Japanese

Presentation Materials

• Questioner No. 1

  Q1 According to my understanding, your FY2015 business plan assumes a significant drop in operating income, if the planned cost efficiency improvement totaling 210 billion yen were excluded from the equation. As you already slashed your costs by 120 billion in FY2014, do you really believe further cost reduction amounting to 210 billion yen is attainable?

  Open

  A1 In order to achieve over 820 billion yen in operating income in FY2017 recovering from the bottom level in FY2014, we plan to improve our cost efficiency by over 400 billion yen compared to the level of FY2013. To this end, we established a structural reform project spearheaded by Senior Executive Vice President in November last year, and started developing the detailed efficiency improvement plans for each cost item. We presented the 210 billion yen cost reduction target for FY2015 in view of its achievability, taking into consideration the different timings at which individual measures are expected to produce results.
  In the current fiscal year, we are projecting an incremental cost of approximately 100 bilion yen required for accommodating the increase in network traffic. Thus, the actual amount of cost efficiency improvement (after netting this increase) should be around 110 billion yen. We will properly manage our operations to meet this target.

  Q2 It seems that you do not plan to conduct any share repurchase in FY2015. What are the criteria for you to execute share buy-back?

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  A2 In FY2014, we repurchased our own shares worth 473 billion yen, consuming 95% of the authorized budget. As we stated, we plan to strengthen shareholder returns over the medium term while paying attention to the balance of dividend payments and share repurchases. We will look into the appropriate timings to conduct future share repurchases.

  Q3 To achieve over 820 billion yen in operating income in FY2017, I assume you are planning on a cumulative cost reduction of some 90 billion yen for FY2016 and FY2017 combined. However, the amout of cost reduction that you can address in FY2016 and subsequent years will likely become smaller compared to the level of FY2015. Against this backdrop, how do you plan to recover your income, and how do you assess its achieveability at this juncture?

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  A3 It is our target to achieve a cumulative cost efficiency improvement of 400 billlion in the period through FY2017, and we will pursue this target with unremitting efforts. In FY2015, we are projecting a negative impact of 110 billion yen on operating income from the Monthly Support discount program, but its pace of expansion is expected to gradually moderate from FY2016 onward. In addition, we are also expecting incremental income from the new billing plan and "docomo Hikari" optic-fiber broadband service, etc. We therefore believe the operating income target of 820 billion yen or higher is sufficiently attainable.

  Q4 The Monthly Support package has negatively affected your income year after year. I believe you should devote the same amount of efforts as cost reduction toward mitigating this impact. What do you think?

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  A4 We are close monitoring the levels of Monthly Support discounts. We intend to control the amount of discounts while carefully observing the status of competition.

• Questioner No. 2

  Q1 It seems that you have a high-cost operation. Specifically, KDDI's operating revenues are 1 trillion yen lower, but their operating profit is approximately 100 billion yen higher than DOCOMO's. That makes me believe that your business operations are 1 trillion yen more costly compared to KDDI. Can you share with us your views concerning the appropriate cost structure and the desirable operations to achieve your target profit margin?
  Also, while you are projecting a year-on-year increase in operating income for FY2015, your EBITDA margin is forecast to dip below 30%, which I deem is incongruous for the top carrier. How do you think about this?

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  A1 It is difficult to make a simple comparison because there are a number of differences, e.g., the size of customer base, that need to be taken into consideration. However, we have conducted a comparative analysis to determine the difference of operating expenses of each business unit. Roughly speaking, we identified that our costs are approximately 20% higher, so we started to engage in efforts to reduce our costs by verifying the exact elements/causes that resulted in our relatively higher costs. As far as our cost structure is concerned, we admit that we have some over-spec equipment in our facilities. We will review this from scratch and try to reflect the results in the 210 billion yen cost reduction plan for this fiscal year as well as the medium-term cost reduction plan of over 400 billion yen.

  Q2 What is the estimated EBITDA margin when this cost reduction target is achieved?

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  A2 A simple cost comparison with KDDI suggests that we can expect an increase of over 400 billion yen (in income compared to the current level). If we can add this amount to our income, the EBITDA margin will reach a reasonably high level.

