Japanese

Presentation Materials

• Questioner No. 1

  Q1 I believe the amount of your distributor commission per unit has decreased to the 20,000-25,000 yen range due to the recent growth in the number of users buying a handset using the Value Course. Do you think you can maintain this level toward the end of this fiscal year and beyond?

  Open

  A1 We would like to maintain our distributor commission at low levels going forward. We sometimes hear criticism that some of our handsets are sold at unnecessarily discounted prices regardless of the Value Course. However, such discounts are provided only for limited models and for a limited period of time in order to eliminate excess stock. Previously, when we sold handsets under the incentive model, we sometimes procured additional quantities to be sold as part of a discount sale, but after the introduction of the new handset sales model, discount sales are terminated when the shops run out of stock. Skillful inventory control will therefore be increasingly important going forward.

  Q2 I recall you carried approximately 5 million units of handsets in inventory, including those in the distribution channel, as of the end of the FY2008/2Q. What was the number as of the end of FY2008/3Q? And how do you view that level?

  Open

  A2 Our inventory assets as of the end of FY2008/3Q were 167.6 billion yen, compared to 185.5 billion yen as of the end of FY2008/2Q. In terms of the number of handsets in inventory, we had approximately 5.1 million units as of the end of FY2008/3Q. In our view, this is slightly higher than usual, but the number is still less compared to the end of FY2008/2Q. The higher-than-usual inventory in FY2008/3Q was mainly attributable to the launch of new handset series, which resulted in an increase in the variety of models to ten, compared to seven in FY2007/3Q. However, we believe this level of inventory is sufficiently manageable.

  Q3 Does the number of handsets in inventory include the free replacement phones provided under Mobile Phone Protection & Delivery Service, the insurance service for lost or damaged handsets?

  Open

  A3 Yes.

• Questioner No. 2

  Q1 You mentioned that the total number of handsets to be sold during FY2008 may end up 2 million units lower compared to the full-year forecast you provided at the time of the FY2008/1H results announcement. This should have an effect to boost your operating income by 30-40 billion yen, assuming that you are paying 15,000-20,000 yen in distributor commission per unit. Why didn’t you revise your full-year operating income guidance in spite of this?

  Open

  A1 You are correct. A reduction in handset sales by 2 million units is expected to save us approximately 30 billion yen in distributor commissions. On the other hand, there were increases in some cost items compared to our revised forecast announced in October 2008, such as the accelerated depreciation of mova-related assets and promotional expenses to facilitate migration of mova subscribers to FOMA. At the time of FY2008/1H results announcement, we had estimated some 45-50 billion yen for the accelerated depreciation of mova-related assets, but through subsequent scrutiny, it became clear that it will total slightly less than 60 billion yen (including 6 billion yen for the depreciation of asset retirement obligations). This represents a difference of approximately 15 billion yen from the earlier forecast. We have also decided to increase the promotional expenses by approximately 10 billion yen to accelerate the migration of mova subscribers to FOMA, because the migration has not progressed as planned due to the decline in total handset sales. Please treat the remaining balance of 5 billion yen as a margin of error.

  Q2 Regarding the LTE license, because you are already operating commercial 3G service using the 1.7GHz band, I believe it makes economic sense for you to apply for the 1.7GHz band license. Have you thought about this?

  Open

  A2 We basically intend to start the roll-out of LTE first using the 2GHz band, and then expand into the 1.5GHz band. We believe it is more efficient to use the 2GHz band because it will allow us to share many of our existing facilities with LTE.

  Q3 In relation to your free cash flows projections, the capital expenditures for the first three quarters of FY2008 increased from the same period of last fiscal year. Do you think your full-year capital expenditures will be lower than last fiscal year? Also, you have spent some 100 billion yen for repurchase of own shares during this fiscal year. Do you plan to buy back more shares in the fourth quarter?

  Open

  A3 We mentioned earlier that our full-year handset sales are expected to end up 2 million units lower than our initial plan. In addition, we have seen an increase in the percentage of Value Course users choosing to pay for their handsets in one-time lump-sum payments. These factors will likely reduce the installment claims by approximately 80 billion yen. The factors, together with other factors, such as a decrease in corporate tax payment, etc., are expected to increase our free cash flows by nearly 100 billion yen. On the other hand, cash outflows associated with the investment in India’s TTSL was not factored in our earlier forecast. At the time of FY2008/1H results announcement, we estimated our free cast flows as of Mar. 31, 2009, to be 130 billion yen. However, with such cash outflows, our cash position as of Mar. 31, 2009, may turn negative.
  For repurchase of own shares, we would like to buy more shares, but it will depend on our share price and other factors. We cannot comment at this point whether we will carry out share repurchase during the fourth quarter.

