Japanese

Presentation Materials

• Questioner No. 1

  Q1 I would like to ask about the projected changes in revenue structure over the next 2-3 years following the introduction of the iPhone. I believe you are expecting positive effects such as lower churn rate and accelerated subscriber migration to smartphones. On the other hand, the amount of Monthly Support discount per unit/month for the iPhone is considerably high at the upper 3,000 yen level, which is expected to result in a year-on-year decrease of some 100 billion yen in mobile communications services revenues in the second half. The downtrend of mobile communications services revenues will likely continue in the next fiscal year, and if the improvement of net additions and increased subscriber migration to smartphones are not sufficient to make up for the decrease in revenues, I believe you will have to continue focusing on cost reduction. Do you really think you have a viable model that can sustain profits over the medium term?

  Open

  A1 As you pointed out, we are expecting a decline in revenues due to the Monthly Support discount program. We will strive to achieve packet ARPU-boosting effect from the migration to smartphones and improve our net additions, and any revenue shortfall that could not be covered by these efforts will be addressed by thorough execution of cost efficiency improvement measures. In FY2013/2H, we will keep a close eye on these indicators, and try to achieve a good balance thereof. Suppressing outlays for the Monthly Support program is an important issue in our business management, and we will try to control the expenditures using our wisdom. We will also move ahead with the underlying structural reforms so that we can control our costs through a total approach.

  Q2 When do you think the amount of Monthly Support discount per unit for the iPhone will come down to a healthy level comparable to the competitions'?

  Open

  A2 We have already employed measures, such as lowering the amount of Monthly Support discount for users purchasing a handset in one lump sum payment. We will work to control the impact of the Monthly Support program while closely observing trends of key indicators, such as movement of subscribers using Mobile Number Portability (MNP) system, churn rate and net additions during the high-sales season in the coming winter and spring.

  Q3 Regarding your free cash flow, I assume that the installment claims payable to agent resellers are expected to increase due to expanded adoption of installment payment scheme. Can you share with us your views concerning future cash flow generation, dividend payments and shareholder returns?

  Open

  A3 In our original forecast, free cash flow for the current fiscal year was estimated to be 400 billion yen. At the end of the first half, however, we made a downward revision to 300 billion yen due mainly to the capital alliance with ABC Holdings that we announced today as well as other planned investments for diversification of services. The increase in installment claims payable will not likely have a significant impact because we will also make progress with the cash collection of installment receivables.
  Dividends for this fiscal year will be maintained at the same level as last fiscal year at 6,000 yen per share (or 60 yen per share after reflecting the stock split on Oct. 1, 2013). We believe our dividend is already sufficiently high, but we would like to improve our overall business performance to a state that will allow us to consider further dividend hikes.

• Questioner No. 2

  Q1 Although you have not changed your full-year operating income guidance from the original forecast of 840 billion yen, there is one thing that has changed from the initial plan, i.e., the launch of the iPhone. If you are able to sell 3 million units of iPhone in the second half alone, you should be able to generate tens of billions of yen in handset gross margin. Where did that income disappear to? As you have not changed the guidance from 840 billion yen, please explain the factors behind the changes in revenues and expenses between the initial plan and the new forecast.

  Open

  A1 We missed some of the targets planned for FY2013/1H. However, because we will aim to achieve a recovery in the second half, we did not change the 840 billion yen guidance. Therefore, we do not foresee any income disappearance. Having said that, however, the actual income is determined by the balance of various factors including the Monthly Support discounts and gross margin. We will therefore manage our business closely monitoring the trends of, among other things, subscriber migration from feature phones to smartphones, smartphone-to-smartphone handset upgrades, the number of MNP port-ins, new acquisitions and churn rate. We will devise various creative initiatives to reap the benefits of having both the iPhone and Android devices in our lineup.

  Q2 You virtually made a downward revision to your ARPU forecast, and the migration of subscribers to smartphones has not resulted in any increase in mobile communications services revenues. I believe one factor affecting the stagnant ARPU is the "Pake-hodai Light" billing plan. You are the only carrier in the market generating less than 4,000 yen in data ARPU, which has remained flat despite the increase in the uptake of smartphones. I do not understand why you need to continue the "Pake-hodai Light" package when your LTE network is beginning to improve and other carriers do not have any competing offerings. Do you have any plans to review this package, including the option of discontinuing it altogether or suspending acceptance of new subscriptions?

  Open

  A2 At this juncture, we do not have any plans to raise the price of the "Light" package, but we perform constant reviews on our billing plans, looking into their convenience, service propositions and the baseline prices. Because we have opportunities to discuss with overseas carriers, in the process of studies on the desirable billing structure, we also take into consideration the different properties of overseas markets and Japan. The "Pake-hodai Light" plan, which offers data allowances up to 3Gbytes per month, is designed to make it easier for users to migrate to Xi LTE service. We will review our billing plans taking various issues into account, including the rates for viewing video and other rich content. We will also look into possible introduction of brand new plans.