  Q3 Regarding the rebound of ARPU, can we expect a constant increase in ARPU quarter-on-quarter?

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  A3 In our full-year forecast, we are projecting a year-on-year increase in the ARPU excluding the impact of Monthly Support discounts. The ARPU including the impact of Monthly Support discounts is expected to cross the inflection point before the end of FY2017 at the latest.

  Q4 Do you foresee the negative impact from the Monthly Support program to last through FY2017?

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  A4 In our forecast, the inflection is expected to occur before the end of FY2017 at the latest. We will make efforts to also achieve a recovery in the ARPU including Monthly Support impact as early as possible.

  Q5 Regarding your medium-term operating income target of 820 billion yen or higher, can we expect that you will present the progress of achievement on a yearly basis? Or do you just plan to report the final outcome, i.e., whether you achieved the 820 billion yen target or not at the end of the period?

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  A5 We will first focus on achieving the 820 billion yen target. If the situation improves, we might be able to make revisions to the plan. We would like to generate profits in excess of 820 billion yen on a recurring basis. As we stated, this fiscal year, we will attach particular importance to delivering results, so we will strive to beat the guidance even by a small margin. We will make every endeavor so we can share some positive news at the end of the first half of the year.

• Questioner No. 3

  Q1 Please give us a concrete explanation on the impact of "docomo Hikari" optic-fiber broadband service. Please also explain in which items the "docomo Hikari"-related revenues and expenses are included, and the amounts thereof.

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  A1 The revenues are recorded in "optical-fiber broadband service and other telecommunications services revenues". For FY2014, the impact was negligible because the period accounted for post service launch was very limited. The expenses are recorded under several items, including sales commissions, other expenses (call center costs) and communication network charges.

  Q2 Will "docomo Hikari" make positive or negative contributions to your income for FY2015?

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  A2 As far as FY2015 is concerned, it will have a negative impact on our income because its revenue size will still be smaller than its fixed cost.

  Q3 Regarding your cost reduction plan for FY2015, can you give us a breakdown by category, e.g., network- and marketing-related costs and others?

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  A3 While it is difficult to provide a precise breakdown, network-related costs account for the bulk. Due to the reduction in capital expenditures in the previous fiscal year, depreciation costs are expected to come down significantly. We will work to slash our total network costs by achieving savings in each process, e.g., development, procurement and construction. Network-related costs are expected to account for roughly half of the total 210 billion yen cost reduction planned for this fiscal year. The next big item would be marketing-related costs, which are estimated to account for approximately 70% of the remaining half.

  Q4 Regarding the impact of the new billing plan, will it be correct to assume that its negative impact will moderate in FY2015 compared to FY2014? Also, when do you think the new billing plan will start making positive contribution to your P/L?

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  A4 The new billing plan negatively affected our income by 107 billion for FY2014. Although the new billing plan is projected to continue to have a negative effect in FY2015, the size of such impact is expected to be less significant compared to FY2014. We will make efforts so that we can produce positive effects from the new billing plan in some months of FY2016.

  Q5 When divided between voice and data, I understand that the new billing plan has taken a larger toll on data than voice. After FY2015, which do you think will recover faster, voice or data?

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  A5 Voice communication is offered as a flat-rate service under the new billing plan, and currently, subscribers that offer potential upsides are growing rapidly, accounting for over half of the total new billing plan user base, thus we are seeing a faster recovery in voice service. The packet service, on the other hand, is also recovering steadily. We are already seeing improvement in both voice and packet income.

• Questioner No. 4

  Q1 Does the new billing plan's profit impact include the impact of the discounts for "docomo Hikari" service?

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  A1 Of the total impact caused by "docomo Hikari" discounts, the portion allocated to mobile service is included.

• Questioner No. 5

  Q1 With respect to the New Initiatives toward Delivery of Medium-term Targets, do you intend to stay behind the scene in the roll-out of "+d" initiatives, as was the case with the Hikari Collaboration Model? Or, are you contemplating initiatives that will involve investments in joint ventures, etc.?