  Q4 What kind of measures are you planning to implement in order to boost packet ARPU?

  Open

  A4 Video will be the key to growing our packet ARPU. Entertainment contents have so far been the main video driver, but we intend to expand into new areas such as tourtist guide services and others. For viewing video, subscription to a flat-rate pacakge is strongly recommended. By enriching our video content portfolio, we intend to grow the number of flat-rate subcriptions.

• Questioner No. 3

  Q1 Please elaborate on the outlook of your operating income for next fiscal year, with explanations on the new cost elements, such as the accelerated depreciation of mova-realted assets and the handset development assistance to manufacturers.

  Open

  A1 Our goal to achieve a "moderate growth" in operating income remains intact. However, we are beginning to see some factors that could have a negative impact on our income, such as the detoriorating economic conditions, discussions to review access charge calculation method, promotions to accelereate the migration of mova subscribers to FOMA, etc. While there are such negative factors, we must endeavor to increase our income through, for example, enhancing our operational efficiency.

  Q2 Other carriers have employed traffic restrictions for access on their networks. Don’t you plan to do the same? Or do you have sufficient capacity so you do not need to restrict the user traffic?

  Open

  A2 Because we have successfully constructed a "thick" network of high capacity, stress-free and comfortable access is not sacrificed despite the increase in traffic volume. However, we are contemplating some measures against super-heavy users, including the possibility to reduce the transmission speed of such users.
  Conventionally, we restricted the traffic by controlling all flat-rate users covered by the same base station. We intend to change this to a new method, which will allow us to control more flexibly based on the actual usage of individual users. Leveraging the introduction of this new control method (dynamic control: planned for introduction on Apr. 1, 2009), we would like to accelerate the uptake of flat-rate service.

  Q3 If India’s TTSL decides to take part in the 3G auction, do you foresee any need to provide more financial assistance in addition to the investment that was already announced?

  Open

  A3 We are discussing with TTSL various possibilities, including a possible increase in the reserved price. While it will depend on the future developments, we do not foresee any need to make additional investments at this juncture.

• Questioner No. 4

  Q1 Please tell us the one-time cost items for this fiscal year, which will not incur next fiscal year (e.g., accelerated depreciation of mova-related assets, costs associated with integration of regional subsidiaries and change to a new corporate logo, etc.) and their respective amounts.

  Open

  A1 The accelerated depreciation of mova-related assets this fiscal year will have an impact to reduce our expenses by approximately 10 billion yen per year for the next three years or so.
  The accelerated depreciation of mova asset retirement obligations will also be incurred this fiscal year. This will contribute to increasing our income in the subsequent years because we will not have to record these expenses at the time of disposal.
  Other than the above, because there are no changes in our plans to lower our capital expenditures going forward, the downtrend in depreciation is expected to continue. We are also planning to cut other general expenses by 20-40 billion yen.

  Q2 The LTE licenses to be allocated with the largest bandwidth in the 1.5GHz band are subject to various restrictions, and the spectrum will become available on a nationwide scale only around 2014. But it may be more efficient to use the 1.5GHz band, because a bandwidth of 10MHz can be secured, compared to a bandwidth of only 5MHz in the 2GHz band. When these factors are taken into consideration, do you think you may have to change your plans for LTE, which is currently scheduled for introduction around 2010, due to the allocated bandwidth?

  Open

  A2 We intend to start LTE services using the 2GHz band. We are currently accommodating the growing demand for video services with our HSDPA network, and we plan to roll out LTE gradually from areas where the HSDPA network capacity becomes tight. We therefore do not plan to wait until 2014 and build the LTE coverage simultaneously with a 10MHz bandwidth.

  Q3 With respect to the depreciation of mova-related assets, in addition to the normal 30 billion yen depreciation for this fiscal year, you have added a total of 60 billion yen for accelerated depreciation (inclusive of the normal depreciation cost allocated for the FY2008/2H). Will it be correct to assume that your total depreciation for next fiscal year will be approximately 8 billion yen?

