Presentation Materials

In your forecast, cellular services revenues for FY2008 are estimated to decline by 414 billion yen year-on-year. Please give us a breakdown of this reduction.

To provide you with an explanation using our ARPU forecast for FY2008, the aggregate cellular ARPU is projected to decrease 720 yen from the prior year to 5,640 yen. The breakdown of this reduction is as follows: a decline in MOU accounts for 170 yen, rate reductions ("Fami-wari MAX 50", "Value Plan" and free voice calls between family members) account for 500 yen, and the remainder comprises other increases (such as growth in international services ARPU) and decreases (such as the impact from incremental discount rates offered in accordance with the length of subscription).

Other non-personnel expenses are forecast to rise by more than 100 billion yen year-on-year in FY2008. What are the reasons behind this growth?

Of the projected increase of 110 billion yen, revenue-linked expenses account for 75 billion yen. A large bulk of this amount—approximately 60 billion yen—will be appropriated for the insurance service for lost or damaged phones including the delivery of replacement handsets. Other factors include the growth in expenses of approximately 10 billion yen resulting from an increase in the number of base stations, and a total of more than approximately 10 billion yen will be earmarked for the costs of brand renewal and consolidation of regional subsidiaries.

According to today’s announcement, there are no plans for a dividend hike, the budget for share repurchase will be reduced, and operating income is expected to be lower than the market consensus. What is the message contained in your FY2008 guidance and what are your goals for next fiscal year?

Our target number of net additions for this fiscal year is set at 1.08 million, which clearly sends a message that we intend to improve our performance compared to the prior year.
In addition, despite a temporary reduction in free cash flows to 80 billion yen owing to the impact of the installment payment scheme, we will maintain our dividend payment and carry out a share repurchase even if we have to borrow money.
Our income guidance is lower than the market consensus due to the difference as to how the impact of "Fami-wari MAX 50" and longitudinal changes of other discounts (resulting from the incremental discounts provided in accordance with the length of subscription) are estimated. In particular, the combined subscription count of "Fami-wari MAX 50" and other new discount services reached 22 million as of Mar. 31, 2008, which will have a full impact this fiscal year, and the number is expected to rise further to 31 million by Mar. 31, 2009. FY2008, therefore, is expected to be the most difficult period for us both in terms of cash and income, because they will be affected by the growth of installment payments and expanded discounts, respectively.
In FY2009, we may still expect a certain degree of accelerated profit generation resulting from the new handset purchase method, albeit smaller in amount compared to FY2008. On the other hand, the negative impact of rate reductions is also expected to shrink. Under such circumstances, we will try to secure new revenues in three key business domains, and at the same time work to improve the efficiency of our business operations.

Packet ARPU is estimated to grow 160 yen year-on-year. Don’t you think this is too small when the hike of i-mode usage charge is excluded?

Traditionally, we have seen an increase in packet usage due to factors such as (1) a user’s migration from mova to FOMA, which (2) resulted in an increase in the usage of rich content, and then (3) led to a user’s migration to the flat-rate package. Recently, however, the pace of growth in each of these factors has begun to stabilize. While our forecast may appear to be conservative, growth similar to the 10% figure that we enjoyed in the past can no longer be expected.

If you start "Home Area" services, as shown in page 14 of the presentation material, it could negatively affect your existing packet revenues. How do you foresee its financial impact?

Certainly, this service has a potential to decrease our revenues, but "Home Area" services are demanded by users, and we need to offer them sooner or later. This service, on the other hand, also has positive elements, as it could (1) help us acquire new subscriptions, and (2) lower our capital expenditures as the traffic of heavy users can be dispersed to some extent. We therefore would like to determine its impact after making a comprehensive analysis.

It seems that you are foreseeing only a slight decline, if any, in handset procurement costs this fiscal year. Why?

We do not foresee a huge decline in the cost of 9-series handsets as we will continue to add various new features going forward. The cost of 7-series, on the other hand, is expected to decrease, because we are currently reviewing its design and functions. It is difficult to make a general comment regarding the outlook of our total procurement costs, as it will depend on the proportion of sales of 9-series vis-a-vis 7-series handsets.

What are your views regarding the market price of your handsets? Do you think, for example, the price of a handset marketed at 50,000 yen today will not change that much in the future?

The retail prices of our handsets are basically decided based on the procurement cost of each model.

How many "2in1" subscriptions are included in your net additions forecast for FY2008?

Of the total net additions forecast of 1.08 million, 290,000 are FOMA contracts required for the subscription to the "2in1" service.

