Presentation Materials
Main Q&A (Analyst Meeting after the Results for the 3Q FY2019)
Announced on February 5, 2020
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 Please give us a breakdown by category of the operating revenues from Smart life business and Other businesses.
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Q2 An arbitration proposal for the ”wholesale telecommunication service rates for voice communication services” for MVNOs was presented by the Ministry of Internal Affairs and Communications (MIC). I would appreciate your views on its potential impact on your business and how things will unfold in the future.
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Questioner No. 2
Q1 Please elaborate how your tie-up with Mercari will impact each of your cost element (e.g., point program costs, etc.)
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Q2 During the results presentation, you explained that your telecommunications services revenues for both the three months and the nine months ended December 31 fared higher than your expectations, but the upsides are projected to become gradually smaller toward the end of the fiscal year. Please explain which expense items are expected to increase, and by how much, in the future. I assume that your telecommunications services revenues will show an increase higher than your projections in the next fiscal year, which will allow you to generate a certain level of profits in the natural course of business. Please let us know if you have any plans to further increase your outlays for any particular item, including the point program for which you have already increased your spending this year.
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Q3 When you unveiled your initial plans for this fiscal year, you provided us with an explanation about the negative revenue impact from the new rate plans, including the positive effects from the reduction of Monthly Support discounts. Can you give a similar breakdown concerning the projected revenue decrease of several tens of billions of yen for the next fiscal year?
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Q4 By calculation, I believe the positive impact from the reduced Monthly Support discounts will amount to over 200 billion yen. Are there any changes to this estimate?
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Questioner No. 3
Q1 When I look at the key factors behind the changes in your cumulative operating profit for the first three quarters of FY2019, mobile communications services revenues recorded a year-on-year decrease of 68.8 billion yen. On the other hand, during the results presentation to analysts, you mentioned that the negative revenue impact from the new rate plans was approximately 90 billion yen. Therefore, the variance between the two numbers of 20+ billion yen represents a revenue increase. You explained the factors that contributed to this increase included upsells within both the old rate plans and the new rate plans, and the favorable performance of voice revenues. Please give us the proportion of contribution of each factor to the incremental revenues of 20+ billion yen.
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Q2 When you compare the contribution of upsells from the old plan to the new plan versus the upsells within the old rate plan, which is making a greater contribution to the incremental revenues?
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Q3 You mentioned that your voice revenues have been trending favorably. Does it mean you achieved an increase in voice ARPU? Or did you record an increase in overall voice revenues?
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Q4 Does the ARPU before applying discounts show a different trend?
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Q5 Does that mean you are achieving a revenue growth in the ARPU before discounts as well?
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Q6 Regarding your cost of equipment sold for the three-month period of FY2019/3Q, the sum of handset subsidies deducted from the equipment sales revenues and commissions payable to agent resellers has not decreased so much compared to the same period of last fiscal year. Is this mainly attributable to the increase in expenses required for the migration of 3G users to 4G?
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Q7 How many 3G subscribers migrated to 4G in FY2019/3Q?
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Questioner No. 4
Q1 I expect you will have launched the 5G commercial service by the time you announce your FY2019 full-year results. Can you share with us what kind of discussions are made internally with respect to the pricing strategy of your 5G service?
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Q2 Previously, you mentioned that you will approach the MIC to request a lift on the 20,000-yen handset subsidy ceiling for the 5G handsets. What is the likelihood of this becoming reality?
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Q3 I believe Rakuten will shortly announce their rate plans. Can you comment on your current level of readiness to counter Rakuten’s market entry? Please give us your assessment from the viewpoints of your rates, point strategy and network, etc.
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Questioner No. 5
Q1 You mentioned that the ”Sumaho Okaeshi Program” has negatively affected your handset sales profitability. Can you give us more details pertaining to the accounting treatment of this trade-in program and its future outlook?
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Q2 Was the revenue impact from the ”Sumaho Okaeshi Program” beyond your expectations?
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Q3 Regarding your business alliance with Mercari, it seems that the grouping of mobile operators and internet companies in the payment business landscape has been established. How do you plan to differentiate yourselves from the three competitors including Rakuten in terms of your strategy and other aspects?
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Q4 I noticed that there are slight differences in the approach taken by each player, but as far as DOCOMO is concerned, in broad terms, I construed that you are pursuing a strategy to prioritize the upsells to your existing mobile phone subscribers, and at the same time open up your ecosystem to keep abreast of the competition. Is my understanding correct?
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Questioner No. 6
Q1 I would like to ask about your strategy for non-telecommunications business. You have a loose alliance with players like Mercari, but Z Holdings and SoftBank have made investments committing on a capital relationship. Are you proactively looking into the option to adopt a strategy of acquiring major companies investing hundreds of billions of yen?
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Q2 If there is an opportunity, would you execute an acquisition even if it requires several hundreds of billions of yen to acquire the target?
