Japanese

Presentation Materials

• Questioner No. 1

  Q1 Let me confirm your basic views concerning P/L for the next fiscal year. Because you explained that you will provide customer returns totaling 110 billion yen over a 12-month period, of which 70 billion yen is planned to be spent during the current fiscal year, I believe you will use the remaining 40 billion yen and some additional amount for customer returns in the next fiscal year. Are there any changes to your basic policy that you will aim to control the profit impact from the customer return measures through cost reductions? Also, will it be correct to consider that the factors that could make positive contributions to your revenues are the upsell effect from migrating subscribers to the "Ultra Pack" and the reduction of "Monthly Support" discounts?

  Open

  A1 As you rightly pointed out, we will likely see continued impacts from the customer return measures through the next fiscal year, but we will try to absorb them through our corporate efforts toward cost reduction.
  In parallel, we will take actions aimed at revenue expansion primarily through ARPU-boosting measures such as active endeavors to migrate subscribers to "Ultra Pack," etc., while at the same time reducing the amount of "Monthly Support" discounts and reinforcing other measures that are not dependent on the "Monthly Support" program, such as the launch of low-price handsets.

  Q2 Can I assume that the negative revenue impact from the launch of "Ultra Pack" will be only transitory and it will start to deliver positive effects relatively soon?

  Open

  A2 The impact of "Ultra Pack" in the period hitherto has been in line with our projections. Based on our past experience in introducing new rate plans, we believe the launch of this package will first cause negative effects to our revenues because heavy packet users are expected to account for the majority of the early adopters. However, the number of users who result in an upsell is expected to increase over time.

  Q3 Regarding your next medium-term business plan, do you have any intention to leverage M&A as a means to expand your non-telecommunications businesses? If not, will it be correct to assume that you will promote collaboration with external parties not through M&A but through your "+d" value co-creation initiatives?

  Open

  A3 While we do not entirely rule out the possibility of M&A, we do not think that acquisition is a prerequisite for value creation. Our "+d" strategy, under which we pursue new value creation jointly with partners by mutually bringing ideas to the table, is a sufficiently viable option.
  However, in some cases, decisions eyeing the possibility of M&A may be necessary.

• Questioner No. 2

  Q1 Have you seen any changes in the trends of subscriber acquisitions or churns in FY2016/2Q with respect to "dmarket"? Also, do you foresee continued income growth from the smart life business and other businesses in the next fiscal year?

  Open

  A1 We are making solid progress, recording an increase in "dmarket" subscriptions in the recent months. However, now that the total "dmarket" subscriptions have reached over 15 million, we expect the pace of growth to slow going forward.
  In addition, given the changes in environment, such as heightened request for more attentive care at the point of sale from the perspective of consumer protection, the congestion of docomo Shops and other factors, we are now employing a more steadfast and unobtrusive approach to our sales activities compared to before. In evaluating the performance of our shops, we have an index that scores the sales of various services upon customers' purchase of smartphones and other devices. According to this index, the recent pace of acquisition of various services has moderated compared to a year ago. Our efforts towards meticulous customer attendance have allowed us to establish a sales practice that leads to steady increase of our subscriber base. In any case, we believe each of the "dmarket" services still has potential for growth, and we will continue to endeavor to grow our subscriber base.
  We will definitely aim to achieve an income growth from smart life business and other businesses in the next fiscal year as well. Although it is important to put in place a sales method that allows us to firmly extend our reach to customers while securing their continued usage and trimming churns, the addition of new services is indispensable for the revitalization of the marketplace. We will strive to expand our revenues and income through the addition of new content that had never been available on "dmarket."

  Q2 Please give us an update on the recent competitive landscape, such as the moves of MVNOs and diffusion brands. In particular, what kind of change have you seen in the competitive environment of diffusion brands as your competitors have strengthened their offers in this space?

  Open

  A2 The impact of the guidelines concerning the review of handset sales method, etc., which was published in February 2016, still remains to a certain extent. The number of subscribers porting out to diffusion brands or MVNOs has risen after the issuance of the guidelines. Even at present, the number of outflows has not returned to the level before implementation. We have adopted various measures to prevent the port out of our feature phone users, e.g., newly creating a billing plan for LTE-enabled Android feature phones and adding to our smartphone lineup entry models such as "MONO" for first-time smartphone users.
  With respect to MVNOs, we compete against them in certain areas, but we also collaborate with them in other business areas like IoT and M2M for which they utilize our circuits. Going forward, we will continue to deal with them on both fronts—competition and collaboration.

• Questioner No. 3

  Q1 Don't you think the revised full-year operating income guidance of 940 billion yen is too conservative? What kind of risks do you anticipate? Were it not for such risks, how much upside could we expect?

  Open

  A1 The revised operating income guidance of 940 billion yen is a must-meet target. Actual results may come in higher, but we do not anticipate any significant upside from the revised figure. Various scenarios, including the response to changes in environment, have been factored in developing the plan, but we do not foresee any particular risks.

  Q2 You have revised your handset sales projection upward compared to the initial forecast. Can you elaborate on the current trends, including the handset replacement cycle and the market price of handsets, etc.?

