Japanese

Presentation Materials

• Questioner No. 1

  Q1 With respect to your operating income from the smart lifebusiness and other businesses, although you may need to anticipate some costs in the second half of the year in relation to the launch of the new "d point" service in December, I believe income generation of 23 billion in the first three months of the year was faster than your earlier expectations. How do you foresee the income outlook for the full year?

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  A1 All the smart life-related businesses have got off to a good start. The major drivers behind this include the favorable pace of income generation at principal subsidiaries, steady expansion of various "dmarket" services, and the credit and other payment-related businesses that started off the year on a positive note. However, due to the planned implementation of various "+d" initiatives as we announced during the new product presentation in May 2015, we are projecting a larger amount of expenses in the second half of the year. While we will strive to achieve our income guidance by properly controlling our costs, we need to keep a close eye on the trends before determining whether the income levels of the first quarter can be sustained going forward. We will make utmost efforts to expand our income even by a small amount. We think it is too early to make a judgment on the income outlook at this juncture.

  Q2 Your full-year capital expenditure guidance estimates a year-on-year decrease of 32 billion yen, but you already achieved a reduction of 55 billion yen in the three months through June 30, 2015. Although you mentioned that the progress in the first quarter was slightly behind your plan, I believe you are very well positioned to achieve your full-year CAPEX guidance of 630 billion yen if the current pace is maintained. What are your views?

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  A2 The progress of CAPEX reduction was more or less in line with our expectations. We believe we have successfully controlled our costs in the first quarter. In the second half of the year, however, we are planning to launch new services under the umbrella of "PREMIUM 4G," rolling out new infrastructure such as the "advanced C-RAN" in order to build a proper network for our "PREMIUM 4G" service in an efficient manner. We are therefore expecting a higher amount of CAPEX in the second half of the year, but we think the progress achieved in FY2015/1Q was favorable.

  Q3 Regarding your data ARPU and smartphone sales, users' overall data usage has been rising due to growth in the number of users choosing "Data M pack" or larger data buckets and the increase in 1GB data top-up rate. However, the year-on-year increase in the number of smartphones sold was limited to 7%. Because subscribers' data usage is expanding, I think you can justify more aggressive handset sales efforts. What do you think?

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  A3 The number of handsets we sold in FY2015/1Q recorded an increase over the same period of the previous year, but the total sales in the market appear to have plateaued. We intend to focus our efforts on the sales of smartphones.

• Questioner No. 2

  Q1 Because of the impact of the new billing plan and other factors, I assume the targets that you set in your business plan for the first quarter were quite stretched, but I believe you achieved results exceeding those targets nonetheless. How do you assess your performance vis-a-vis your initial plan?

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  A1 We do not disclose our quarterly business plan, but we can assure you that the first quarter results came in higher than what we had projected in our quarterly plan. We achieved an upside in income due to better-than-expected progress in both revenues and expenses. In particular, the contribution from the decrease in expenses was stronger.

  Q2 The full-year data ARPU (excluding the impact of discounts) is estimated to be 3,210 yen. The actual data ARPU for FY2015/1Q came in at 3,210 yen, so you already achieved your full-year guidance. You also mentioned that you have been successful in upselling customers to larger data buckets. Do you foresee any risks going forward, because it is very unlikely that your data ARPU would remain flat at the FY2015/1Q level?

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  A2 The ARPU has been trending higher compared to our initial projections. It is not that we are anticipating certain risk factors in the second half of the year. If we can successfully maintain the momentum of the first quarter, we will not rule out the possibility of achieving upside compared to our full-year guidance.

  Q3 If everything, i.e., ARPU, cost reduction and revenue generation at subsidiaries, is going well, there will naturally be heightened expectations for the Company. How much more can we expect from you?

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  A3 We are only three months into the year, so we need to observe the trends for a little longer. We are managing our business bearing in mind that the 680 billion yen operating income guidance is our minimum commitment. We are controlling various costs and striving to expand our revenues as much as possible. We will continue our efforts so that we can give you some good news when we announce our first half results. Overall, the FY2015/1Q numbers outperformed our earlier expectations.

