Japanese

Presentation Materials

• Questioner No. 1

  Q1 You mentioned that your handset cost has been decreasing. Please explain the reasons. Previously, you explained that your procurement cost is expected to increase due to a reduction in the volume of procurement. Are you expecting an increase in the handset procurement cost per unit due to decreased volume when procurement of the 2009 summer model handsets gets into full swing from June onwards?

  Open

  A1 The main reasons for the decline in handset procurement cost are the increase in the proportion of middle- and low-price range handsets to total sales, and the effects of the 10 billion-yen investment in manufacturers that we made during last fiscal year for the development of handsets. The reduction of volume obviously increases the cost per unit, but overall, our handset procurement cost has decreased by approximately 3,000-4,000 yen per unit.

  Q2 The decline in distributor commissions seems to be small relative to the decrease in the total number of handsets sold. Please explain the factors behind this.

  Open

  A2 One factor is the revised commission structure, in which we attach greater emphasis on fixed commissions that are not linked with the number of handsets sold. Another is the increase in distributor commissions resulting from the higher-than-expected number of mova (2G) subscribers switching to FOMA (3G), because we stepped up our efforts to migrate subscribers in April and May 2009, when subscriber movement in the market was high. The impact of the latter was larger.

  Q3 How far do you think you can reduce your churn rate going forward?

  Open

  A3 The overall Churn rate includes, among other things, forced churns and natural churns such as cancelation of a subscription contract owing to the subscriber's moving overseas. These two combined account for approximately 0.3%. Our goal is to achieve a churn rate of around 0.4% taking into account these unavoidable churns. We achieved this target in the month of June 2009, and we will continually strive to maintain our churn rate low.

• Questioner No. 2

  Q1 Your future business directions and growth strategies are obscure. While your churn rate is declining, its contribution to income is unclear and the growth rate of your data ARPU is virtually limited to approximately 2%. Please clarify your growth strategies. Do you believe, for instance, that your data ARPU can grow at a rate of around 10% as before?

  Open

  A1 We plan to steadily implement our strategies presented in our medium-term vision, e.g., by creating new services in the three fields of personalization, social support and converged services, promoting video services and advancing the network that underpins the aforementioned services.
  With respect to packet ARPU, the number of net additional subscriptions to our "Pake-hodai double" two-tier flat-rate service has grown at a pace 30% higher than our forecast. We plan to promote the use of video services to grow our ARPU.

  Q2 Please elaborate on the overview of the business model of MVNO service. The number of monthly net additions can be estimated to some extent, so can you comment on its projected revenues/income size and planned number of net additions?

  Open

  A2 Subscriptions to the MVNO operator to which DOCOMO provides network access are to be included in DOCOMO's net additions, and these subscriptions have certainly contributed to the growth of our net additions. The business plan of the MVNO operator is not disclosed to us.

• Questioner No. 3

  Q1 Please elaborate on the current status of handset inventory.

  Open

  A1 The total amount of our inventory assets on our balance sheet as of June 30, 2009 was 174.9 billion yen. Although this was slightly lower compared to the level as of June 30, 2008, it has increased from March 31, 2009, when we carried inventory worth 123.2 billion yen. This includes the impact of a temporary rise in inventory resulting from a malfunction in our summer model handsets. However, since we have been able to sell handsets steadily from July, and because the latest models account for the bulk of the handsets in inventory, we do not consider them bad assets.

  Q2 Have you achieved any progress in optimizing the inventory level (e.g., elimination of excessive inventory or reduction of lost sales opportunities due to short supply) after consolidating the former regional subsidiaries, which I believe enabled you to more easily coordinate the discrepancy in inventory levels between regional offices?

  Open

  A2 Prior to the integration, handset procurement and inventory control were carried out separately by each regional subsidiary, and these numbers were simply added up to calculate the figure for the entire DOCOMO group. This was switched to a nationwide common inventory control system following the integration of former regional subsidiaries, making it possible for us to coordinate the imbalance between regional offices. Recently, we have been able to operate our business without facing the problem of short supply, etc. We believe the consolidation delivered positive results for inventory control.

  Q3 The monthly net additions data show that some operators have achieved strong subscriber acquisitions in some particular regions of Japan. When you analyze your performance based on the territories of the former nine regional subsidiaries, in which area are your strong or weak? Have you seen any discrepancy between different regions in the progress of income generation?

  Open

  A3 It is impossible to break down our financial results by region because our accounts have been consolidated upon the integration of former regional subsidiaries. But to comment on the vigorousness of each region, I would say Kyushu is extremely energetic. Our performance in Kyushu has been very favorable in every aspect, and staffs in the field are all full of vitality. Having said that, however, the Kanto Koshinetsu region has the largest business scale, and our overall performance is most significantly affected by the performance of this region.

• Questioner No. 4

  Q1 You said you sent three board members and nine expatriates to TTSL. What kind of criteria did you employ in selecting these members? Please also comment on the field of expertise of the employees seconded and the support structure from Japan (DOCOMO).

  Open

  A1 The secondees were basically selected after soliciting volunteers. They were dispatched to TTSL's offices in Mumbai and Delhi. With respect to the support structure, 35 members from DOCOMO, including myself, just recently visited India to attend the Business & Technology Cooperation Committee (BTCC). Under BTCC, five subcommittees have been established to work on such issues as network, devices and value added services, etc. We are moving ahead with our cooperation believing that "TTSL's success is DOCOMO's success".
  Our personnel are involved in all principal fields of TTSL's business. In addition to directors, we sent our staff to TTSL's business units responsible for overall business administration, finance, marketing, value added services and network. The expatriates are generally young, and they are assigned the responsibility to monitor TTSL's operational status. In the field of enterprise business, DOCOMO's Corporate Marketing team in Japan provides assistance, so that we can offer proper support to Japanese enterprises active in India. We also plan to dispatch our staff to assist TTSL's GSM service launch.

