Japanese

Presentation Materials

• Questioner No. 1

  Q1 Your revised full-year guidance can be easily explained by the 20 billion-yen upward revision of the projected operating income from Smart life business, and the additional cost reduction of 10 billion yen. However, your mobile communications services revenues recorded an increase of approximately 10 billion yen in the second quarter alone. As you have also made an upward revision to your full-year ARPU guidance, I believe your operating revenues will also come in higher than your initial projection. What are your views concerning the potential upside to your services revenues?

  Open

  A1 There are several factors that need to be taken into account. As you pointed out, revenues from our mobile communications business are expected to beat our earlier projections by approximately 20 billion yen, while the impact of "Monthly Support" discount program will likely be smaller than our initial estimate. Consequently, for the total of mobile communications business, we are expecting upside of some 50 billion yen compared to our initial forecast. On the other hand, the number of smartphones sold in the first half fell short of our target, and in light of this, we made a downward revision to our handset sales forecast for the second half of the year. The gross income from equipment sales, therefore, is expected to drop by approximately 30 billion yen. Additionally, the subscriptions to "docomo Hikari" optical-fiber broadband service did not increase as much as we had anticipated, which had a downward pressure on our overall income. Furthermore, the competition generally intensifies in the peak handset sales seasons in the second half of the year. Taking all these factors into consideration, we decided on a 30 billion yen upward revision to our operating income guidance.

  Q2 Will it then be correct to understand that your operating income guidance that was revised upwards would be influenced by how things will unfold in the second half, such as the trend of ARPU or the expenses required in the peak season?

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  A2 It is subject to the competitive environment. The 710 billion yen guidance is our minimum commitment for FY2015—a year in which we attach significant emphasis on delivering results. Among the various elements that shape the state of competition, we have for a long time refrained from unhealthy levels of cash rebates and other excessive competitive behavior. While this policy remains intact, every year the market becomes quite active towards the end of the fiscal year, so we need to build up our strength and wisdom to counter the offensive.

  Q3 This is a question relating to your response to the policies contemplated by the Ministry of Internal Affairs and Communications (MIC). Creation of a new billing option catered to the needs of low ARPU users is one of the topics discussed. In my view, creation of a new data plan with a monthly ceiling of 1GB could become a potential solution to this issue. In the case of DOCOMO, I believe there is a good number of users subscribing to your 2GB plan. If, hypothetically, you decided to create a 1GB plan, how do you think it will impact your income? Can you comment on the potential impacts, both positive and negative, on your income resulting from the creation of such a plan?

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  A3 Although we revised our operating income forecast upwards to 710 billion yen, we have not factored any impact of the studies by the government task force into our business plan for the second half of the year, because it is immeasurable. In the course of deliberation, I believe the task force will put together the wide-ranging requirements of customers. Already, we have refrained from providing excessive cash rebates, and returned our profits to customers through the introduction of the new billing plan, which resulted in diminishing our income by more than 100 billion yen. We have already implemented a wide array of measures to address the diverse needs of customers, e.g., allowing sharing of data allowances among family members, providing incremental discounts in proportion to the length of contract, bundle discounts to users subscribing to both mobile and optical-fiber services, free data bonuses to young users and launching the "Kake-hodai" unlimited voice package. If there are any elements still missing, we will continue our endeavors to devise an idea that can accommodate such unmet needs. It is difficult to give you a straightforward answer at this point of time, and we appreciate your understanding.

  Q4 Generally speaking, introduction of a new billing plan causes a certain level of negative impact, but on the other hand, it could also induce a natural increase in subscriptions that could absorb such negative impacts. What are your views?

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  A4 We have developed a turnaround scenario to grow our business as a company. While executing this strategy, we will at the same time work to satisfy our customers. Achieving both, in our view, is a fundamental mission that we must fulfill as an enterprise. To realize this, we need to properly build up our corporate strength through cost efficiency improvement.

