Japanese

Presentation Materials

• Questioner No. 1

  Q1 To meet your full-year operating income guidance, you will need to boost the FY2013/4Q operating income by 16 billion yen compared to the same period of the previous fiscal year. Yet, your mobile communications services revenues for the first three quarters have declined by 8% year-on-year, and if this trend continues, it will likely record a drop of several tens of billions of yen in FY2013/4Q. Under these circumstances, what do you think will be the key drivers for the attainment of income guidance? Please also explain the factors behind your decision not to revise the full-year operating income forecast and the current outlook.

  Open

  A1 We will make utmost efforts to achieve our guidance by taking proper measures to counter the competition during the peak sales season in the spring, while pursuing further cost efficiency improvement.
  We, the management, are aware that our revenue growth has been weak. It took longer time than expected to turn around the situation through the introduction of iPhone. However, we are seeing signs of recovery in recent months, and we are confident that our revenues will begin to record a steady increase in the future. With respect to cost efficiency improvement, we have successfully reduced our general expenses ahead of our initial plan. The key challenge, therefore, is how we can control our operating expenses because it will pose a test of our true competitive strengths. In light of these factors, we decided to keep the full-year operating income guidance unchanged.

  Q2 The growth rate of your packet ARPU—even when the impact of Monthly Support discount program is excluded—has slowed. Isn't this because you have not been able to grow the sales of Android devices due to their expensive market prices, and iPhone sales underperforming your expectations even they are offered for free to both new and replacement subscribers? Don't you think you should rebalance the pricing by raising the iPhone price slightly so you can secure the funds to offer discounts on Android phones?

  Open

  A2 It is true that subscriber migration from feature phones to smartphones has not been progressing as fast as what we had projected. However, iPhone 5c has been effective in facilitating the migration, and Android devices have been enjoying solid popularity showing great effects for the acquisition of port-in subscribers and migration from feature phones. While the balance of prices requires further review, for the time being we intend to maintain the current prices.

  Q3 I do not think it is healthy for you to maintain the iPhone price at 0 yen for both new and replacement subscribers. What do you think?

  Open

  A3 It is only about 4 months since we started handling the iPhone, so we would like to observe the market trends a little more.

• Questioner No. 2

  Q1 I believe you will try to achieve your full-year operating income guidance of 840 billion yen by making up for the projected 230-240 billion-yen year-on-year decrease in mobile communications services revenues by boosting your equipment sales revenues through a handset price hike and other measures. For the next fiscal year, even if you were able to trim the decrease in revenues by half, you would still need to anticipate a revenue decrease of some 100 billion yen compared to the current fiscal year, and I assume that it would be difficult for you to raise your handset prices any further. This implies that you will have to achieve a cost reduction of around 100 billion yen to keep operating income flat. What measures are you contemplating to achieve an income level comparable to this year? Do you plan to set the income target for the next fiscal year at the same level as this year, i.e., approximately 840 billion yen?

  Open

  A1 We will start developing the plans for next fiscal year after the spring sales season. First, we will focus on boosting the number of net additions during the spring peak sales season to mitigate the impact of decreased mobile communications services revenues. Meanwhile, we will continue the reforms of our cost structure, distribution channel and other areas devising various creative solutions. We are carefully evaluating how much we can do. For the next fiscal year, we will aim to set an operating income target comparable to this year while carefully looking into various matters.

  Q2 Your smart ARPU has been increasing steadily, so it is about time that you start generating profits from new non-core businesses. Do you have plans to disclose the financial performance of the new businesses?

  Open

  A2 Currently, we are sorting out the schemes and systems that enable proper disclosure of the financial statements of each new business line. We are considering modifying the current business segmentation to provide a more proper presentation from the next fiscal year. The total operating income from the new non-core businesses for the first three quarters of this fiscal year increased by 5 billion yen over the same period of last fiscal year, representing an operating income margin of a few percent. By category, media/content business is running on losses (but already profitable if mmbi is excluded). Commerce business is at the breakeven point, and finance/payment business is already generating profits.