  Q4 We hear news about the switch of accounting standard to IFRS by the entire NTT Group and the resulting change in depreciation calculation method. When I compare the balance sheets, you have the highest depreciation rate among the different NTT companies, so you will be most significantly affected by this change. I believe NTT is contemplating to introduce the new accounting standard in FY2016 at the earliest. How prepared are you in this regard? Also, can you share with us if you achieve an upside in your income, to what extent can you make adjustments, for example, by accelerating the depreciation of some items?

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  A4 We are making preparations on the system side, because some system modification is required to perform depreciation calculation in accordance with the new accounting standard. If we can complete all the necessary preparations, we intend to change the depreciation calculation from FY2016 onwards. The transition to IFRS is expected to take effect in FY2018, but as a step before that, we are preparing for the change of depreciation calculation. Naturally, if we move away from the current diminishing-balance method, the amount of depreciation per annum is expected to decrease for the near term, but then to increase in the later years compared to the present level. However, there won't be any changes when you look at the P/L for the entire period. For the purpose of alleviating the cost burden in the subsequent years, we would like to bring forward the recognition of some depreciation items if possible, and the items that can potentially be accelerated are currently under review by the whole NTT Group. At the same time, if the level of annual depreciation comes down in the near term, the level of capital expenditures will likely be affected as well. Traditionally, our annual CAPEX has in principle been capped by the amount of depreciation. We believe it is thus necessary to review our approach to CAPEX and investment discipline from both a short- and long-term perspective.

• Questioner No. 3

  Q1 In relation to the ARPU, what are the reasons behind the expanded impact of "Monthly Support" discount program compared to the previous quarter? Also, how do you foresee the ARPU trajectory for FY2015/Q2 and beyond?

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  A1 The impact of "Monthly Support" discount program is linked with the number of handsets sold. Therefore, its impact generally becomes larger in the fourth quarter of the year, our peak handset sales season. On the contrary, its impact in the first quarter is relatively small vis-a-vis the full-year plan. The impact of the "Monthly Support" discount program is expected to expand by some 110 billion this fiscal year over the last year. However, the pace of expansion is expected to moderate next fiscal year to half the level of this fiscal year, and thereafter the impact is expected to stabilize at a certain level.

  Q2 Regarding your smart life business and other businesses, how do you analyze the performance of "dmarket services" and your subsidiaries?

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  A2 Although we cannot comment on the details, we saw favorable performance across the board in all smart life-related businesses in the first quarter. We continued to see a trend of improvement in "dmarket" services, which contributed to income growth. The growth of income from Other Businesses was mainly driven by the Mobile Device Protection Service and M2M business.

  Q3 Do you have any plans to conduct share repurchases during this fiscal year?

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  A3 Repurchase of own shares is an important issue in our corporate agenda, and we will continue to look into the possibility of conducting share repurchases.

• Questioner No. 4

  Q1 The operating income from the smart life business recorded an increase of 9.9 billion yen year-on-year. Out of this, can you quantify the positive impact from the recognition of impairment losses in relation to the business of mmbi, Inc.?

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  A1 mmbi, Inc. continues to incur losses, but the amount of deficit has been shrinking. Following the asset impairment during the last fiscal year, its depreciation decreased by some 1.6 billion yen. This combined with cost-cutting efforts in other areas contributed to the overall income improvement of smart life business.

  Q2 Will it then be appropriate to consider that businesses other than mmbi, Inc. made positive contributions to your operating income expansion, mostly through organic growth as opposed to cost reduction?

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  A2 Correct.

  Q3 You mentioned that the amount of transactions handled by smart life business and other businesses totaled 2.7 trillion yen. Does that include the transactions handled by "dmarket" and your credit business?

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  A3 Yes. The amount includes all transactions other than telecommunications services.

  Q4 Out of this amount, how much does the credit portion account for?

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  A4 We cannot comment on the exact amount, but the credit business accounted for a large bulk of the total transactions handled.

• Questioner No. 5

  Q1 Your operational data and income generation are faring very well. The fundamentals are improving. Although there might have been delays in the accrual of some expense items, you still have generated favorable amount of income as a result. Toward the second half of the year, you have a plan to align the various service brands to start with the letter "d." This, in my view, will offer a great opportunity for you to redefine your brand. What are your thoughts pertaining to the positioning of the "d" brands, i.e., your telecommunications services, credit card business, the connectivity of network and luxuriousness of your offerings? Do you plan to present a value proposition as a premium brand with the introduction of the new "d" brands?