• Questioner No. 2

  Q1 Which category of service made the greatest contribution to the income growth of Smart life business and Other businesses?

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  A1 The three categories; content services, finance/payment services and group affiliates equally contributed to the income growth.

  Q2 Your full-year ARPU projection appears to be somewhat low vis-a-vis the steady pace of ARPU recovery. If you have not factored into the revised forecast any rate revisions in response to the deliberations by the government task force, do you expect any other uncertainties in your plan? I believe you should be able to achieve an operating income higher than the revised forecast of 710 billion yen if your ARPU continues to improve at the current pace, but what are your views?

  Open

  A2 We anticipate some impact from the introduction of "Kake-hodai Light" plan, but that is not likely to be significant. We will strive to make up for the negative impact and recover our ARPU.
  The ARPU trend through the end of the second quarter has been favorable. There were three factors behind this: 1) The "Kake-hodai Light" plan was launched on September 25, 2015, so we anticipate its impact to become more visible in the second half of the year; 2) The uptake of "docomo Hikari" optical-fiber broadband service has not grown as much as we had expected, so we plan to step up its sales promotion activities in the second half, thus, we are projecting a greater negative impact from the "Hikari Set Discount" (bundle discount) on our ARPU going forward; and 3) This is somewhat technical, but starting December 2015, we plan to allow users to use the accrued "d POINTs" (loyalty points) as a payment option for their monthly phone bills. Accounting wise, this will have a negative impact on revenues.

  Q3 You raised a target to achieve 820 billion yen or higher in operating income for FY2017. In your current projection, how much, in concrete terms, do you think you can achieve?

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  A3 The only thing we can mention at this juncture is that we will aim for at least 710 billion in operating income for FY2015. Through our cost-cutting efforts, we will transform ourselves into a lean organization. On top of that, we will promote various initiatives tackling new challenges such as the new "d POINT" program and promotion of "docomo Hikari", etc.

• Questioner No. 3

  Q1 Regarding your revised operating income forecast, the level of income projected for the second half appears to be too small relative to the track record in the first half. Should I consider this a conservative estimate?

  Open

  A1 The revision was made based on our current assumptions. In the second half, we are anticipating an increase in expenses of some 10 billion yen due to the launch of the "d POINT" program, "docomo HiIkari" sales promotions and other factors. Also, we changed the useful life of software in July 2014, which resulted in an increase of expenses in FY2015/1H over the same period of the previous fiscal year as it had a full six-moth effect this year as opposed to only three months last year. Further, because we have frontloaded our cost efficiency improvement initiatives, the amount of cost reduction planned for the second half appears to be smaller relative to the first half of the year. Despite these factors, however, there is no change to our revised forecast of 710 billion yen, which we consider as our minimum commitment.

  Q2 This time around, you also revised your capital expenditures guidance downward from previously 630 billion yen to 600 billion yen. Is there a possibility to seek further reduction to the 500 billion yen level?

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  A2 We have not decided on any specific amount. We have been working on cost efficiency improvement since the second half of last fiscal year soliciting ideas from various people in the company, which delivered certain tangible results in the first half. Internally, we are taking actions eying the possibility of bringing it down to the 500 billion yen level. The availability of new technologies enabled us to cut down on our procurement costs and clarify the timing of investment.

  Q3 You set a target to generate 100 billion yen in operating income from Smart life business and Other businesses in FY2017. Can we only expect an increase of 15 billion yen per annum in the next two years?

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  A3 As our medium-term targets, we announced that we will aim for over 820 billion yen in total operating income, with Smart life business and Other businesses accounting for 100 billion yen. While we do not have any plans to change these targets for now, we do not have any intention to lower them, either. We will aim for higher numbers. As far as the Smart life business and Other businesses are concerned, we believe the prior investments we made have begun to bear fruit. We will continue to observe the trends over a span of 2-3 years, and make upward revisions as appropriate.