  Q3 You already released the iPhone. You mentioned that you will increase the shops handling the iPhone and the skill levels of your staff are expected to improve further, so you will be better prepared for marketing this product. Meanwhile, you should be able to achieve certain sales volumes with Android devices as well. Now that you have a more competitive handset lineup, I believe you will be in a better position to compete against other carriers going forward. Under such circumstances, does it make sense for you to continue providing the "Light" plan? The carrier with the largest market share offering the cheapest billing plan appears to me like a distortion in the competitive landscape. I hope you will take this issue as a subject of review.

  Open

  A3 We will take it as a review item.

  Q4 Do you have any intention of using the improved handset gross margin for sales promotion? Given that the net additions for FY2013/1H was limited to 230,000, for you to meet your full-year net additions target of 1.85 million, you will need to achieve a 7-fold increase in the second half over the first half. Do you foresee any possibility of going after net additions by unreasonably increasing your costs?

  Open

  A4 We have no intention of recklessly pursuing net additions spending undue costs. We will strive to improve our performance, controlling our total costs through on-going cost reduction and other efforts while thoroughly preparing the sales structure for the iPhone.

• Questioner No. 3

  Q1 I believe you now have all the necessary weapons with the launch of the iPhone. When can we expect to see tangible results, e.g., in the form of improved MNP and net additions performance?

  Open

  A1 While it is difficult to give you a precise indication as to when we can show improvement in results, our sales performance during the high-sales seasons in December and the spring period of February-March 2014 will hold the key. Our performance in the month of September was certainly disappointing, but we are beginning to see signs of improvement from October. As exemplified by the start of sp-mode mail service on the iPhone from October 1, the level of our readiness for this product has been improving, so we have high expectations for the coming winter sales season.

  Q2 You mentioned that you will aim for 900 billion yen in operating income. Can you give us reassurance that your income will not fall below 840 billion yen in the next fiscal year or the year after in the course of achieving 900 billion yen?

  Open

  A2 We will firmly control our business operations so that our operating income will not dip below the 840 billion yen mark.

  Q3 Despite the expanded adoption of smartphones, your data ARPU appears to be in a downtrend. When I look at your full-year data ARPU guidance, however, it seems that you are projecting an increase in data ARPU in the third and fourth quarters. Is this correct?

  Open

  A3 The expansion of smartphone user base is very important to achieve growth in data ARPU. The data ARPU-boosting effect resulting from subscriber's migration from a feature phone to smartphone is trending upward. Although our total handset sales in the first half was lower than our initial projections, we would like to counter the competition leveraging our lineup of iPhone and Android devices in the second half, and expand our smartphone user base thereby.

• Questioner No. 4

  Q1 While it might by difficult for you to bring down the amount of Monthly Support discount for the iPhone in the near term, do you plan to pursue a reduction with Android devices in FY2013/2H in order to improve your profitability in the next fiscal year and beyond? Or, should we not anticipate such moves for the current fiscal year?
  You mentioned that you will "take the next step in view of the prevailing circumstances". What is the timeframe for that? Does it imply that you will be able to employ certain measures in the spring next year, if you are able to turn around your MNP performance within this calendar year? Or, do you contemplate deployment of measures on a half-year or yearly basis? Please clarify the timeframe for implementing measures.

  Open

  A1 With respect to the timeframe, the coming winter (year-end) and spring sales seasons will serve as important milestones, and we will make necessary judgments at these junctures.
  As for Android devices, with the adoption of the "Two Top" strategy, we were able to introduce products that we can recommend to customers while minimizing the procurement costs. And we are currently promoting the three recommended models in our latest collection based on the same philosophy. We will pursue efficiency improvement through a total approach addressing both the Monthly Support discounts as well as handset procurement costs.

  Q2 I understand that you recorded losses upon the transfer of accounts receivable to NTT Finance during the last fiscal year. Is this a one-time cost? Can you explain the breakdown of cost allocation by quarter? I believe the lack of this irregular cost item accounts for nearly half of your cost reduction planned for this fiscal year.

  Open

  A2 The billing operations of the entire NTT Group was transferred to NTT Finance. When we divested our internal billing operations last year, we recorded some transitory costs, such as those required for public communications and customer notification, but we are already achieving improvements in the current fiscal year. And we expect to see improvements every year, because the business entrustment fee for the following year will be determined based on the track record of each fiscal year. We decided on the business transfer in expectation of cost savings over the medium term.
  Cost efficiency improvement must be pursued with determination. The projected cost reduction that we presented in the slide does not include the expenses (or the effect of cost reduction from the lack of irregular item) that you pointed out.

• Questioner No. 5

  Q1 What was the average amount of Monthly Support discount per unit for FY2013/2Q? And what is your target for the full year after a review at the end of the first half?

  Open

  A1 The average amount of Monthly Support discount per unit for FY2013/2Q was 49,000 yen, on par with the amount for the same period of last fiscal year. We would like to reserve comments pertaining to the full-year forecast of the amount of Monthly Support discount per unit.

  Q2 I believe your initial target was slightly less than 40,000 yen. Do you think it is possible to reduce the amount in the second half compared to the first half?

  Open

  A2 The actual amount of discount came in higher due to the introduction of the iPhone and other factors. But we will strive to control the amount in totality through the combination of Android and other products.