Japanese

Presentation Materials

• Questioner No. 1

  Q1 You delivered positive results in the first three months of the fiscal year ending March 31, 2017 (FY2016/1Q). Will it be possible for you to further compress the amount of "Monthly Support" discounts in view of the future while you are generating a healthy income?

  Open

  A1 We have been implementing measures aimed at reducing the impact of the "Monthly Support" discount program. In the current fiscal year, we plan to mitigate the future cost burden using the funds generated by the change of depreciation method. Compressing the "Monthy Support" discounts will surely reduce the financial burden in the subsequent years, and to this end we would like to leverage non-cash measures as much as possible, so we can control the expenses in such a way that minimizes the decline in EBITDA. Our plan is to handle the reduction of "Monthly Support" discounts by boosting our income while leveraging non-cash measures to avoid the impact on EBITDA. We just finished the first quarter of the year, and we will give more thought to how to address this issue going forward as we run our operations.

  Q2 In the market, the demand for less expensive rate plans, e.g., packages priced at 1,980 yen per month, has become increasingly visible. Since your current pricing regime does not include any offers in this price range, how do you plan to counter them?

  Open

  A2 Although we have seen some cases in which our subscribers switched to the subbrand of the competition lured by prices, we do not have any plans to immediately follow them because we believe we offer sufficiently competitive options to customers who continue to use our services. For example, by subscribing to our small data bucket with a group data-sharing arrangement, users can utilize our services at very reasonable rates. Also, in terms of service offerings, we believe we offer a richer menu. Because those who switch to the subbrand of other companies are in many cases price-sensitive, we can assume that feature phone users might show interest in these offers. As we are planning to release LTE-enabled feature phones shortly, we will consider ways to make them available at affordable monthly rates in order to capture such demand.

  Q3 Regarding the long-term moves toward the deployment of 5G, many players around the world have accelerated their efforts over the last six months or so. Verizon, for instance, has actively publicized their 5G-related undertakings in a splendid marketing campain, dubbing the 5G network "wireless fiber." I heard that you plan to launch commercial 5G services in 2020, but I believe it is about time that you should also accelerate your 5G-related activities. Can you elaborate on your grand design for 5G services?

  Open

  A3 While the concrete PR approach may vary by entity, we are also putting a lot of effort into 5G. We have clearly declared that we will lead the global standardization efforts for 5G. Sharing the results of our verification trials and demonstrating our leadership, we plan to actively move ahead with the roll out of 5G.

• Questioner No. 2

  Q1 In association with the change of depreciation method, you mentioned that you have increased the expenditures to mitigate the future cost burden. Can you explain the concrete measures implemented in FY2016/1Q? I assume this has negatively affected your equipment sales P/L as well. So, can you also comment on the projected impact caused by the change of depreciation method on your results for the next fiscal year and beyond?

  Open

  A1 The change of depreciation method is estimated to have an income-boosting effect of some 200 billion yen for the full year of FY2016, of which approximately 44 billion yen was already delivered in FY2016/1Q. Next, the write-off of residual value of assets that have lived their useful life over the course of two years is expected to negatively impact our income by approximately 40 billion for the full year of FY2016, and we recorded an impact of some 10 billion yen in FY2016/1Q. The impact from the measures to alleviate the subsequent-year impact (including this write-off of residual value over the course of two years) totaled 19 billion in FY2016/1Q. Thus, the difference between the aforesaid 44 billion-yen income-boosting effect and the 19 billion-yen negative impact of 25 billion yen was the net amount of impact on the income recorded in FY2016/1Q.
  Other than the measures for reduction of subsequent-year burden of 19 billion yen, we recognized appraisal losses of devices (non-cash measure), lowered the book value of our property, plant and equipment and carried out accelerated depreciation of facilities and equipment that have been decided to be terminated after the next fiscal year, and the outlays for these measures are expected to increase in the second half of the year.

  Q2 Will it be correct to understand that your depreciation expenses have come down by 44 billion yen, but the actual income-boosting effect was 25 billion yen; Of the difference of 19 billion yen, 10 billion yen was appropriated for revision of equipment useful life, and the remaining nine billion yen for device-related expenses?

  Open

  A2 Not all of nine billion yen was appropriated for handset appraisal losses; the amount also included the frontloaded recognition of "Monthly Support" discounts that I mentioned earlier. The total amount of the measures to alleviate the subsequent-year burden totaled 19 billion for FY2016/1Q.

