Presentation Materials
Analyst Meeting Q&A (Earnings Release For the Three Months Ended June 30, 2019)
Announced on Jul. 26, 2019
Please be advised that the following text has been edited/modified from the original Q&A conversations for the sake of clarity.
Opening comments
Before going into the Q&A session, I would like to add a few comments to explain the reasons behind the 13.8 billion-yen year-on-year increase in operating expenses in FY2019/1Q. Because some of you may have concerns about our ability "to properly control costs" as we recorded this rise in operating expenses when the full-fledged impact from the new "Gigaho" and "Gigalight" rate plans is about to become apparent in the periods ahead, I would like to make a few comments to address those concerns.
A year-on-year comparison of only the three-month period of the first quarter tends to show large volatility depending on the prevailing business conditions of the time. In FY2019/1Q, we incurred expenses that did not exist in the same quarter of the previous fiscal year due to the following reasons:
(1) Aggressive promotion of new rate plans, "Gigaho" and "Gigalight";
(2) Impact from cashless payment promotion campaigns, and the one-off irregular factor of point expiry in FY2018/1Q; and
(3) Acceleration of technical and service development to prepare for the scheduled launch of 5G pre-commercial service in September.
However, these factors were already anticipated when we developed our business plan for this fiscal year. Therefore, as I mentioned during my presentation, we factored these impacts in our plan and the progress of operating expense generation in FY2019/1Q was in line with our projections. Further, while the 20 billion-yen cost efficiency improvement achieved in FY2019/1Q was smaller than the amount delivered in the same period of last fiscal year, this year's cost efficiency improvement program assumes a larger amount of cost reduction in the second half of the year, and we made progress as planned in FY2019/1Q toward the attainment of our full-year guidance of 130 billion yen. In any event, we will properly control our expenses throughout the year through meticulous management of various initiatives and solid delivery of our cost efficiency improvement target.
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Questioner No. 1
Q1 You successfully lowered your handset churn rate for the April-June quarter to 0.45%, a significant improvement compared to the same period of the previous fiscal year. I believe many things happened in this period, including the transition from the conventional handset sales method in April and May to the new sales method from June in conjunction with the launch of the new rate plans. Despite these changes, you successfully managed to keep your churn rate at low levels. How do you analyze the reasons behind this?
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Q2 From customers' perspective, your handsets started to carry different prices from June onwards. Didn't this have any impact on your churns in the period after June? The number of subscription applications for the new rate plans increased from 2.75 million as of June 30 to 3.75 million as of July 23. Have you seen any changes in the pace of adoption? Please give us some updates on these points.
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Questioner No. 2
Q1 You explained your handset sales grew by 2% year-on-year to 5.92 million. I believe the competitive environment for handset sales and campaigns have changed around the timing of your launch of "Sumaho Okaeshi Program." Please share with us your views on the current market conditions. Also, you mentioned that there was a last-minute demand in May. To the extent possible, can you explain the sales performance by month, and changes, if any, in the market after July as well as your views on the future outlook?
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Q2 With respect to the competitive landscape, can you give us a comment on the campaigns promoted by your competitors?
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Q3 Concerning your ARPU, I believe both your gross ARPU and ARPU including the impact of discounts were slightly affected by the new rate plans. Can you explain the factors that negatively affected your gross ARPU, and the factors that caused discounts to increase?
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Questioner No. 3
Q1 Regarding the 3.75 million subscription applications for the new rate plans, you mentioned that the application rate of "Minna DOCOMO Wari" was 85% when only 70% of your subscribers are eligible for this discount program. I construed that this implies a larger-than-expected number of customers who benefit from switching to the new rate plan have joined the service. Of the three-month period in the first quarter, I understand that the new rate plans had an impact only for one month. However, can you share with us your projections on how the new rate plans will negatively affect your mobile communications services revenues from FY2019/2Q onwards taking into consideration the current pace of adoption?
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Q2 Is it correct to understand that the pace of migration to the new rate plans has been slower than your expectations?
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Q3 I would like to ask you to elaborate on slide no. 3 of the results presentation, "key factors behind changes in operating profit." I interpreted that the decrease in mobile communications services revenues was driven by the expanded impact of discounts caused by the larger-than-expected adoption of "docomo with" discount program. But I am not so concerned about this impact because this will likely shrink going forward.
