feature. Our roaming coverage is expected to expand with the availability of more GSM-enabled models, which we believe will significantly increase the usage of the international roaming service.

  Q7 Have you been able to increase inbound roaming revenues?

  Open

  A7 The growth rate is significantly high, although its revenues size is still small in absolute terms.

• Handset Procurement Costs

  Q8 Do you think you will be able to reduce your handset procurement costs and subscriber acquisition costs in FY2007?

  Open

  A8 Handset procurement costs generally decrease when the percentage of 7-series phones to total handsets sold increases. We therefore believe we will be able to maintain low procurement costs when the percentage of 7-series phones to total sales rises. We also intend to minimize the monthly variation of distributor commissions to the extent possible, and we believe distributor commissions will be maintained at a lower level after the introduction of new products in the 7-series lineup.

  Q9 In your forecast, the handset procurement costs are projected to decrease in FY2007 compared to the previous fiscal year. Do you think this trend will continue over the middle- or long-term?

  Open

  A9 The functional capabilities of our handsets have become even more sophisticated, supporting video viewing and other advanced features. It would therefore be difficult for us to reduce the procurement costs of the high-end models, as we plan to keep adding new capabilities to these models going forward. When we look at our entire handset lineup, however, we believe we will be able to decrease the procurement costs over the mid-to-long term, as a result of the development of single-chip LSIs and common platform.

• Profit Outlook

  Q10 Is the impact from the revised depreciation/amortization rules associated with the tax system reform factored into your FY2007 forecasts?

  Open

  A10 Because we are still studying various factors, including its impact on our accounting, etc., the revised depreciation/amortization method is currently not factored into our FY2007 forecasts.

  Q11 You mentioned you will develop and offer handsets/services that are "one step ahead" under the "DoCoMo 2.0" initiative. How much do these new services account for in your FY2007 revenue forecasts?

  Open

  A11 For example, the "i-channel" service generates incremental revenues of approximately 350 yen/month/subscriber on average. By simple calculation, "i-channel" alone boosts our total revenues by approximately 40 billion yen per year with a user base of 10 million. Similarly, the "Melody Call" service, which charges a monthly usage fee of 100 yen, generates incremental revenues of over 10 billion yen per year. The incremental revenues to be generated from the "2in1" service are not factored into our projections, as we have not yet developed its subscriber forecasts.

  Q12 Will you make a specific commitment for your results with numeric targets with regard to taking this opportunity of launching a new brand strategy, "DoCoMo 2.0"?

  Open

  A12 Our intention is to embark on new businesses that will allow us to "move one step ahead". As for our numeric targets, we aim to achieve EBITDA margin of at least 35%, and ROCE of at least 20%.

  Q13 When do you think you will be able to return your operating income to the 1 trillion yen level you once achieved?

  Open

  A13 We have an ambition to restore our operating income to the 1 trillion yen mark. As we believe it will be difficult to grow the top line significantly for the next few years, we would like to improve our operating income by working on cost reduction.

  Q14 Do you foresee any risks of failing to meet your operating income target for FY2007 like in FY2006?

  Open

  A14 The largest reason why we missed our operating income target in FY2006 was the lower-than-expected number of MNP port-in subscribers. We had expected an increase in the total number of handsets sold, because we increased our distributor commissions with the aim of acquiring port-in subscribers. What was unexpected, however, was that this decision induced an increase not only in new handsets sales but also replacement demand, which resulted in a growth of revenue-linked expenses. The total handset sales increased in FY2006 due to the irregular factor of being the first year of MNP. We believe our handset sales projection for FY2007, which is estimated at a level comparable to FY2005, is fairly reasonable.

• R&D and Service Development

  Q15 You have dedicated your R&D resources primarily for network and handset-related development so far. If you are to achieve your goal of "moving one step ahead", don't you think you will need to strengthen your service development efforts even further?

  Open

  A15 Infrastructure and handset development is of course important. However, for the future, it will become increasingly important to strengthen our services and the platform for service provision. We restructured our R&D organization with the aim of facilitating more aggressive service development. Recently, we are seeing an increase in the demand for customized development in the corporate sector. We have a dedicated development team of approximately 50 engineers, who work together with our Corporate Marketing teams in the development of customized solutions for our corporate clients.

  Q16 What benefits are you enjoying as a result of spending R&D costs?

  Open

  A16 Because we have worked intensively so far to improve our infrastructure, we believe our network currently offers superior transmission speeds and communication quality compared to our competitors. Going forward, we would like to pour more efforts into the development of services offered on our network as well as the platform required for the delivery of services.

  Q17 What kind of new services are you planning to offer with your high-speed network?

  Open

  A17 Leveraging video services, we would like to achieve the following goals:

  1. Facilitate subscribers' migration to the flat-rate package,
  2. Expand subscription-based revenues (through delivery of value-added video content, etc.), and
  3. Grow revenues from advertisement/coupon services attached to video content.

• Return to Shareholders

  Q18 Your payout ratio will rise to 44% as a result of increasing your dividends by 800 yen in FY2007. Do you see any possibility of further raising your payout ratio to over 50% in the future?

  Open

  A18 We would like to return profits to shareholders through dividend payments and repurchases of our shares, as we have done so far. We may change the amount that we spend for dividends and repurchases of our shares, respectively, after listening to market opinions, but we have not set any specific target for the payout ratio.

  Q19 You mentioned you do not have a specific target for your dividend payout ratio. Do you have a target for your total "shareholder return ratio", including dividends and repurchase of own shares?

  Open

  A19 Because net income could change depending on the amount of taxes, etc., it is difficult for us to set a certain target that uses net income as a basis. In the past, our "shareholder return ratio" grew to over 100% when the net income for the period was low. We do not intend to increase or decrease our dividend every term linking it with our annual results. Instead, we would like to continue stable payment of dividends.

• Others (Distributor Commissions and Capital Expenditures)

  Q20 The revision of the distributor commission system for handset sales is now under discussion. What is your view on this issue?

  Open

  A20 It may be difficult to radically change the current sales model, because it will have a significant impact on handset manufacturers and distributors, but we do not think the current model is the best.

  Q21 How much in capital expenditures will be required to respond to the spectrum reassignment in the 800MHz band?

  Open

  A21 Our total capital expenditures, even if the amount required for the 800MHz band reassignment is included, are not likely to be significantly higher than our FY2007 forecast of 750 billion yen.