  Q3 Is it correct to construe that one of the factors behind the deterioration of equipment sales P/L was the reduction of "Monthly Support" discounts?

  Open

  A3 We can say it has affected the equipment sales P/L, because we lowered the wholesale prices of our handsets.

  Q4 Can you give us a breakdown of the contribution of each business category to the income growth of smart life business and other businesses?

  Open

  A4 The smart life business and other businesses combined produced operating income of 28.9 billion yen in FY2016/1Q, posting an increase of 5.9 billion yen over the same period of the previous fiscal year. The five major categories are described in the presentation slide, and all categories except for group companies have achieved steady growth in income generation. As for the group companies, some of our affiliates recorded a huge amount of profits in FY2015/1Q due to brisk product sales, which caused a setback of sales in FY2016/1Q due to the product cycle and other factors. This, combined with a decrease in income owing to the business contraction of mmbi, Inc. in association with the termination of NOTTV service, resulted in a year-on-year decline in operating income from group companies. However, the remaining four categories achieved a steady income growth across the board. The rough breakdown of the contribution to income growth of the four categories other than group companies was as follows: content services approximately 30%, finance/payment services approximately 10%, enterprise solutions approximately 20%, and support services for customers' peace of mind approximately 40%.

  Q5 Can you share with us the exact the amount of revenue/income increase of categories other than group companies, or revenue/income decrease of group companies?

  Open

  A5 We do not disclose the amount of revenue/income drop of group companies. We appreciate your understanding.

  Q6 For the full-year of FY2016, you are projecting a year-on-year operating income growth of 127 billion and you have already achieved approximately half of that amount in the first quarter. In addition, the change of depreciation method is expected to bring about a positive impact on income of approximately 25 billion yen in the second and subsequent quarters of FY2016. So, if the revenues from telecommunications business (excluding extraordinary factors) continue to increase into the future, you will most likely achieve the full-year plan just by growing your income by a small margin in the remaining three quarters. Unlike the first quarter, if you are anticipating any factors that could negatively affect your income in the second and subsequent quarters, please let us know.

  Open

  A6 If you calculate the full-year operating income simply by multipling the first quarter result by four, the amount will become significant, but we do not expect the actual full-year income to reach that level. As we mentioned earlier, that are so many irregular factors behind the first quarter numbers. First of all, the change of depreciation method alone boosted our income by 25 billion yen in the first quarter, which amounts to half of the projected 50 billion-yen full-year net impact from the change of depreciation method. However, from the second quarter onwards, we plan to increase the expenditures appropriated for measures to mitigate subsequent-year financial burden. Accordingly, the impact from the change of depreciation method will likely be smaller in the latter half of the year. Further, the impact of "Zutto CarryOver" service in the first quarter was only transitory, and will not be applicable to the second and subsequent quarters. We therefore believe that the real operating income level excluding these irregular factors would be approximately 256 billion yen. In addition, the full-year impact of the enrichment of billing plans (e.g., introduction of rate plans catered to low-usage customers and expansion of discounts to long-term users, etc.) is estimated to be 70 billion yen. In the first quarter, we only recorded an impact of 10 billion yen, so the remaining 60 billion yen is expected to arise after the second quarter.
  For these three reasons, we do not think the pace of income growth seen in the first quarter can be sustained in the second quarter and beyond. As such, we do not see the need of making any revisions to our full-year guidance at this juncture.

• Questioner No. 3

  Q1 Regarding smart life business and other businesses, given that your group companies enjoyed brisk sales throughout FY2015, do you think these group companies will continue to record a year-on-year drop in operating income during the current fiscal year?

  Open

  A1 The affiliates that delivered favorable results last fiscal year are expected to experience a setback this fiscal year due to the product cycle and other factors. On the other hand, mmbi, Inc. terminated its services in the end of June 2016, and the costs incurred in association with the close of business are transitory and unique to FY2016/1Q. As such, we believe this will have an effect to moderate the year-on-year decline of income from group companies that you pointed out.

  Q2 I understand that the combined "dmarket" subscriptions recorded an increase on a year-on-year basis as a result of the launch of new services. However, individual services like "dTV," "danime store" and "dkids" have suffered a decline in the number of subscriptions to a level comparable to a year ago. What are your views on the current state and the future outlook of these services in light of the recent trends?