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  A1 The "+d" initiatives refer to our value co-creation efforts that we plan to pursue jointly with various external partners. The name "+d" was conceived to express this aspiration. On the other hand, the existing "dmarket" services are positioned more like our proprietary offer, and they are in fact operated directly by us. However, we think the expansion of this service will eventually reach a ceiling. In anticipation of such limit, we decided to change our approach and developed a new concept, "+d," to create new values in collaboration with external partners rather than operating services on our own. Through "+d," we hope to deliver excitement to the users by creating new things together with our partners.

  Q2 In your DCMX credit business, you offer gold cards. Since you have a lot of long-term users in your customer base, I think it makes sense to offer some premium services targeting those high-value customers. And, depending on how skillfully you package these premium services, you may be able to change consumers' perception on your brand. I understand the rationale behind the "+d" value co-creation efforts, but credit card business can have ripple effects on your mobile communications business. If you can clearly explain your targets and aims when somebody raises a question about the difference between "d card" and "Rakuten Card," I believe you will be able to exert the total strengths of your company. Specifically, what are you planning to offer, for example, in your credit card business with the roll-out of "+d" in the second half of the year?

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  A2 Your comments provided us with a lot of suggestions. Because we have a huge customer base in excess of 60 million, we basically do not target specific segments when we devise our offerings. However, as we are aiming to generate over 100 billion in operating income from smart life business and other businesses, it is important that we undertake measures that will improve our profit margin, and we should go after segments that will allow us to do so. In the meantime, we must also look into ways to enhance the brand value of DOCOMO—which is also related to the "+d" initiatives.

  Q3 Your network connectivity is getting better, and your customer support service enjoys good reviews thanks to the efforts undertaken over the last several years. I believe we are now seeing a turn of tide to your favor. I hope you will successfully manage your branding in the second half of the year.

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  A3 The new "d" brands are scheduled for launch in December, and we hope to provide you with some answers by then.

• Questioner No. 6

  Q1 Let me ask a question from the perspective of the sustainability of the improved ARPU trend. Do you think the better-than-expected ARPU performance in FY2015/1Q was driven by the strong number of upsells, or was it because you made a conservative forecast in the first place? Also, you mentioned that the percentage of users choosing "Data M pack" or larger buckets account for approximately 70%. Can we expect that you will be able to beat your full-year data ARPU guidance if this trend continues?

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  A1 I believe both factors, i.e., the increased upsell and conservative forecasting, are applicable. We develop our forecast taking into consideration the uptake of the new billing plan, but we do admit that our projections were somewhat conservative. On the other hand, the number of upsells has been faring higher than our expectations. For example, the purchase rate of 1GB top-up—which is something difficult to predict, turned out better than our earlier expectations in some respects.

  Q2 The competition in the market seems to have stabilized in the recent months. Is there anything that you have to be wary of for its potential impact on your results? Can you also share your views on the general mood of the market?

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  A2 Based on the assumption that the new model of iPhone will be released around the September timeframe, as has been the case in the recent years, we have to anticipate that our competitors will employ various measures to promote the sales of the new product. Having said that, however, we do not intend to engage ourselves in extreme sales competition. Because we started handling the iPhone two years ago, many existing iPhone users' contract will be up for renewal this year. By devising various creative measures, we intend to stay away from excessive cash rebates that we saw in the market in the past.

• Questioner No. 7

  Q1 Your top line seems to be relatively stable, you said you achieved cost reduction exceeding your initial plan and capital expenditures were almost in line with your plan. Regarding your cost-cutting efforts, are there any cost targets that appear "too stretched" in your view or any cost items that were merely "postponed" in execution? Do you think you can sustain the current pace of cost reduction going forward, or do you anticipate any factors that may result in a change of course?

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  A1 We are moving ahead with our cost-reduction efforts, ramping up various measures after establishing a special project to oversee the program. We achieved the planned reduction in FY2015/1Q making favorable progress toward our full-year target of 210 billion yen. We assure you that we are making tangible progress in this endeavor.