Japanese

Presentation Materials

• Questioner No. 1

  Q1 You mentioned that you will aim to achieve at least 900 billion yen in operating income for FY2012. Which market(s) do you plan to target for the creation of new revenue sources? How much income do you expect to generate from such new businesses?

  Open

  A1 The newly announced action plan, "DOCOMO’s Change and Challenge to Achieve New Growth", was developed after a series of executive meetings since August. The new fields of business we plan to address are (1) personalization of services, (2) social support services, and (3) converged services. Our target is to achieve operating revenues of 100 billion yen from each of these business lines, for a total of 300 billion yen. Meanwhile, we will also seek additional revenues from our existing businesses, primarily by growing packet revenues by approximately 100 billion yen from the current level through the promotion of video services, etc.

  Q2 I believe your operating income for FY2008 could have reached over 900 billion yen if extraordinary factors (e.g., accelerated depreciation of mova-related assets, costs to facilitate migration of mova subscribers to FOMA, etc.) were excluded. When this is taken into account, don’t you think your 900 billion-yen operating income target for FY2012 is not very challenging?

  Open

  A2 Because the accelerated income boosting effect owing to the introduction of new handset purchase method will gradually subside in the future, unless we take on new challenges, we will not be able to achieve operating income of over 900 billion yen. To sustain growth beyond FY2012, we need to plant the seeds for new revenue sources while the income-boosting effect is continuing.

• Questioner No. 2

  Q1 Please explain how your balance sheet will look like when you generate over 900 billion yen in operating income in FY2012. As you effectively have no debt today, if you achieve an operating income of over 900 billion yen in FY2012 and build up your cash position, do you plan to increase the return to shareholders?

  Open

  A1 We have not made a concrete estimate of our middle-term balance sheet figures yet, but I believe there are two variables that need to be taken into consideration. One is the outstanding installment accounts receivable. Initially, we estimated that it will peak out at around 600 to 700 billion yen, but it may end up lower given the recent trend of handset sales. The other variable is our investing activities. In the new "Change and Challenge" program, we have not presented our operating revenues target, because we have not ruled out the possibility of making an investment for a majority stake which needs to be reflected in our consolidated financial statements. Having said that, however, because our debt ratio is currently about 10%, and our balance sheet is net debt free or even net cash positive today, we may increase our debt ratio slightly in the future.
  Our basic policy concerning returns to shareholders under such scenario remains unchanged. We plan to continue stable dividend payments taking into account the levels of free cash flows and income for each fiscal year. We also intend to continue our share repurchase program while keeping in mind our free cash flow conditions and funds required for investment.

  Q2 You mentioned you aim to reduce your costs by at least 10% from the current level. If this is calculated based on your current operating expenses of approximately 4 trillion yen, this will imply a huge reduction in the order of 400 billion yen. How likely do you think you can achieve cost reduction of this magnitude?

  Open

  A2 This target is not based on our total operating expenses of 4 trillion yen. This is calculated based on our costs excluding sales-related expenses, which are 2 trillion yen. We aim to reduce our expenses by a total of some 200 billion yen through savings in depreciation, communication network charges and other expenses. Roughly speaking, the reduction of depreciation and other network-related costs will account for 140 billion yen, and the remaining 60 billion yen will come from the reduction of other expenses.

  Q3 In your revised full-year guidance for FY2008, you made a huge downward revision to your handset sales forecast. However, the downward revision to your distributor commissions forecast is limited to 5 billion yen. While you might be contemplating some sales incentives to eliminate the handsets in inventory, will it be correct to consider that from now on your commissions will be like a fixed cost that is not linked to the number of handsets sold?

  Open

  A3 You are half right and half wrong. In the second half of FY2008, we are planning to use commissions strategically, including to migrate mova subscribers to FOMA. On the other hand, in view of the decline in handset sales, we also believe it is necessary to make strategic spending for the retention of existing subscribers and maintenance of distributors, hence we are taking steps to use commissions in a way not directly linked to the number of handsets sold.

  Q4 How much do you plan to spend to accelerate the migration of mova subscribers to FOMA?

  Open

  A4 Measures to promote the migration of subscribers will be spread out over a few years starting this fiscal year, but we intend to complete the migration process as quickly as possible. We already started waiving the handling charges which customers are usually required to pay to switch to a FOMA handset. Because the promotional measures that are currently in place (FOMA replacement support) are offered only to a limited number of handset types, the total cost impact is estimated to be around 10-15 billion yen.

