Presentation Materials

In your full-year forecast, you estimated the number of handsets to be sold during FY2008 to be comparable to that of FY2007. Your actual handset sales in FY2008/1Q, however, decreased 20% compared to the same period of the prior fiscal year. Please give us guidance on the outlook of handset sales toward the second half of FY2008.

The reasons why we recorded higher sales in FY2007/1Q are partly attributable to the different market conditions; (i) a considerable number of handsets were sold at 0 yen prior to the introduction of the new handset purchase methods, and (ii) our promotional efforts had been more active. In addition, the weakening economy might have impacted the sales in the market across the board in FY2008/1Q, because our competitors have also recorded a similar decline.
We started selling handsets using the new handset purchase methods from the third quarter of last fiscal year, so from FY2008/3Q onwards, we will be able to compare our sales performance under the same conditions. Therefore—although we cannot give you a definitive comment concerning the future outlook—the year-on-year decline in the future may not be as steep as in FY2008/1Q.

The cost of handset has been declining, but you have not been able to reduce the procurement cost per unit because the total number of handsets sold has decreased. Are you planning to take any measures to improve the profitability of equipment sales business by cutting the procurement cost and at the same time raising your wholesale price going forward?

We will continue to work to lower the procurement cost by adopting a common software platform and Operator Pack, etc., in our handsets. Reviewing the handset development cycle will also be important. If we can extend the period each model is offered for sale, we will be able to increase the denominator (i.e., the total sales volume of the same model), which will allow us to reduce the development cost per one unit. While it may be difficult to change the development cycle immediately, we believe this will deliver tangible results over the middle to long term. Raising the wholesale price of handsets is another important challenge, but this will require us to consider how to explain the increase of prices to the users. Or, if we intend to keep the retail prices lower, we must study the adequate level of our sales incentives and other factors.

The decrease in handset sales may not become a major problem for you, if it is within the range of your expectations. However, if it was larger than expected, you will carry excessive inventory. How do you plan to resolve this issue?

We believe one of the reasons why the sales have slowed recently was because the favorable offers of the new handset purchase method—in which users are able to enjoy greater benefits if they continue to use the same handset for over two years in return for the higher handset price—were not fully recognized by customers. We therefore would like to communicate this message more thoroughly going forward.
Our handset inventory level has not changed significantly on a year-on-year basis. It may appear to be higher compared to the level of March 2008, but that is because we needed to build up our stock to ensure a sufficient supply of the new handsets, 906i series, to distributors in late June 2008. In fact, most of the models we currently carry in our inventory are 906i handsets. We have also been working to reflect in our actual procurement the popularity of each model found through marketing surveys, and eliminate the discrepancy of inventory levels between the regional offices. The integration of the regional subsidiaries into a single entity made it easier for us to make this coordination.

Due to the lower-than-expected handset sales, it seems the number of Value Plan subscriptions has not been growing as fast as you had expected, which implies that the negative impact of the monthly fee discounts offered by this package to your results next fiscal year will become larger compared to your original projections. Is it correct to assume that you have not revised your middle-term plans, in which you forecast an increase in operating income over the middle term, in spite of these recent developments?

Certainly, the profit generation effects resulting from the introduction of the new handset purchase methods will gradually become smaller over time, but our ambition to maintain un upward trend in profits remains unchanged.

Under the previous handset purchase method, I believe there were a considerable number of users who purchased a handset at a lower price after it became outdated due to the release of new models. In the new handset purchase method, you have not been able to satisfy such demand because many of your handsets are sold at expensive prices. To address the demand of "volume-zone" users, don’t you think you should cut the price of your handsets by reducing the functions embedded? I understand that it might be difficult to change the development cycle immediately, but in concrete terms, when do you think you will be able to increase the variety of less expensive models?

It is difficult to change the handset lineup immediately.
Currently we divide our product series—such as the 90X and 70X series—based on the functions embedded in the phone, and we are looking into the possibility to offer them in three different price ranges (high, middle and low) going forward. There is strong demand for less expensive and easy-to-use handsets, albeit with limited functions, especially among the senior users, and we would like to properly respond to such needs.
In addition, we have been offering the 70X series, Raku Raku Phone Basic and other less expensive models from foreign vendors in the 30,000-yen price range, but we have not been able to grow the demand for these phones to a significant scale. While these models were targeted at "volume-zone" users, there might have been a gap between the user needs and what they offered.
Some attribute the recent slowdown of handset sales to the higher retail prices, but we believe the main reason was the lack of sufficient communication regarding the benefits of Value Course, i.e., that it offers discounts on basic monthly fees. It is therefore important for us to properly inform customers through our sales counters that so long as they use the same handset for 2 years, the actual cost burden is no different from before.

Let us hear your ambitions to run the company as new CEO.

Because I spent most of my career in fixed line communications business, I find cellular phone’s unique characteristics of being carried by the user 24 hours a day, 365 days a year very attractive.
This industry is said to have entered a mature phase, but that applies only to the number of subscribers; the services will continue to evolve and advance even further.
Cellular phones have unique properties, such as the real-time nature of being carried by the user around the clock, the personal authentication function to identify the owner of handset, and GPS-based locating function. I am convinced that we can further advance Internet services by taking advantage of these mobile-specific capabilities.
In addition to mobile services, if there is a solid demand among customers for "convergence services", which combine mobile communications with other products and services, we will pursue these possibilities.
Leveraging DOCOMO’s strong R&D capabilities, we intend to drive innovations to realize the "mobilization of the Internet" and offer "convergence services".
Furthermore, we will propose new services and solutions aimed to enhance the "convenience and comfort" of users. For instance, we will transform cellular phones from "a phone capable of doing something" into "a device that does something for or on behalf of the user". This, I believe, is a major quality enhancement to be realized through technical innovation.
As explained above, I hope you will understand that I do have a lot of hopes and ambitions for the cellular phone business.

The adoption of a common global handset platform through the use of solutions of LiMo Foundation and Symbian Foundation is expected to accelerate Japanese vendors’ entry into foreign markets and foreign manufacturers’ participation in the Japanese market. Against this backdrop, does DOCOMO have any plans to deploy services developed in Japan in overseas markets?

Japanese manufacturers are striving to offer distinctive functions and services as they envisage their expansion into overseas markets. DOCOMO is willing to support their entry into foreign markets through the adoption of a common handset platform, etc.