  Q3 Regarding the regulatory framework for telecommunications business, various discussions involving the Ministry of Internal Affairs and Communications are expected to take place this year with a goal to reach a conclusion sometime around November. Meanwhile, there was a recent media report that criticized "smartphone usage charges have been maintained at high levels." Do you foresee any arguments that could have a negative impact on the telecommunications industry?

  Open

  A3 The environment and circumstances surrounding the telecommunications industry have changed over the years, and we would like to incorporate these points in the discussion as we move ahead. If we are given an opportunity, we would like to express our opinions from time to time from the viewpoint of what would be the best for our customers. We hope to discuss such matters by the whole telecommunications industry. We will keep a close eye on the themes and development of discussion, and actively take part in the deliberations.

  Q4 The necessity of having a customer-oriented perspective is understandable. Does that mean you will take a customer-oriented approach as DOCOMO, or more broadly as NTT Group?

  Open

  A4 I meant customer-oriented approach by the entire NTT Group. I also hope that the discussions will be made for the benefit of all mobile users, including the competition in the telecommunications industry.

• Questioner No. 3

  Q1 The negative revenue impact from the Monthly Support program for iPhone (per unit) is expected to become larger. However, the absolute amount of impact for FY2013/3Q does not seem to have increased significantly compared to the first two quarters. Can you explain the reasons behind this? Please also comment if the impact was in line with your expectations?

  Open

  A1 The amount of impact for the single quarter of FY2013/3Q increased compared to FY2013/1Q and 2Q. However, the cumulative impact for the first three quarters was almost comparable to that of the same period of the previous fiscal year, which indicates that we have successfully controlled the amount of discounts.

  Q2 Although you mentioned that you will aggressively pursue cost reduction toward the next fiscal year, I do not think it would be possible to deliver results overnight. I believe you will have to develop concrete cost reduction measures that can achieve savings in the order to 10-20 billion yen, such as abolishing postal delivery of paper bills. Do you plan to introduce any concrete measures in January-February this year that could have a sizable cost reduction effect?

  Open

  A2 We have been working on cost reduction on a continual basis from three years ago, so this is not a short-term exercise implemented in January-March 2014. While it will be difficult to review various fees payable to subcontractors all of a sudden from tomorrow, if we start negotiating the commission level now, we might be able to see some effects from the next fiscal year. The initiatives that we have implemented in the past have already delivered tangible results. In fact, the reduction of facility-related expenses, in particular, has become a big driver of our cost savings in FY2013/2H.
  We are currently trying to identify cost reduction opportunities based on a time span shorter than a quarter, and we have been engaged in this exercise on a continual basis. Some measures, such as the revision of our loyalty point program that is scheduled to take effect on April 1 2014, have already been publicly announced. This, combined with other efforts, is expected to deliver visible effects going forward.

• Questioner No. 4

  Q1 DOCOMO's data charge for iPhone is relatively low and you also offer the "Pake-hodai Light" billing plan. Under these circumstances, can you really expect an increase in data ARPU by migrating subscribers from a 3G smartphone to a LTE smartphone? At the current subscription rate of "Pake-hodai Light", I would assume it will be very difficult to grow your packet ARPU.

  Open

  A1 The average should go up slightly. And we hope to see an increase, because the various services that we offer for smartphones can be used much more comfortably on the LTE network. Also, the packet flat-rate charges of Xi LTE service are set with certain usage thresholds, so we can expect further upside if more users start using "dvideo" and other data-rich services (in excess of the monthly threshold.)

  Q2 What is your current impression about your Mobile Number Portability (MNP) and net additional subscriber acquisition performance for the month of January?