• Questioner No. 3

  Q1 In your revised full-year guidance, the projected number of handsets to be sold was revised downwards by 3.4 million units compared to your original forecast. In ordinary circumstances, that should result in a reduction of approximately 50 billion yen in distributor commissions, but you made a downward revision of only 5 billion yen. What would be the amount of revision before the application of EITF01-09?

  Open

  A1 Because there is an impact of some 22-23 billion yen due to the application of EITF01-09, the actual amount of downward revision is about 30 billion yen. The difference between your estimate of 50 billion yen is only the remaining 20 billion yen.

  Q2 Then the question is how you plan to use that 20 billion yen other than the promotional expenses to accelerate subscriber migration to FOMA. Are you planning to use some of that amount, for instance, to mitigate the increase in handset prices resulting from the rising procurement costs?

  Open

  A2 We are planning to take some measures to bolster our distributors who are experiencing difficulties due to reduced handset sales. In addition to the expenses for migrating subscribers to FOMA, we will also need to incur some costs to reinforce our distributors.
  Furthermore, as two years have passed from the introduction of Mobile Number Portability, we expect there will be an opportunity to acquire from other carriers subscribers whose contracts will expire. We need to create an environment where these users find it attractive to join DOCOMO, and we have appropriated a certain amount of expenses for this purpose.

• Questioner No. 4

  Q1 The FY2008/2Q numbers indicate that the wholesale unit price of your handsets has decreased and your handset gross margin seems to have worsened accordingly. Do you think the handset costs will continue to decline next fiscal year and beyond? What are your views on the gross margin from the sales of handsets?

  Open

  A1 We do not believe our gross margin has decreased. Perhaps your assumption came from the gap between the 19.8% decline in the number of handsets sold and the approximate 30% decrease in wholesale units. Also, although the unit cost of procurement is not decided at this point because it will be determined only after our negotiations with the manufacturers, given that the total number of handsets sold is decreasing, we cannot rule out the possibility of some manufacturers requesting a hike in unit price.

  Q2 Is your operating income target for FY2012 of at least 900 billion yen aligned with NTT Group’s announced operating income target of 1.3 trillion yen? Do you think NTT is content with DOCOMO’s operating income target?

  Open

  A2 DOCOMO is a member of NTT Group, and our operating income target is included in the Group’s total target of 1.3 trillion yen. We are not sure if NTT is satisfied or not, but we have already reported to NTT based on the operating income target contained in the newly developed plan.

  Q3 What would be the estimated size of your free cash flows for FY2012?

  Open

  A3 It will depend on the size of our domestic and overseas investments. We believe we can maintain it at around the current level of somewhere between 400 and 500 billion yen, if we do not have extraordinary cash outflow resulting from investments.

  Q4 There was a media report that you intend to grow the size of international business revenues to some 10% of your total revenues. How significant will be the contribution of international services to the 900 billion-yen income target under your new plan?

  Open

  A4 Income from investments are not factored in the 900 billion-yen income target, because any proceeds from minor stake investments will be recorded as non-operating income. However, the revenue size of international roaming service is expected to grow to a magnitude of 100 billion yen in FY2012. The 10% target was a ballpark figure expressing our ambition to expand international business, and no comments have been given as to a concrete timeline for achieving this target.

• Questioner No. 5

  Q1 You raised an operating income target of 900 billion yen for FY2012, but that represents an increase of only slightly over 2% per annum. I believe you could have set a higher income target by planning a reduction in R&D costs and capital expenditures. How did you arrive at this 900 billion-yen target?

  Open

  A1 We need to anticipate a decline in income as a base trend in the next few years because the income-boosting effect from the new handset purchase model will gradually subside. This 900 billion-yen target was set reflecting our ambition to reverse the base trend and achieve growth in income. We will take on the challenge to expand revenues through the creation of new services, while we are still enjoying the accelerated profit generation effect, so that we can achieve our goal of generating more than 900 billion yen in operating income for 2012.

• Questioner No. 6

  Q1 If you record accelerated depreciation of mova-related assets worth 50 billion yen in your balance sheet for this fiscal year, how much cost reduction can you expect in each of the next three fiscal years?