  Open

  A2 As you rightly pointed out, the growth of some services has come to a standstill due to various specific reasons. However, in the three months period through June 30, 2016, although the number of churns increased as a reaction to the stepped up sales efforts in the peak sales season towards the end of the previous fiscal year in March 2016, the combined "dmarket" subscriptions recovered to over 15 million recently, and we are projecting a constant growth going forward. By devising creative approaches for the sale of services and continuously brushing up each service and application to ensure continued use by customers, and through further enrichment of our service portfolio—as exemplified by the latest additions of "dhealthcare pack" and "dliving," we would like to further expand the subscriber base of "dmarket."

  Q3 In your analysis, do you think the lackluster performance of your video service was caused by the competition with similar services of other companies, or is it attributable to other reasons?

  Open

  A3 The subscription count of "dTV" has already risen to nearly five million. When the scale grows to this level, it gets increasingly difficult to expand the subscriptions because we need to anticipate a certain amount of churns. However, as I mentioned earlier, we would like to further grow the number of subscriptions by continually improving our service offerings.
  Again, in any given year, the number of subscriptions generally increases in the fourth quarter in conjunction with the rise in the number of handsets sold, which in turn is reflected in increased churns in the first quarter of the following fiscal year. Although the number of "dTV" subscriptions as of the end of FY2016/1Q recorded a decline over the previous quarter, it was still higher compared to the number a year ago.

• Questioner No. 4

  Q1 Your churn rate is maintained at a low level of 0.62%, but this still represents a 0.03-point degradation compared to the same quarter of the previous fiscal year. I believe this was attributable to the reduced amount of discounts you offer for the sales of handsets and the expanded discounts to long-term users. How do you assess your churn rate of 0.62%?

  Open

  A1 There is nothing symbolic that explains the difference from the same quarter of the previous fiscal year. We achieved an improvement in the acquisition of Mobile Number Portability (MNP) subscriptions compared to the same quarter of the previous fiscal year, and the number of genuine churns has not increased all that much. We will of course keep a close eye on its future trends, but in our perception the recent data indicate flat growth.

  Q2 The number of "docomo Hikari" optical-fiber broadband subscriptions grew by approximately 500,000. This may have been influenced by seasonal factors, e.g., peak relocation season, but what should we anticipate for the future in regards to the proportion of contract conversions from FLET's vis-a-vis new subscriptions and the effects of promotional campaigns, etc.?

  Open

  A2 The number of "docomo Hikari" subscriptions has been growing at a favorable pace. The proportion of contract conversions accounted for a large bulk during the last fiscal year. Naturally, there is a limit on the number of conversions, so we need to acquire new subscriptions to further expand the total subscriptions. We are already seeing an increase in the percentage of new subscriptions to the total compared to the previous fiscal year, we thus believe there still is plenty of demand for optical-fiber broadband service. Once we succeed in acquiring new subscriptions, there is a good chance that the users will stay on our network for a long period of time. For this reason, we now attach a stronger focus on the acquisition of new subscriptions through stepped up sales promotions at volume retailers and other channels. We will observe the future trends in the market and take measures as appropriate.

  Q3 Is it correct to assume that we can arrive at your full-year subscriber acqusition target by multiplying 500,000 by four?

  Open

  A3 Our target is to acquire subscriptions comparable to the last fiscal year.

• Questioner No. 5

  Q1 Let me hear your evaluation on your FY2016/1Q operating income. I believe the Company's stance is that the FY2016/1Q income was "within the planned range." However, you generated 400 billion yen in EBITDA for FY2016/1Q even when the 18 billion yen impact (from the "Zutto CarryOver" discount)was excluded, which is higher than the EBITDA of 390 billion for the same period of the previous fiscal year. Can you still say this was "within the planned range"? Wasn't this better than your projections?

  Open

  A1 I interpreted that your question is about the year-on-year EBITDA growth of 25.6 billion yen in FY2016/1Q despite the projected decrease of 57 billion yen for the full year. Although we had planned to make some cash outlays to alleviate the subsequent-year impact, the actual cash expenditures incurred in FY2016/1Q was limited. This has resulted in the year-on-year EBITDA increase in FY2016/1Q. However, we are expecting an increase in cash expenditures towards the second half of the year. At the end of the first half of the year, we will conduct a review on the necessity to revise the full-year EBITDA projection, which is currently estimated to drop by 57 billion yen from the prior year. Our basic position is to aim for a year-on-year increase in EBITDA by growing our income.

  Q2 The marginal income ratio of the smart life business and other businesses combined was 40% for FY2016/1Q. Going forward, do you expect this ratio to go up or down or remain flat?

