Presentation Materials

I believe your operating income for FY2008 could have reached over 900 billion yen if extraordinary factors (e.g., accelerated depreciation of mova-related assets, costs to facilitate migration of mova subscribers to FOMA, etc.) were excluded. When this is taken into account, don’t you think your 900 billion-yen operating income target for FY2012 is not very challenging?

Because the accelerated income boosting effect owing to the introduction of new handset purchase method will gradually subside in the future, unless we take on new challenges, we will not be able to achieve operating income of over 900 billion yen. To sustain growth beyond FY2012, we need to plant the seeds for new revenue sources while the income-boosting effect is continuing.

You mentioned you aim to reduce your costs by at least 10% from the current level. If this is calculated based on your current operating expenses of approximately 4 trillion yen, this will imply a huge reduction in the order of 400 billion yen. How likely do you think you can achieve cost reduction of this magnitude?

This target is not based on our total operating expenses of 4 trillion yen. This is calculated based on our costs excluding sales-related expenses, which are 2 trillion yen. We aim to reduce our expenses by a total of some 200 billion yen through savings in depreciation, communication network charges and other expenses. Roughly speaking, the reduction of depreciation and other network-related costs will account for 140 billion yen, and the remaining 60 billion yen will come from the reduction of other expenses.

In your revised full-year guidance for FY2008, you made a huge downward revision to your handset sales forecast. However, the downward revision to your distributor commissions forecast is limited to 5 billion yen. While you might be contemplating some sales incentives to eliminate the handsets in inventory, will it be correct to consider that from now on your commissions will be like a fixed cost that is not linked to the number of handsets sold?

You are half right and half wrong. In the second half of FY2008, we are planning to use commissions strategically, including to migrate mova subscribers to FOMA. On the other hand, in view of the decline in handset sales, we also believe it is necessary to make strategic spending for the retention of existing subscribers and maintenance of distributors, hence we are taking steps to use commissions in a way not directly linked to the number of handsets sold.

How much do you plan to spend to accelerate the migration of mova subscribers to FOMA?

Measures to promote the migration of subscribers will be spread out over a few years starting this fiscal year, but we intend to complete the migration process as quickly as possible. We already started waiving the handling charges which customers are usually required to pay to switch to a FOMA handset. Because the promotional measures that are currently in place (FOMA replacement support) are offered only to a limited number of handset types, the total cost impact is estimated to be around 10-15 billion yen.

Then the question is how you plan to use that 20 billion yen other than the promotional expenses to accelerate subscriber migration to FOMA. Are you planning to use some of that amount, for instance, to mitigate the increase in handset prices resulting from the rising procurement costs?

We are planning to take some measures to bolster our distributors who are experiencing difficulties due to reduced handset sales. In addition to the expenses for migrating subscribers to FOMA, we will also need to incur some costs to reinforce our distributors.
Furthermore, as two years have passed from the introduction of Mobile Number Portability, we expect there will be an opportunity to acquire from other carriers subscribers whose contracts will expire. We need to create an environment where these users find it attractive to join DOCOMO, and we have appropriated a certain amount of expenses for this purpose.

Is your operating income target for FY2012 of at least 900 billion yen aligned with NTT Group’s announced operating income target of 1.3 trillion yen? Do you think NTT is content with DOCOMO’s operating income target?

DOCOMO is a member of NTT Group, and our operating income target is included in the Group’s total target of 1.3 trillion yen. We are not sure if NTT is satisfied or not, but we have already reported to NTT based on the operating income target contained in the newly developed plan.

What would be the estimated size of your free cash flows for FY2012?

It will depend on the size of our domestic and overseas investments. We believe we can maintain it at around the current level of somewhere between 400 and 500 billion yen, if we do not have extraordinary cash outflow resulting from investments.

There was a media report that you intend to grow the size of international business revenues to some 10% of your total revenues. How significant will be the contribution of international services to the 900 billion-yen income target under your new plan?

Income from investments are not factored in the 900 billion-yen income target, because any proceeds from minor stake investments will be recorded as non-operating income. However, the revenue size of international roaming service is expected to grow to a magnitude of 100 billion yen in FY2012. The 10% target was a ballpark figure expressing our ambition to expand international business, and no comments have been given as to a concrete timeline for achieving this target.

The size of promotional expenses to facilitate the migration of mova subscribers to FOMA of 10+ billion yen seems to be small. Do you think this is sufficient? Can we expect the migration process will be mostly completed by the end of next fiscal year?

We do not think we can complete the migration of our existing 7.5 million mova subscriber with a total of 10+ billion yen. We will use these expenses to speed up the pace of migration. We will try to complete the migration by spreading out the process over the next few years.

NTT plans to limit CAPEX to 15% of total revenues. What is your CAPEX/total revenues ratio for FY2012?

It is estimated to be approximately 15% in our plan.

To strengthen your core business, you said you will aim to 1) boost ARPU, 2) expand uptake and usage of smart phones and data cards, 3) expand enterprise business, and 4) strengthen credit payment business. Please give us an estimate of income contribution from each of these efforts.

In our core businesses, we plan to grow revenues by approximately 100 billion yen by increasing our packet ARPU. We cannot comment on the income contribution from the other initiatives as we have not calculated them individually. From new services, we aim to achieve revenues of 300 billion yen and income of 50 billion yen in FY2012.

Most of the targets in your newly developed action plans are set for FY2012 except for the customer satisfaction target. Why did you set this particular target for FY2010?

Enhancement of customer satisfaction is a top priority, and we cannot wait until FY2012. We also believe that our network quality and after-sales support already enjoy good reputations, so we set an earlier date to demonstrate our strong resolve to achieve this target no later than FY2010.

I can understand your policy to take on the challenge of new service creation. However, you already have some services, like the credit payment service, that do not make any income contribution. Don’t you think it is necessary to review the services introduced in the past, so that you can raise the probability of generating profits from future services?

We would like you to evaluate the success of our credit business from a long-term perspective. Its subscriber base is projected to reach 9 million by Mar. 31, 2009, but we need 15 million subscribers to break even in this business. It will take a little longer to make it profitable.
Among the services introduced in the past, there are some services, like "i-channel", that have achieved great success, exceeding our expectations. On the other hand, services like "PushTalk" or "Chaku-moji" have turned out to be lackluster. We are aware of the need to streamline these services in the future, but it may not be possible to do so immediately because there are existing subscribers to each service.