• Questioner No. 4

  Q1 What are the reasons behind the non-operating losses of 15.2 billion yen?

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  A1 This is primarily due to the losses we incurred from the sale of DOCOMO interTouch Pte. Ltd. shares.

  Q2 According to your revised handset sales forecast, you made an upward revision to the number of handsets to be sold as well as the projected number of i-mode and sp-mode subscriptions. On the other hand, you revised your smartphone sales outlook downwards. What is the rationale for this? Does this imply the handset replacement cycle is getting longer than before?

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  A2 The total number of smartphones sales has been faring lower than expected. The replacement cycle is getting longer due to the improvement of the quality of devices. I believe the growth of the overall handset market has slowed compared to before. We revised our full-year projections in view of these trends.

  Q3 I believe the greatest opportunity for you to sell your various Smart life-related services would be the point of sale of your handsets. Wouldn't the slowdown of handset sales affect the sales performance of your various Smart life-related services?

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  A3 We consider devices and services as two wheels on which everything rolls. If we successfully invented compelling services, we can stimulate users' appetite to use those services, which will in turn to induce stronger demand for handsets, although this does not mean we cannot sell our services without selling new handsets. The same approach is also applied to our "+d" co-creation initiatives, through which we plan to develop and offer a wide variety of new high-quality services.

• Questioner No. 5

  Q1 You mentioned that your mobile communications revenues recorded a year-on-year increase even when the impact of the "Monthly Support" discounts was included in the calculation. Do you think this growth trend is sustainable? Or, were there any irregular factors that lead to the positive outcome?

  Open

  A1 Mobile communications services revenues, inclusive of the impact of discounts, have continued to improve quarter after quarter, and finally achieved a rebound in the second quarter of FY2015. While we need to keep a close eye on the impact of "Kake-hodai Light", because the negative P/L impact from the launch of the new billing plan last year has steadily moderated over time, we believe we can continue to record year-on-year gains in mobile communications revenues going forward.

  Q2 In which CAPEX item have you achieved savings? I understand that you were able to cut down on your LTE-related CAPEX due to technical advancements, but besides that, were you able to achieve reduction in other areas?

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  A2 We succeeded in improving our investment efficiency in the areas of R&D and information systems. In our R&D activities, we are becoming more selective and have concentrated our resources on a smaller number of development projects.

• Questioner No. 6

  Q1 I assume that your handset sales data include those of MVNOs. When the sales by MVNOs are excluded, how different will the full-year handset sales forecast look like?

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  A1 The numbers we disclose are based on the TCA data which include the sales by MVNOs. Even excluding MVNO sales—which we do not disclose separately, the total number of handsets we sold continue to post growth. However, the pace of growth has slowed due to various reasons.

  Q2 You revised your full-year handset sales forecast upward by 1.6 million units. Is it correct to understand that this is driven by the increase of MVNO sales?

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  A2 We are enjoying positive trends, especially due to brisk sales of "dtab" and other tablet devices. The growth is driven partly by MVNOs and also by our own sales.

  Q3 When I look at the matters to be reviewed by the government task force, it seems that the task force intends to address the issue of how to respond to the requests of users who do not need unlimited voice plans. As far as I understand, you currently offer only one option, the "Kake-hodai" unlimited voice plan, for voice service. How do you plan to respond, if the government sets out a direction requiring you to accommodate the needs of users who do not prefer unlimited voice plans?

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  A3 The task force discussion covers various aspects, such as how to deal with users' complaints about the unfairness, lack of transparency and complexity of the current rate structure. None of the items are discussed based on a foregone conclusion. We would like to keep a close eye on how the deliberations unfold in the future. There was a comment earlier pertaining to the impact of this review on our income, and we will make efforts for further cost efficiency improvement and on other fronts as necessary. We will continue to devote our utmost effort to simultaneously spinning the two wheels of maximizing our enterprise value and enhancing customer satisfaction.