  Open

  A2 According to preliminary data, our performance weakened relative to the month of December 2013. The competition intensified with other carriers increasing the amount of cash rebates or reducing the handset price to 0 yen across the board from around Mid-January. Although we must counter these moves to a certain degree, we are not entirely sure if providing hefty amount of cash rebates is the right way. As we are living in a competitive market, we will employ countermeasures when they are deemed necessary, but we have been pondering whether continuing this approach would benefit the entire industry and our long-term users. We have stated on a number of occasions that we will brush up all elements of our offerings, e.g.., devices, network, services and distribution channel. We are giving thoughts to what would be the optimal competition in the balance of these different elements.

  Q3 There was an article concerning MVNO business in a recent newspaper. Do you have anything to comment?

  Open

  A3 I believe the article was about the draft guidelines that was published recently (by the Ministry of Internal Affairs and Communications.) Currently, the interconnection charges for the applicable fiscal year are calculated based on the actual rate for the previous fiscal year in accordance with the guidelines pertaining to Type II Designated Facilities. I believe the article referred to the possibility of the rates being reduced by half from the current level if calculated using a different approach, such as adopting a provisional rate for the applicable year (as set out in the draft guidelines.) However, the details are subject to further study, and the actual calculation method will be determined through future discussions.

• Questioner No. 5

  Q1 You mentioned that your churn rate is beginning to show improvements. When divided between feature phones and smartphones, which is showing a more remarkable drop?

  Open

  • This question was not answered on the spot. Here is our reply:

  A1 When we compare the users of feature phones and smartphones, at present, the churn rate of smartphones is faring slightly higher. While the churn rates of both segments have been declining since September 2013, the churn rate of smartphones has been improving at a faster pace.

  Q2 You said you have been moving forward with your cost efficiency improvement efforts ahead of plan. You initially set a goal to reduce your total costs by a cumulative 250 billion yen in the period between FY2012 and FY2015. Now that you have already achieved the planned reduction, what kind of change do you plan to make with respect to the timeframe and total amount of reduction?

  Open

  A2 We have been working on cost efficiency improvement since FY2012, and achieved an improvement of 50 billion yen during FY2012. This fiscal year, we initially set a cost efficiency improvement target totaling 110 billion yen for the full year, but already achieved an improvement of 128 billion yen by the end of the third quarter. In the fourth quarter, therefore, we will implement the measures originally planned for the next fiscal year, which are estimated to deliver savings of several tens of billions of yen. Accordingly, the cumulative cost efficiency improvement to be achieved through FY2015 will be greater than the initial target of 250 billion yen.

  Q3 In FY2013/3Q you introduced measures that led to a 61 billion yen cost reduction for the quarter. How much additional savings will those ongoing measures bring about in FY2013/4Q?

  Open

  A3 We anticipate that such measures will continue to deliver an improvement effect of some 40 billion yen in FY2013/4Q.

• Questioner No. 6

  Q1 Your performance has been improving in recent months thanks to the introduction of iPhone. However, subscriber migration to smartphones is not progressing as fast as you had predicted. I believe you are implementing various initiatives, but when do you think you will begin to see a steadfast recovery toward the achievement of 900 billion in operating income?

  Open

  A1 Our performance has indeed been improving lately, but we are not entirely satisfied yet. To be honest with you, we wish we could have seen the improvement effects a little earlier. This spring, we will be able to compete in the market for the first time with iPhone in our lineup, and we plan to step up our promotions particularly targeting the youth segment. Recently, our MNP subscriber acquisition has improved significantly among the youth segment. In some months, we recorded net inflow of MNP subscribers in the teenager bracket. For the near term, we will focus on how to produce such effects during the spring sales season. And we will also closely observe how long we can sustain this momentum to make projections for the next fiscal year and beyond.
  We are trying to devise ideas to change the current competitive environment in which carriers are vying for churn-in subscribers leveraging cash rebates amid slower market growth. We will strive to achieve 900 billion yen in operating income while keeping in mind the need to transform the market structure.

  Q2 Does that mean you will continue a trial-and-error phase for some time?

  Open

  A2 I do not think we have the luxury of time to repeat trials and errors.