  Open

  A3 Without the acceleration, the depreciation of mova-related assets for FY2009 would have been expected to be around 21 billion yen. Due to the effect of accelerated depreciation, we envisage that the amount will be reduced by some 10 billion yen from that number.

• Questioner No. 5

  Q1 You mentioned that while you will aim to grow your operating income, you are facing a headwind. Do you feel somewhat hesitant to achieve an outstanding level of profits while other companies across the board are suffering a decrease in profits?
  As an investor, I do not consider an operating income level of 800 billion yen too high by global comparison, and I want DOCOMO to achieve continual growth. I would like to hear the views of President on this matter.

  Open

  A1 Our highest priority is to enhance customer satisfaction. We will consider ways to secure profits while improving the satisfaction of our customers.
  We have been able to secure an operating income level of 800 billion yen despite the current economic slowdown thanks to the support of each and every customer. This year, we would like to express our gratitude to our customers. We attach utmost priority to improved customer satisfaction.

  Q2 I believe now is a good time to make investments for future growth. Please let us know if you have any plans to further accelerate your investing activities next fiscal year?
  Can you also tell us, to the extent possible, how you have negotiated with your Korean partner upon the merger of KT and KTF.

  Open

  A2 You are correct, this may be a good timing to make investments, and if there are any good opportunities, we would like to explore them. As we presented in our middle-term vision, "DOCOMO’s Change and Challenge to Achieve New Growth", announced in October 2008, we aim to realize social platforms for health management, environment, etc., through the collaboration with external partners. We will proactively look into investment opportunities not only overseas but also in new business fields on a case-by-case basis.
  Although the merger between KT and KTF materialized earlier than what we had anticipated, it was factored from the time when we negotiated our investment in KTF. Because the results of collaboration, e.g., contribution to roaming revenues through the roll-out of W-CDMA, joint handset procurement, joint establishment of investment fund, etc., were seen sooner than expected, we appreciate the value of investing in KTF. Because both sides have agreed to continue our mutual collaboration, the merger of KT and KTF is not perceived as a negative development.

  Q3 Will it be right to consider that you will introduce LTE as one of a group of first adopters, and will never go too far ahead of other carriers as was the case with the roll-out of W-CDMA?
  In the event other overseas carriers decide to postpone the roll-out due to the global economic slowdown, will you also delay your introduction schedule?

  Open

  A3 We basically intend to introduce LTE as one of among a group of first adopters. Although this is not assumed in our plan right now, if other overseas carriers decide to postpone their roll-out schedule, we may also follow suit.
  Please understand that we are planning to introduce LTE not only to enable a smooth delivery of video and other killer content, but also to build up our network capacity. From what we hear from our exchange with various overseas carriers who have plans to introduce LTE, no carriers seems to have decided to delay the roll-out, so we do not see any problems with our current schedule at this juncture.

• Questioner No. 6

  Q1 You unveiled your plan to spend over 10 billion yen to assist manufacturers’ development. How does this relate to the Operator Pack?

  Open

  A1 This financial assistance will be provided to shoulder a portion of the development cost of functions required by DOCOMO, and we will purchase the intellectual property rights with respect to such applicable portion. This will therefore result in a reduction in our handset procurement costs. The intellectual property rights that we purchase under this arrangement may potentially be used for Operator Pack.

  Q2 Certainly, reduction in handset costs can be expected from the development of Operator Pack and the financial assistance to manufacturers. When such price reduction is taken into consideration, how many handsets do you think you can sell during the next fiscal year?

  Open

  A2 We have just made a downward revision of our full-year handset sales forecast to 20 million units compared to 22 million units at the time of our FY2008/1H results announcement. For the next fiscal year, we would like to release attractive handsets at appropriate prices in a timely fashion, to stimulate Japan’s domestic demand and contribute to its economic recovery. Our goal is to achieve a level similar to this fiscal year, but we may see a decline if the current economic trends persist.

• Questioner No. 7

  Q1 How much do you require in capital expenditures to sustain a subscriber base of 54 million? Specifically, how much do you need to spend to roll out LTE and expand your coverage?

  Open

  A1 Service area construction is an endless effort, because customers’ requirements become ever more demanding year after year. Going forward, we are planning to expand our indoor coverage utilizing Femto cells. Even if LTE roll-out expenses are included, we believe we can maintain our total CAPEX at around 700 billion yen.