  Q2 What was your impression after attending the BTCC meeting?

  Open

  A2 I believe we get along very well with TTSL's Managing Director and his team who are all very diligent and faithful. Their emphasis on "integrity" and "fidelity" is something we find a lot in common with Japanese culture. I once again recognized that it was a good decision to invest in TTSL.

  Q3 Before you commence LTE service using one carrier frequency, if other carrier(s) launch a different system (HSPA+ or DC-HSPA), don't you think you will lag behind the competition because the catalog specifications of the two systems are basically equal?

  Open

  A3 We believe it is more efficient to migrate directly to LTE without adopting HSPA+, which is an intermediate technology. By rolling out LTE initially using the 2GHz band, which is the spectrum band that we already use for 3G, it becomes possible to migrate to LTE taking advantage of the benefits of the legacy system such as antenna sharing. Some European operators plan to adopt HSPA+, but we believe in the long run it is more efficient to go straight to LTE.
  With HSPA+ systems, high transmission speeds close to the catalog specifications cannot be delivered unless the radio conditions are considerably favorable, so we believe LTE is more advantageous under average radio conditions.
  In addition, if two carrier bandwidths are used in areas where spectrum is available, the transmission speed can be doubled, in which case the rates offered by LTE will become higher than those of HSPA+. The difference of transmission rates will enable us to differentiate our services and marketing.

• Questioner No. 5

  Q1 In your explanation on your FY2009/1Q ARPU, you mentioned that packet ARPU grew faster but voice ARPU was weaker than expected. Please comment on the outlook for your full-year aggregate ARPU.

  Open

  A1 We expect our full-year packet ARPU will end up higher than our current forecast of 2,420 yen, but we would like to observe the trends a little longer before commenting on a concrete figure. How to raise the usage of low packet ARPU users is an important challenge for our business. We will work to grow the traffic by encouraging subscribers to join the "Pake-hodai double" flat-rate package leveraging the revision of its minimum rate, and by enriching the content portfolio of our video offerings and "i-concier" service.
  It is also difficult to predict the level of our full-year voice ARPU at this point. We therefore would like to watch the trends for a while to determine the outlook of our aggregate ARPU.

  Q2 In FY2009/1Q, it seems that you have not conducted any share repurchases. What are your future plans?

  Open

  A2 Due to the instability of the overall stock market owing to the impact of global financial crisis, there had been mounting requests for a dividend hike from shareholders seeking direct returns. This fiscal year, we decided to raise our dividends taking these requests into consideration. With respect to share repurchases, after a comprehensive review on various factors, including the concern against an steep decrease in the number of floating shares, we decided not to continue the share buy-back program in the size as before, but instead carry out share repurchases more flexibly based on a resolution of the Board of Directors. In FY2009/1Q, we did not repurchase shares, partly because we had a net cash outflow of 90 billion yen due to corporate tax payments and other factors.
  We believe we are well positioned to achieve the full-year adjusted free cash flows forecast of 380 billion yen, because of the progress in the collection of installment claims and other factors. While we intend to flexibly carry out share repurchases taking into consideration our financial position toward improving our capital efficiency, the market trends and our share price, etc., nothing is decided at this point.

• Questioner No. 6

  Q1 I believe you have a plan to strengthen the sales of PC data cards and smartphones this fiscal year, and "other packet ARPU" for the full-year is projected to increase by 10 yen compared to the prior fiscal year. How was the performance in FY2009/1Q?

  Open

  A1 In FY2009/1Q, we recorded higher-than-expected PC card sales.
  However, our share in the total market, which is expected to register 1 million net additions this fiscal year, is estimated to be less than 20%. By revising the flat-rate data plan and reinforcing our sales activities at mass retailers and docomo Shops, we intend to continually grow our sales in July and beyond.

  Q2 Considering your billing rates, I assume that the packet ARPU of PC data card users is more than two times higher than that of cellular phone users, but can you comment on the profitability of the PC data card business compared to the handset type devices?
  Also, is it correct to understand that laptop PCs are handled solely by the distributors and DOCOMO is not involved in its sales at all?

  Open

  A2 The sales incentives payable by DOCOMO are provided only for the purpose of acquiring data plan subscriptions. The PCs are handled solely by the distributors and whether to provide discounts or not on these products are decided at their own discretion.
  We believe we have paid adequate level of incentives for the acquisition of data plan subscriptions, and this market provides sufficient level of profitability.

  Q3 In the manifesto announced by the Democratic Party of Japan, there was a description concerning a possible increase of spectrum usage charges or introduction of spectrum auction system. What is your view on this matter, and how do you think it will impact your business?

  Open

  A3 In Japan, spectrum has so far been allocated not by auctions but through approval system. Each of them has both merits and demerits. For example, in the case of auction, if the bidding price skyrockets, it could lead to a delay of capital spending by the carrier who won the spectrum, or the right to use the spectrum itself might be resold in the market. Because radio waves are public assets, I believe the current system—in which telecommunications carriers receive the approval to use spectrum after submitting the business plan and bear the responsibility to fulfill the plan—is more favorable.