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  A1 We will adopt both models. For B2B2C services, in some cases we will stay behind the scene, while in other cases we may make investments. There will be numerous forms of collaboration, and we would like to dynamically pursue a broad spectrum of opportunities. Our "dmarket" portal and "d magazine" service, in a sense, can also be construed as a form of "+d" collaboration. We plan explain the details of these collaborative efforts on various occasions going forward, and in the meantime, we would like to build up our track record in this area.

  Q2 Your free cash flow generation is expected to improve in line with the progress of cost reduction. Since you are also assuming a decrease in capital expenditures, do you have any plans to increase your investments in the new business domain?

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  A2 We do not intend to make investments for the sake of growing the top line; rather, we will focus on profits looking into various options, including a collaboration scenario in which DOCOMO remains behind the scene as well as revenue share arrangements. We will perform studies from a broad perspective, and we will not rule out the possibility of making investment if there is a good opportunity.

  Q3 Because most MVNOs are using DOCOMO's circuits, I believe you have suffered considerable subscriber outflows to MVNO services. What are your views concerning the moves of MVNOs? Do you perceive them as a risk to your business over the medium to long term?

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  A3 Because the low-tariff smartphones are enjoying great popularity of late, we consider them as a threat to our business for the near term. However, in light of the movement toward deregulation in the future, we would like to build ties with MVNOs as a partner of our co-creation efforts over the medium to long term.

• Questioner No. 6

  Q1 Although you declared to reduce your capital expenditures to 650 billion or less per annum in your medium-term goals, it is still higher relative to the competition. Why can't you bring it down to below the 500 billion yen mark? Please give us a clear explanation why it is not possible.

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  A1 We are currently reviewing different processes (development, procurement, construction and maintenance) to find out the areas where we can achieve efficiency improvement and any over-spec equipment or procedures. We will seek further efficiency improvement of our CAPEX without being bound by the existing numerical targets of 650 billion or 630 billion yen, etc.

  Q2 Your New Initiatives toward the Delivery of Medium-term Targets, i.e., the roll-out of "+d", sound just like a change of name, and I cannot see what is new about it. If they contain anything unconventional, such as a totally new scheme for profit generation, please elaborate.

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  A2 We plan to unveil some concrete initiatives in the near future, so you will be able to know the details then. Our actions hitherto have been centered primarily on a B2C model. With "+d", we would like to increase the proportion of B2B2C offerings and broaden the sphere of our business as a result. One example of the attempts to broaden our business sphere is the "co-creation of social value". We intend to create new values in collaboration with a wide variety of external partners.

• Questioner No. 7

  Q1 You mentioned that you garnered 230,000 "docomo Hikari" subscription applications as of Mar. 31, 2015, and the target number of "docomo Hikari" subscriptions as of March 31, 2016 was 1.8 million. What is the corresponding number of mobile subscribers tied to these "docomo Hikari" subscriptions? Also, you explained that 30% of "docomo Hikari" subscribers are new subscribers to your mobile service. Can you explain the definition of this number?

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  A1 At this juncture, we would like to reserve our comments concerning the number of mobile subscriptions tied to "docomo Hikari" contracts.
  Regarding our explanation that 30% of "docomo Hikari" subscribers are new subscribers to our mobile service, the denominator is the total number of "docomo Hikari" subscription applications and the numerator is new mobile subscription applications submitted simultaneously with "docomo Hikari" applications. For instance, if we acquire two new mobile subscriptions for the "Hikari" optic-fiber subscription for the household, we count them as two mobile phones in the numerator.

  Q2 Do you think the negative income impact of the Monthly Support program will continue to expand in FY2015 and FY2016? Previously, you mentioned that the negative impact of the new billing plan will achieve an inflection and turn positive sometime in FY2015. In your current forecast, do you now believe it will continue to cause negative effects?

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  A2 The negative income impact from the Monthly Support discounts is expected to continue to expand slightly in FY2016. The new billing plan will have a negative impact on our income in FY2015, but the magnitude of the impact will be smaller compared to the previous fiscal year.