Japanese

Presentation Materials

• Questioner No. 1

  Q1 I got the impression that the progress of operating income to your full-year guidance has been better than expected. What are the reasons behind this? Despite an improvement in voice ARPU, your mobile communications (voice+packet) ARPU has recorded a year-on-year decrease. There is nothing noteworthy about the growth of subscriptions, which was more or less in line with forecast. Please explain the principal drivers, both in terms of revenues and costs, that lead to the faster-than-expected income generation.

  Open

  A1 While we have not publicly presented our internal business plan, the operating income for the first nine months was slightly higher compared to our internal plan which we maintain to measure our performance. As we explained in the presentation, although there have been delays in some cost items, this was largely due to the improved efficiency in the use of sales promotion expenses and the steady progress in cost savings achieved through our cost structure transformation efforts. With respect to the specific areas of cost reduction, we improved the efficiency of sales expenses by partially modifying our commission scheme, and carefully reviewed our network-related costs such as the losses on disposal of property, plant and equipment and intangible assets, etc.

  Q2 Should we expect that the negative impact from the "Hikari Sumaho Wari" handset discount program on your profits will be minimal, and there won't be any risk of profit erosion caused by another round of large-scale cash rebates or other sales promotion activities?

  Open

  A2 As we decided upon the introduction of the new billing plan, we have no intension of conducting cash-back promotions.

  Q3 I heard that you mentioned in a press conference that you will aim to acquire 1 million "docomo Hikari" subscriptions at an early date. What is the target date for achieving that number?

  Open

  A3 Because this is an entirely new business for us, it is difficult to precisely predict the demand. We set a near-term target of 1 million subscriptions, and we will strive to achieve this in the early part of the next fiscal year. We plan to roll out services responding to the requests and requirements of customers.

  Q4 Don't you think 1 million is too low even as a near-term target?

  Open

  A4 Various fators have been taken into consideration. And, we will continue to examine the business plan for next fiscal year in the days ahead. In light of the total 18 million FLET'S subscriptions of NTT East and West, we will strive to expand our customer base while carefully observing the movement of customers.

• Questioner No. 2

  Q1 I would like to ask three questions relating to "docomo Hikari" broadband service.

  1. 1.Although there is a slight difference in approach—with KDDI offering discounts to individuals and DOCOMO to households, the billing structures of the two companies are nearly the same. Did you decide to set the rates at similar levels in order to avoid fruitless price competition?
  2. 2.An analysis on the subscription breakdown of the new billing plans introduced by each mobile operator shows that the uptake of data quota sharing packages is not that high. Why did you employ a strategy to secure subscribers leveraging family-based bundles despite the relatively low popularity of data quota sharing plans? Will there be any possibility for you to change course and start offering individual-oriented discount programs like KDDI?
  3. 3.I believe you miscalculated the negative profit impact of the new billing plan. Do you think you were able to properly estimate the impact of "docomo Hikari" this time around?

  Open

  A1 The rate structure of "docomo Hikari" is designed based upon our new billing plan, and it provides customers with relatively large degree of freedom to create a rate scheme suited to their needs. The amount of discounts will not decrease due to concurrent subscriptions to other services or after the elapse of a certain period of time. While it is difficult to make a simple comparison with the billing plans of other companies, the underlying mobile data quota sharing packages ("Share Pack") offer very reasonable rates, and we do not believe they are inferior to those of the competition. We will endeavor to provide simple and easy-to-understand explanations at our shop counters, and take firm measures to avoid the kind of impact that we experienced following the introduction of the new billing plan.

  Q2 Can you disclose the projected profit impact of "docomo Hikari" broadband service?

  Open

  A2 We designed the service taking its P/L impact into consideration, but we would like to reserve any further comments at this juncture. As far as this fiscal year is concerned, we anticipate incurrence of costs associated with the launch of service, but revenues will likely be negligible because the service will start only in March 2015.

  Q3 In terms of accounting, do you plan to subtract the amount of discounts for the mobile-fiber bundle package from your ARPU?

  Open

  A3 We cannot comment on the accounting treatment right away, because some coordination with other relevant NTT Group companies will be required.

  Q4 Your ARPU, according to the current disclosure method, comprises mobile ARPU and smart ARPU. Is it correct to assume that the optical fiber-related discounts will be subtracted from your mobile ARPU?

  Open

  A4 Structurally, the discounts will be subtracted from the sum of mobile and optical fiber service revenues. As for the allocation, an appropriate amount of discounts will be calculated and deducted from mobile and optical fiber revenues, respectively.

  Q5 Do you foresee any impact on the ARPU data that you currently disclose as a result of the launch of "docomo Hikari" service?

  Open

  A5 Yes, we anticipate some impact.

• Questioner No. 3

  Q1 I am concerned that subscribers may concentrate to the least expensive package, as was the case with "Data S Pack" after the launch of the new billing plan. Please share with us if you have any ideas to avoid subscriber concentration to "Share Pack 10" in the initial period after the launch of service, such as limiting the eligibility of "Hikari Sumaho Wari" handset discounts to only those subscribing to "Hikari Share Pack 15" or larger data buckets.