What did you gain as a result of introducing the new purchase methods? What are the challenges that need to be resolved in the future?

Our churn rate has declined following the launch of "Fami-wari MAX 50" and other discounts, and it then declined even further after introducing the new purchase methods. It is important to strongly promote the benefits of the new purchase method, which offers cheaper monthly communication charges in return for higher initial handset costs.

You spent one year to improve your network, handsets and services, and I believe you have achieved certain results. Nevertheless, your share of new handsets sold dropped to unprecedented low levels in February and March, and the net MNP losses also expanded in March. Do you think this is a temporary factor resulting from the difference in the timing of introducing free voice calls between family members, or are there any fundamental problems that need remedy?

Certainly, there were some temporary factors, for example, the market was turbulent in February and March because other carriers subsidized handsets with hefty incentives, and DOCOMO’s free voice call service between family members was started only in April. Both our new handset sales and MNP performance have recovered in April. But our results for March made us revisit how to acquire fresh customers. Our network construction is nearly finished, and the development of 3G handsets is so close to completion that we can now focus on how to differentiate them through design and ease of use. Having said that, however, as we explained at the time of our new brand announcement on April 18, there are still many outstanding issues and we need to tackle them one by one.
We know that we could have acquired a higher number of net additions if we followed the competition and sold our handsets at the price of 1 yen, but I do not think that is an appropriate path for us. As the market makes a transition to selling handsets at list prices over the long run, we believe we will become better positioned to exert our competitive strength.

I have an impression that your decision-making has always been late over the last 12 months, lagging behind your competitors. Do you think you will be able to become the first mover and take the offensive in offering new services through the rebranding initiatives or the consolidation of regional subsidiaries?

We admit that we lagged behind the competition in our billing plan decisions. However, we plan to launch "Home Area" services ahead of other carriers, and we intend to lead the market in the introduction of LTE.
Our primary focus is now attached to valuing our existing subscribers, and on the technical front, I am confident that we will be able to provide new and innovative solutions.

You announced a new policy to strengthen your ties with existing customers and value the quality of relationships. Your MNP performance has improved in April. And KDDI admits that the sales approach it adopted in February and March is unsustainable. When these are taken into account, although DOCOMO has certainly been in a difficult condition so far, I believe it was because you have taken the lead to move toward the desirable direction, which I think was the right decision for your business management.
I therefore consider that the improved MNP performance in April and reduction of churn rate should be more highly appreciated, but you seem to be somewhat lacking in confidence and hesitant. Why? Let us know if you have any concerns.

There is no hesitation on our part, and we are committed to making all-out efforts to pursue the satisfaction of our existing customers.
While it may take some time to materialize, we are planning to respond to customers’ requests for coverage improvements by dispatching our field staff within 48 hours after receiving such complaints.
Various other measures are also under study, including an improvement in our handset repair process, in which we will aim to eliminate the need for customers to visit our center several times as before to have their handset repaired.
We are strongly committed to making drastic reforms to the way we interact with our customers, and I believe these efforts will eventually deliver results.

What is your target churn rate for FY2008?

We aim to achieve approximately 0.6%.

Do you think there are risks because you have plans to offer new discounts, such as a two-tier flat-rate service?

We cannot comment on our future rate reduction plans. The reason why we mentioned that there are risks is because there are too many variables to provide a long-term outlook as the moves of other carriers will have to be taken into account for us to make decisions on rate reductions, and the introduction of a two-tier flat rate system will have to decided after making careful studies on its future impact, etc.

Is it correct to understand that the amount of your capital expenditures will be decided based on the traffic volume, and that you do not have plans to invest in something new? Have you officially decided to start LTE-related investments from 2010?

We are currently calculating the capital expenditures required for the roll-out of LTE, but we do not believe it will grow to the order of 1 trillion yen. LTE will be basically overlaid on the existing 3G system, and we will be able to gradually expand its coverage starting from urban centers. Thus, its investments can be controlled to some extent. Our current plan is to complete its research and development within 2009, and start capital spending from 2010.

Have you thought about selling old models, for which you have already recovered the cost of development, over an extensive period like SoftBank? Or have you considered skipping one cycle of new model development instead of constantly releasing two generations every year?

For each of the 9-series and 7-series handsets, we are studying the possibility of changing the development cycle from the current pace of releasing two generations per year. However, the top-end models like the 9-series are required to evolve constantly. For cheaper models, we are looking into the possibility of marketing them for a longer period by changing their casings or colors.