  Open

  A2 We made a slight upward revision to our handset sales forecast in view of a favorable sales performance in FY2016/2Q. Sales were brisk in handset models that were originally planned for release in FY2016/1Q and in handset upgrade sales to customers who purchased their handsets three years ago.

  Q3 Regarding the "Ultra Pack," at which timing do you think its impact will turn positive? Also, with respect to the "docomo Child Raising Support Program," can you explain why you chose not to provide direct discounts to customers? Among the various segments of your customer base, in which segment do you face the most challenges, and how do you plan to address them?

  Open

  A3 Because the "Ultra Pack" was introduced only recently, at present those who benefit from switching to this package account for the bulk of its subscriber base, which is in line with our projections. Although we do expect positive effects from this rate plan, such as the upsell from smaller data buckets and subscriber migration to from older billing plans to the new "Kake-hodai & Pake-aeru" plans, we cannot tell at this time if the overall impact will turn positive within the next fiscal year.
  As for the "docomo Child Raising Support Program," it is our belief that convenient services for free and giving out loyalty points are the best way to give back to customers of elementary school age and younger, and offer them the opportunity to enjoy our services while reducing the burdens for their parents.

• Questioner No. 4

  Q1 Page 5 in your presentation material concerning the key factors behind the year-on-year changes in operating income describes that selling revenues and expenses dropped by 9.9 billion yen. It is my assumption that this number includes the impact of lowering handset gross margin to mitigate the subsequent-year impact (i.e., reducing the future impact of "Monthly Support" discounts.) How do you evaluate the progress of such subsequent-year impact mitigation measures compared to your initial forecast?

  Open

  A1 Equipment sales revenues have been faring slightly higher than our projections. Although we recorded a decline compared to the same period of the previous fiscal year, the number came in higher than our forecast.

  Q2 Have you made any revisions to the impact of the subsequent-year impact mitigation measures from the initial forecast?

  Open

  A2 The full-year forecast of equipment sales revenues was revised downwards, because there was a discrepancy between the actual price trends of mainstay handsets and our initial projections.

  Q3 Your recent initiatives include a new rate plan for Android feature phones and low-end models like "MONO," but when I look at DOCOMO's billing rates, rates for individual smartphone users appear to be more expensive than your competitors. Considering the fact that users who have switched to MVNO services use smartphones on MVNO networks, it seems to me your rate plans for individual smartphone users also need reconsideration. What are your thoughts?

  Open

  A3 While we are encouraging feature phone users to switch to smartphones, a large number of these users have strongly expressed a wish to continue to use feature phones, and we would like to respond to such requests. We prepared a rate plan for feature phones that is reasonable but still allows the use of high-quality VoLTE service, hoping that these users will stay on our network for a long period of time. However, as you pointed out, statistics show that the number of single-person households is on the rise, so we must give more thought to plans for individual smartphone users. At present we are promoting the economical benefits through data sharing in groups, but we do need to look into propositions for single users going forward.

• Questioner No. 5

  Q1 You raised your adjusted free cash flow guidance by 40 billion yen this time around. If you succeed in delivering this number, what are your plans for dividends and share repurchase?

  Open

  A1 It is difficult to answer a hypothetical question, but as far as dividends are concerned, we will basically perform studies from time to time as appropriate taking into consideration the levels of income and cash generation. We hold shareholder returns as one of our most important management issues, and will move forward with that in mind.

  Q2 I believe the introduction of "Ultra Pack" effectively sets an upper limit of 6,000 yen per month to your packet charges. How do you think this will affect your medium-term growth?

  Open

  A2 We introduced a usage-based billing framework to our packet charges, and we intend to continue this pay-as-you-go scheme for packet services going forward. Over the medium term, there may be opportunities to look into the possibility of adopting a complete flat-rate arrangement for packet services, as in some overseas markets, but nothing is decided for now.

• Questioner No. 6

  Q1 In FY2016/2H, according to my calculations, your EBITDA is projected to decrease by 60 billion yen, but mobile communications services revenues are expected to increase by 25-26 billion yen, which implies that you are planning to make cash outlays totaling some 90 billion yen. What are you going to use this cash for?

  Open

  A1 We are projecting an increase in cash expenditures in FY2016/2H due to measures to mitigate subsequent-year impacts. These will be appropriated to the reduction of "Monthly Support" discounts, removal costs associated with the disposal of property, plant and equipment and others. EBITDA is an indicator that we track very closely, and we will make utmost efforts to achieve an improvement over the revised EBITDA guidance, which estimates a decline of over 10 billion yen from the previous fiscal year.

  Q2 Regarding the segment result of smart life business and other businesses combined, the amount of revenue growth is almost on par with the amount of income growth. Please give us an explanation on the factors behind this.

  Open

  A2 Concerning the point of smart life income growing faster than revenues, variance is based on the comparison with the same period of the previous fiscal year. Major factors behind these numbers are our exit from mmbi, Inc. in FY2015/1H, the weak performance of Oak Lawn Marketing, Inc. and cost reduction achieved as a result of efficiency improvement in FY2016/1H.
  In our other businesses, the major components that drove income expansion include the monthly rate hike of the "Mobile Device Protection Service" and improved cost efficiency in handset repair operations.