Presentation Materials
Main Q&A (Analyst Meeting after the Results for the 1Q FY2019)
Announced on Aug. 1, 2019
Please be advised that the following text has been edited/modified from the original Q&A conversations for the sake of clarity.
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Questioner No. 1
Q1 Your FY2019/1Q results seem to have been barely affected by the new rate plans, yet you recorded a decrease in mobile communications services revenues. I suspect this was caused by the larger-than-expected expansion of the negative impact from the increase in "docomo with" subscriptions. Can you give us a more detailed explanation concerning the factors that lead to this revenue decrease?
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Q2 Can you quantify the negative impact caused by the new rate plans for FY2019/1Q because I do not think it was zero? Additionally, how do you estimate the size of impact for FY2019/2Q?
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Q3 In operating expenses, you explained you recorded an increase in point-related outlays. Was this caused by the "d Payment" promotion campaign?
Also, regarding "d Payment" including settlements of online purchases made at Amazon and/or other sites, have you seen any positive effects from the aggressive reward of "d POINTs"? If you have not yet achieved sufficient results with this initiative, will you consider further increasing the "d POINTs" to be given away in the second quarter and beyond? Please elaborate on your future point strategy.Open
Q4 You mentioned that the effective year-on-year increase in point expenses for FY2019/1Q was four billion yen. Should we anticipate a similar pace of increase in the periods ahead?
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Questioner No. 2
Q1 Regarding the P/L of "d Payment" business, what kind of costs did you allocate for it to become profitable?
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Questioner No. 3
Q1 Concerning the breakdown of the net additions of mobile communications service subscribers, you mentioned that there was an increase in the number of data plan churns. Was this the result of contract termination upon customers' switch to "Data Plus" service of the new rate plans? Or was it caused by some other reasons? Further, regarding the performance by device type, have you recorded a net loss in tablet subscriptions?
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Q2 Aren't there so many data plan users who renew the subscription contract after two years?
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Q3 Please share with us your views on the impact of Rakuten's market entry. Although I do not expect it will immediately cause a huge outflow of DOCOMO brand customers, the competitiveness of MVNOs using your network will likely diminish. I would like to hear your view because you accommodate over 10 million MVNO subscribers on your network.
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Q4 Do you think there won't be a significant impact on any of your businesses, including voice revenues?
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Questioner No. 4
Q1 Regarding the descriptions on P3 of the results presentation, "key factors behind the changes in operating profit," I believe the decrease in network-related expenses and other expenses include the impact of IFRS16. Can you give us a breakdown of this impact? I am having difficulty in reconciling this amount with the communication network charges on P1 of the financial data book, so can you explain the concrete items comprising cost of equipment sold and services and depreciation/amortization? Please also share with us the full-year outlook of these expense items. Additionally, please also give us some color on the trends of selling expenses.
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Q2 You just explained that IFRS16 does not affect your sales promotion expenses. However, in your results presentation material it is described that other operating expenses recorded a decline of five billion yen, which implies that your expenses effectively increased by 12 billion yen if the impact of IFRS16 is excluded. Can you give us a breakdown of this incremental spend?
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Questioner No. 5
Q1 You mentioned that "d Payment" service offers a high profit margin. Please give us a breakdown of the components comprising the "d Payment" revenues. Because your competitors appears to be struggling to generate revenues from their payment service, can you explain why "d Payment" can produce higher amounts of revenues and profit?
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Q2 Is it correct to understand that these are revenues you receive from the merchants?
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Q3 You announced that you will join forces with Merpay and LINE Pay for the cultivation of merchants. If a user pays with Merpay or LINE Pay at a store acquired by DOCOMO, are you entitled to receive commission fees from the merchant?
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Questioner No. 6
Q1 I would like to know the reasons behind the year-on-year decline in capital expenditures for FY2019/1Q, particularly the CAPEX for telecommunications business. Please also comment on the prospects for FY2019/2Q and subsequent periods, the progress of investments at Rugby World Cup 2019 stadiums and the projected amount of 5G-related annual CAPEX.
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Q2 What about the progress of investments at Rugby World Cup stadiums?
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Questioner No. 7
Q1 Concerning the adoption of the new billing plans, you evaluated the pace of subscriber migration as of the end of July was slower than your expectations. Can you share with us the attributes of customers who have switched to the new plans before end of July? Were they mostly customers who benefit from the migration, or those who switched upon the purchase of a new handset? Also, do you have any plans to make additional spending to implement measures for the attainment of your FY2019 target? Or do you rather think you will be able to achieve the target in the natural course of events, i.e., by encouraging customers to switch to the new rate plans upon their next handset replacement or other appropriate timings?