  Open

  A1 At this point, we have not clearly identified the total size of mova assets subject to depreciation, but it is roughly estimated to be 90-100 billion yen. In arriving at this estimate, we assumed the size of depreciation would have been 30 billion yen for FY2008, 20 billion yen for FY2009 and 10 billion for FY2010 without accelerated depreciation. With an accelerated depreciation of 50 billion yen this fiscal year, the total amount of depreciation will rise to 80 billion yen, and therefore, the remaining asset value to be carried over to next fiscal year and beyond would be limited to only a few billion yen. The gap between the pace of depreciation with or without acceleration equals the cost reduction effect that can be expected for next fiscal year and beyond.

  Q2 The size of promotional expenses to facilitate the migration of mova subscribers to FOMA of 10+ billion yen seems to be small. Do you think this is sufficient? Can we expect the migration process will be mostly completed by the end of next fiscal year?

  Open

  A2 We do not think we can complete the migration of our existing 7.5 million mova subscriber with a total of 10+ billion yen. We will use these expenses to speed up the pace of migration. We will try to complete the migration by spreading out the process over the next few years.

  Q3 NTT plans to limit CAPEX to 15% of total revenues. What is your CAPEX/total revenues ratio for FY2012?

  Open

  A3 It is estimated to be approximately 15% in our plan.

  Q4 To strengthen your core business, you said you will aim to 1) boost ARPU, 2) expand uptake and usage of smart phones and data cards, 3) expand enterprise business, and 4) strengthen credit payment business. Please give us an estimate of income contribution from each of these efforts.

  Open

  A4 In our core businesses, we plan to grow revenues by approximately 100 billion yen by increasing our packet ARPU. We cannot comment on the income contribution from the other initiatives as we have not calculated them individually. From new services, we aim to achieve revenues of 300 billion yen and income of 50 billion yen in FY2012.

• Questioner No. 7

  Q1 You made a downward revision your full-year depreciation forecast by 31 billion yen compared to your initial guidance. When the 50 billion-yen accelerated depreciation of mova assets are taken into consideration, this implies it is 19 billion yen lower than your original forecast. Why will it be 19 billion yen lower when your CAPEX forecast remains unchanged from the initial guidance?

  Open

  A1 This is a result of recalculation after a review on our initial investment schedule, in part due to delays in the completion of development of software and other items compared to the original plan.

  Q2 Most of the targets in your newly developed action plans are set for FY2012 except for the customer satisfaction target. Why did you set this particular target for FY2010?

  Open

  A2 Enhancement of customer satisfaction is a top priority, and we cannot wait until FY2012. We also believe that our network quality and after-sales support already enjoy good reputations, so we set an earlier date to demonstrate our strong resolve to achieve this target no later than FY2010.

  Q3 I can understand your policy to take on the challenge of new service creation. However, you already have some services, like the credit payment service, that do not make any income contribution. Don’t you think it is necessary to review the services introduced in the past, so that you can raise the probability of generating profits from future services?

  Open

  A3 We would like you to evaluate the success of our credit business from a long-term perspective. Its subscriber base is projected to reach 9 million by Mar. 31, 2009, but we need 15 million subscribers to break even in this business. It will take a little longer to make it profitable.
  Among the services introduced in the past, there are some services, like "i-channel", that have achieved great success, exceeding our expectations. On the other hand, services like "PushTalk" or "Chaku-moji" have turned out to be lackluster. We are aware of the need to streamline these services in the future, but it may not be possible to do so immediately because there are existing subscribers to each service.

• Questioner No. 8

  Q1 You explained you are planning a 10% cost reduction excluding handset procurement costs. Is it correct to understand that you will continue to seek a reduction in handset procurement costs? Also, if you succeed in lowering the procurement cost, do you plan to secure profits by improving your gross margin?

  Open

  A1 We will continue to work on the reduction of handset procurement costs. In our medium-term cost reduction goals, the procurement costs are singled out as a separate item, so the 10% (200 billion-yen) reduction is calculated based on the remaining 2 trillion yen.
  Improvement of gross margin will have to be decided in view of the competitive landscape. Under the current market environment, it is difficult to expect a rapid improvement in gross margin. This is not factored in the newly announced income target for FY 2012.