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Q3 I would also like to ask about your point strategy as a telecommunications operator. The expenses incurred in relation to the PayPay business under the SoftBank group is consolidated in a black box and we cannot see how the expenses of the payment business are affecting their core business. When I look at KDDI’s quarterly point issuance, I have an impression that they issue a large amount of points in periods when they enjoy healthy profit generation to consume the budget. If you are projecting a decline in mobile communications services revenues in the order of tens of billions of yen for the next fiscal year, your cost environment will become severer and your point issuance will likely come down. This makes your service less attractive from the viewpoint of users, which may result in reduced usage. This does not appear to be a sustainable model for business. Are you willing to spend costs as adequate even when your profits are on a downtrend, or will you stop allocating costs when you do not have leeway in profit generation? Please elaborate on your future plans.
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Questioner No. 7
Q1 You aim to expand your customer base leveraging the alliance with Mercari. Of the total 14.5 million monthly users of Mercari and the 6 million users of Merpay, have you identified the number of users who do not overlap with your own customers? Can you also give us a quantitative assessment of the collaboration undertakings with Mercari that you have been promoting at docomo Shops?
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Q2 You mentioned that the number of upsells within the new rate plans has been trending lower than your expectations. Which particular segment(s) are underperforming? And how do you plan to turn around this situation?
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Q3 Of the various campaigns you launched, which is producing the largest effect?
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Questioner No. 8
Q1 This is a question about the cost effectiveness of your ”d POINT” program. You issue a huge amount of points, but it seems that other partners are taking advantage of you. You continue to award points to Lawson despite their decision to form an alliance with KDDI. How much return do you seek from the point program? Do you have a strict formula or assumptions in place? Has the amount of returns increased over time?
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Q2 Is it correct to understand that 180 billion points represent your ordinary level of point issuance per year, and it does not include the points issued for campaigns?
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Q3 Do you expect the percentage of campaign points will increase over the long term?
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Q4 Let me ask about your thoughts on ARPU. Given that you are projecting a decrease in revenues of some tens of billions of yen in the next fiscal year, I believe you are anticipating a reversal in the trend of ARPU before discounts. When do you think that will happen? In addition, I assume that you provided a price reduction in the range between slightly above 10% and 15% with the introduction of the new rate plans, but do you think you can get away with the price-cut you provided this time around when you take into consideration the LDP President election scheduled for 2021? Don’t you foresee the need of starting to make preparation in 2020 for another round of price reduction in the future? What kind of strategy do you think you can take?
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Q5 Can we expect the turnaround of ARPU before discounts to happen in around FY2021?
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Questioner No. 9
Q1 Regarding your capital expenditures for 5G, you expressed your willingness to fully take advantage of the 5G tax incentives proposed by the government if the scheme is introduced. I know that the details are yet to be announced, but what is your position on this matter? If you utilize the tax incentives, do you think your annual capex−which you previously mentioned will not likely increase significantly−will start to climb again? Do you intend to capture the tax benefits for 5G investments without changing your annual CAPEX by suppressing other spend, such as 4G-related investments and maintenance costs?
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Q2 Am I right to conclude that you do not have any plans to increase your 5G investments significantly?
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Q3 Regarding your ”d POINT” program, what is the percentage of points issued by other companies out of the total 180 billion points issued?
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Q4 Is the proportion of points issued by other companies rising at a fast pace?
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Questioner No. 10
Q1 You touched upon your status of studies on M&A. If you want to procure the funds required for such acquisitions from outside, you have a number of options such as debt or liquidation of installments receivables, or you can also use your free cash flow. When this is all taken into consideration, do you still position shareholder returns, including dividends and share repurchase, an important issue on your corporate agenda?
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Questioner No. 11
Q1 What is the level of voice communication usage of your MVNO users? Please give us a comparative data on MOU, etc., between MVNO and DOCOMO users. Please also share with us the attributes of DOCOMO users who have signed up for flat-rate voice services.
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Q2 What kind of users are using your flat-rate voice services?
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Questioner No. 12
Q1 Regarding your capital expenditures for telecommunications business, you mentioned that the areas where the 5G tax incentives can be applied could be limited. Can you share with us your views on the conditions that may be attached, such as what would be excluded from the scope of application? Also, will it be possible for you to flexibly change the allocation of investments after obtaining knowledge about where the incentives can be applied?
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Q2 With respect to your full-year cost efficiency improvement target of 130 billion yen, a disproportionately large amount is allocated for the fourth quarter. Is this in line with your plan? Are you seeing faster- or slower-than-expected progress in any cost item?
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Q3 I construed that the revised rates will be applied basically to all MVNOs, but you do not think its impact on your operating revenues will be so significant. Am I right?
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Q3 Is the amount of capital expenditures allocated for each year decided at your own discretion and not by NTT? You mentioned earlier that you do not foresee a significant rise in your annual CAPEX even if you bring forward the investments to take advantage of the tax incentive program, but can you give us a concrete indication concerning the projected increase in percentage?
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