  Open

  A2 The smart life business and other businesses are currently in a phase in which we need to boldly pursue additional revenue opportunities. On the other hand, the businesses that have already grown into a sizable scale should seek profitability improvement. We will therefore work on both fronts—revenue expansion and profit improvement. We cannot make a general comment pertaining to the outlook of the marginal income ratio, but we will strive to achieve a well-balanced growth of revenues and income so we can maintain the marginal income ratio at a high level. During the last fiscal year, we implemented measures that significantly improve the profit level, such as exit from loss-making businesses. Once the business enters a stable phase, the individual services are expected to reach their respective marginal income ratio.

  Q3 You explained that the selection rate of "Kake-hodai Light Plan" now stands at 60%. Is the voice ARPU of "Kake-hodai Light" users lower compared to the overall average? Will the overall voice ARPU come down if the subscription rate of "Kake-hodai Light" continues to increase?

  Open

  A3 The "Kake-hodai Light" package has already caused an adverse impact on our voice ARPU. The overall voice ARPU for FY2016/1Q, however, recorded an increase of 10 yen over the previous quarter due to other positive factors.

• Questioner No. 6

  Q1 Regarding the smart life business and other businesses, if the commodity sales of your group companies are included in the tabulation, it becomes difficult to understand your long-term approach to revenues. I hope you will look into the possibility of disclosing information relating to "dmarket" subscriptions in a way that "will make the projected long-term profitability of the smart life business more visible as the total subscription count and service usage record a steady increase."

  Open

  A1 Your opinion has been noted as a precious input.

• Questioner No. 7

  Q1 "Pokémon GO" has become a smash-hit content in many markets around the world, but it has also caused problems such as smartphone-distracted walking. From a carrier's perspective, how do you view this issue?

  Open

  A1 As the CEO mentioned at the outset, the content has intrinsic risks that could potentially develop into troubles. As a carrier, we plan to take proper measures to enlighten customers that the use of smartphones while walking is strictly prohibited, etc.

  Q2 Have you seen any changes in the traffic pattern, sales of accessories or supply and demand of handsets following the launch of "Pokémon GO"?

  Open

  A2 So far, we have not witnessed any surge in communication traffic. In some locations, we have spotted higher-than-usual traffic caused by GPS-based positioning, but from a macroscopic viewpoint, such increase is not significant enough to necessitate a capacity buildup in our base station facilities.
  As for the impact on handset replacements and accessory sales, we cannot make a precise comment because it is still too early after the launch of service and we have not accumulated sufficient data.

• Questioner No. 8

  Q1 The change of "dmarket" subscriptions appears to be more volatile than before. Do you think you can sustain the recent recovery of subscriptions, or do you foresee any risk of the number dropping again?

  Open

  A1 The subscription count is affected by various factors because, to some extent, it is linked to the total number of handsets sold. However, we will strive to make our content and applications even more compelling, so that customers will continue to use them actively for a long period of time once they join the service. Also, we will continue to make endeavors to improve our subscriber retention by providing scrupulous and proper explanation on the services at our shop fronts upon their sale.
  These measures need to be carried out on an ongoing basis. We intend to grow the number of subscriptions by doing all the things that must be done.

  Q2 The progress of net additions acquired in FY2016/1Q vis-a-vis your full-year plan appears to be slow. When I take into consideration that the proportion of MVNO subscriptions to your total net additions is rising, this slow progress may have an impact on the acquisition of new "dmarket" subscriptions. Can you comment on how you view the level of net additions acquired in FY2016/1Q and its impact on the acquisition of new "dmarket" subscriptions for the full year?

  Open

  A2 Due partly to the aggressive promotions in March 2016, there was a huge setback in FY2016/1Q. However, once the situation stabilizes in a few months time, we will aim to grow the subscriber base as in usual years.
  In any event, we will continue to take actions so that customers who have joined the service will continue to use them in the future, and at the same time, we will actively pursue the addition of new services. Please look forward to the future developments.

  Q3 How have you been faring with the acquisition of net additional subscriptions?

  Open

  A3 The total number of net additional subscriptions for FY2016/1Q was 650,000, which represents a 30% drop from 940,000 for the same period of the previous fiscal year. The competition for MNP users has stabilized but the MVNO operators have taken an offensive. The sale of data devices has been lackluster compared to FY2015/1Q. To turn around the situation, we plan to engage ourselves in active sales promotion during this summer, with the aim of signing up the whole family as our subscribers.