I want you to clarify the details of the operating expenses for which you provided us with supplementary explanation at the outset. Specifically, can you comment on the size of impact from each of the three items, "the promotion of new rate plans," "the award of points and impact from point expiry in the previous fiscal year" and "preparations for the launch of 5G pre-commercial service?" Also, is it right to assume that we do not have to expect any increase in expenses from these factors in FY2019/2Q and beyond?Open
Q4 I believe the impact from the point program of 9 billion yen includes the impacts from "customer returns," "d Payment promotion campaigns" and "point expiry in the previous fiscal year." Can you give us a breakdown of the size of impact from each of these elements?
Furthermore, if you do not foresee a significant decrease in the points you award to customers as part of your "customer return measures" or "d Payment promotion campaigns" in FY2019/2Q and subsequent periods, do you think the point program will continue to cause an increase in operating expenses like it did in FY2019/1Q?Open
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Questioner No. 4
Q1 When I look at your Smart life business and Other businesses, the Smart life business posted a slight decline in profit compared to the same period of the previous fiscal year, while Other businesses recorded a remarkable increase. Can you elaborate on the reasons behind this?
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Q2 Have you seen tangible results, such as increased subscriptions, as a result of your stepped up marketing for content services like "Disney DELUXE" and "DAZN for docomo?"
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Q3 I remember hearing from you that the subscriber growth of Mobile Device Protection Service began to level off and that you cannot expect a significant increase going forward. Are you still recording an increase in the number of subscriptions? Is it correct to assume the profitability of this service has improved in tandem with the expansion of subscribers? Can you comment on the current pace and future prospects of profit growth?
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Q4 After Rakuten unveils their rate plans, I believe you will counter them by further lowering your rates if it is deemed necessary. In principle, do you plan to apply the newly lowered rates to subscribers who have already joined your "Gigaho" and "Gigalight" rate plans? Or, will they be provided only to those who joined the service after the next revision?
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Q5 If you are to provide something to counter Rakuten's rates, I would assume that you will develop plans that are even more affordable compared to what you offer now. Accordingly, if the newly lowered rates are to be applied across the board including the customers who have already joined the "Gigaho" and "Gigalight" rate plans, it will cause a negative impact on your revenues at least for the short term. But from a longer-term perspective, if you automatically apply the newly lowered rates also to those who have already switched to the "Gigaho" and "Gigalight" rate plans, it will likely boost customer loyalty and may lead to enhanced subscriber retention. Please let us know your thoughts on how you plan to apply the lowered rates.
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Questioner No. 5
Q1 It seems that you are planning to achieve a larger amount of cost reduction in the second half of the year. Can you comment on the specific measures planned for implementation in FY2019/2H?
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Q2 With respect to the competition against Rakuten, how do you analyze Rakuten's overall resources including their rate plans, network and customer attributes? Can you once again share with us your views as to where you think will become the main battle field?
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Q3 What kind of competition do you foresee in overall marketing, not just the rate plans?
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Questioner No. 6
Q1 I would like to know the attributes of the 3.75 million subscribers who applied for the new rate plans. Can you give us details concerning the general trend of the applicants, e.g., a high percentage of applicants are those using the same handset for over three years, or have finished receiving Monthly Support discounts, etc.?
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Q2 How sizable was the impact of the new rate plans to your FY2019/1Q results?
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Q3 Let me ask a question about the net additions for FY2019/1Q. I believe most of the net additions you acquired in FY2019/1Q were attributable to communication modules. If I assume you recorded a net increase in MVNO subscriptions and tablets, it implies that your handset net additions performance was lackluster. If you struggled in securing handset net additions amid improved churns, I assume you faced difficulty in gaining new subscriptions, is this correct?
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Q4 Will it be correct to understand that you recorded a net increase for handsets?
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Questioner No. 7
Q1 Hypothetically, if Rakuten introduces disruptive rate plans, or if competition intensifies and results in a reduction of mobile communications services revenues, to what extent do you think you can sustain your profit through cost reduction?
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Q2 The Ministry of Internal Affairs and Communications is expected to set a 1,000-yen ceiling on the cancellation fee to establish a new competitive framework to increase the liquidity of subscribers. How do you think this will impact the industry and how do you plan to respond?
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