  Open

  A1 The "Hikari Sumaho Wari" discount was devised for the purpose of acquiring new (mobile) subscriptions, thus, it is not directly linked to "Hikari Share Pack 10 or 15." The "Share Packs" are designed to offer graduated discounts in proportion to the size of data bucket. Similar to the new billing plan, at the field level, we have established a system that allows our staffs to propose the optimal plan to the users together with various rate simulations.

  Q2 Does that mean you plan to promote "Hikari Share Pack 15" as your main offer?

  Open

  A2 "Hikari Share Pack 15" offers a better discount rate compared to "Hikari Share Pack 10," so we would like to recommend to the users "Hikari Share Pack 15" or larger bucket plans. Our staffs have acquired comprehensive consulting skills, to provide advice not only on the rate plans but also on the services and other elements.

• Questioner No. 4

  Q1 In promoting "docomo Hikari," do you plan to emphasize either of the two segments of contract conversions or new subscriptions? In the market, optical fiber connections are already offered at a discount in a bundle with various home appliances and other equipment. Do you plan to promote your service in the same way?

  Open

  A1 We do not intend to distinguish new subscriptions and contract conversions prioritizing one over another. As this is a brand new service, we wish to acquire new subscriptions as well as many conversions, because we believe a large number of existing fiber users can make great savings by switching to our service. The growth of optical fiber subscriptions has begun to slow after recording a constant increase in the past, so we hope that the launch of our service would trigger a new start toward the next phase of growth. We will therefore go after both segments. On the expense side, however, we will endeavor to stay away from unhealthy competition and cash rebates.

  Q2 This time around, you made no changes to your full-year operating income guidance, which can be attained only with an additional 40 billion yen or so. In your views, what are the factors that could have downward pressure on your FY2014/4Q income? Also, will you review your dividend payout plans, if the actual full-year operating income beats your current guidance?

  Open

  A2 Since we already achieved over 90% of the full-year guidance by the end of the third quarter, we will not rule out the possibility of achieving upside if everything goes well. However, the new billing plan is estimated to negatively impact the FY2014/4Q income by nearly 30 billion yen compared to the same period of the previous fiscal year, the handset wholesale prices have been reduced, and we are also anticipating an increase in expenses totaling approximately 10 billion yen caused by factors unique to this year, e.g., the launch of "docomo Hikari." It is therefore difficult to predict at this point of time if we can achieve results in accordance with the current trajectory. The fourth quarter is the peak season in terms of handset sales, but we intend to curb our spending by avoding excessive cash rebates. On the other hand, we perform an impairment test on our assets, including our subsdiaries, on a quarterly basis, and this could also be a variable factor toward the end of the fiscal year. By properly controlling these risks and costs, we plan to deliver on our minimum committment of securing 630 billion yen in operating income.
  As for dividends, we already conducted a dividend hike with our FY2014 interim dividends. While nothing has been decided for the next fiscal year, we have never decreased our dividends in our corporate history. Instead of changing the payout in response to the variance of actual income vis-a-vis the guidance, we would like to decide on the dividend amount for the next fiscal year in view of our business plan and cash flow conditions.

  Q3 In FY2013/4Q, you managed to generate over 130 billion yen in operating income despite the fierce cash rebate competition amongst carriers. Don't you think your operating income projection for FY2014/4Q of 40-50 billion yen is too low?

  Open

  A3 Although we foresee some risks, we will endeavor to properly control them. We therefore expect the actual full-year operating income will end up slighly higher than our current forecast. However, the guidance contains some uncertanties, and we also expect incremental costs arising from factors that were nonexistent in the last fiscal year, so we need to keep a close eye on how these things unfold.

  Q4 What are the things that outperformed your expectations compared to the situation when you revised your full-year guidance at the end of the first half? Do you think this improving trend will continue in the fourth quarter? Also, regarding the impairment of assets, do you foresee any write-downs of your subsidiaries?

  Open

  A4 Our comment regarding asset impairment was merely a general statement. We perform a regular check on our entire assets and subsidiaries to see if there are any signs of impairment.

• Questioner No. 5

  Q1 When you single out the Fiber-To-The-Home (FTTH) component of "docomo Hikari", do you think it will provide any positive contributions to your profitability, or will it just break even? Please give us an idea on its P/L impact.

  Open

  A1 Because this is a completely new business for us, a certain amount of initial costs will be required to launch the service. We cannot justify the business if it continues to run on losses. We decided to offer "docomo Hikari" as one of our business lines after developing a solid plan to turn it to a profitable operation at some point down the road.

  Q2 In which year do you think it will start generating surplus?

  Open

  A2 It is difficult to comment on the projected timing of profit generation at this point. Given that this service has been strongly requested by many customers, we believe we will receive many subscription applications, but our competitors are also expected to implement many creative initiatives. We therefore set a near-term target to acquire 1 million subscriptions as quickly as possible while keeping a close eye on the market developments. However, 1 million is not our ultimate goal, and the profitability of this business should be considered based on a larger subscriber base. We appreciate your understanding.