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Q2 Let me confirm your approach to 5G capital expenditures. I believe you separate your capital expenditures between the base stations (3G, 4G and 5G) and transmission lines. Can you explain how you allocate your investments between these two categories? Additionally, do you plan to install standalone antennas dedicated to 5G service? Will it be difficult to achieve proper 5G coverage unless you actively deploy antennas compatible with multiple spectrum bands?
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Questioner No. 8
Q1 You mentioned that you will employ additional measures if the subscriber migration to the new rate plans underperforms your projections. I am aware that you are sending direct mail to customers to inform them of the new rate plans, but I often hear that many customers do not respond to them because they are not sure if they can really make any savings. Do you plan to strengthen your marketing through additional outbound communication or promotional campaigns if the reaction of customer remains weak? What kind of measures are you contemplating?
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Q2 Regarding "d Payment," you explained that you will try to absorb the expense overshoot in FY2019/1Q in the next quarter or beyond. Due to the 20% point reward campaign that you conducted in July, I suspect you will have to anticipate an even larger amount of expenses for FY2019/2Q. When I look at the behavior of payment service users around myself, it seems that most people are changing the service they use on a month-by-month basis, e.g., "d Payment" in July but returning to "PayPay" in August. If you cannot establish a stable user base, will you launch a new campaign to boost usage? This appears to be an endless loop for me, but what are your thoughts?
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Q3 Is it correct to assume that your basic philosophy is to avoid making too much outlays for this service in the future? Do you think FY2019/2Q will be the peak of spending?
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Q4 PayPay stepped up in August and launched a limited-time campaign for lunch hours. Don't you think the campaigns will just keep going around in cycles?
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Questioner No. 9
Q1 You explained that the proportion of users selecting the "Gigaho" plan has been higher than expected, but what was your original assumption? I think the number can grow even higher when I take reference from the pace of adoption of similar packages offered by your competitors. What are your views?
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Q2 During the FY2019/1Q results announcement, you explained that you are projecting an increase in the amount of cost efficiency improvement from FY2018/2Q onwards. Can you give us an indication of the amount of cost efficiency improvement that you plan to deliver in each of the next three quarters to achieve the 130 billion-yen target for FY2019? Also, please let us know which cost item will deliver a significant impact in the second half of the year. I want you to clarify these points because I believe you are planning to offset the growing impact from the new rate plans with cost efficiency improvement.
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Q3 According to your explanation, cost reduction from sales-related expenditures will remain flat between the first and second quarters of the year, but this will expand in the third quarter and even further to a significant amount in the fourth quarter. You also mentioned that the major contributor for this reduction will be the "Direct Wari" program. What kind of cost is this? I guess this an element included in your equipment sales P/L, and I believe some of the discounts are borne by DOCOMO and others are provided to customers via agent resellers. Am I correct?
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Q4 I believe no carrier will be able to offer any handset subsidies from October onwards. How do you think this will affect the handset market?
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Questioner No. 10
Q1 An article on Nihon Keizai Shimbun reported a comment by Mr. Sawada, CEO of NTT Corporation that "DOCOMO is bound by old ideas." Currently, what are the roles expected of DOCOMO by NTT?
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Questioner No. 11
Q1 Your financial results for FY2019/1Q suggest you are generating revenues at a favorable pace, which gives me an impression that if the current trend continues, you will have leeway to achieve your full-year guidance by controlling your expenditures. Even so, are you still concerned about the uncertainties to be brought about by Rakuten? Or, are you rather concerned about the performance for next fiscal year because you see good prospects for successfully managing the numbers for this fiscal year? Please comment on the degree of your confidence regarding the attainability of the guidance for this fiscal year and next?
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Questioner No. 12
Q1 After you unveiled your new rate plans, the Ministry of Internal Affairs and Communications came up with the details of the series of the newly tightened regulations. Please elaborate on your views on the impact of regulations such as the change of handset sales method and the issues relating to the validity of two-year contracts.
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Q2 Do you think you will need to modify your current rate structure due to the rule that sets the cancellation fee at a maximum of 1,000 yen?
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Questioner No. 13
Q1 Regarding your cost reduction efforts to secure profit in FY2020, I believe the enforcement of new regulations from October this year will have a natural effect to bring down your expenses for FY2020/1H compared to the same period of FY2019. In addition to this, what other expense items are expected to come down in FY2020/2H?
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Q2 When you compare the trends of sales-related spend between FY2019/1H and FY2020/1H, do you foresee a huge drop in the projected amount of savings in the first quarter of FY2020?
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