Presentation Materials

I recall you carried approximately 5 million units of handsets in inventory, including those in the distribution channel, as of the end of the FY2008/2Q. What was the number as of the end of FY2008/3Q? And how do you view that level?

Our inventory assets as of the end of FY2008/3Q were 167.6 billion yen, compared to 185.5 billion yen as of the end of FY2008/2Q. In terms of the number of handsets in inventory, we had approximately 5.1 million units as of the end of FY2008/3Q. In our view, this is slightly higher than usual, but the number is still less compared to the end of FY2008/2Q. The higher-than-usual inventory in FY2008/3Q was mainly attributable to the launch of new handset series, which resulted in an increase in the variety of models to ten, compared to seven in FY2007/3Q. However, we believe this level of inventory is sufficiently manageable.

Does the number of handsets in inventory include the free replacement phones provided under Mobile Phone Protection & Delivery Service, the insurance service for lost or damaged handsets?

Yes.

Regarding the LTE license, because you are already operating commercial 3G service using the 1.7GHz band, I believe it makes economic sense for you to apply for the 1.7GHz band license. Have you thought about this?

We basically intend to start the roll-out of LTE first using the 2GHz band, and then expand into the 1.5GHz band. We believe it is more efficient to use the 2GHz band because it will allow us to share many of our existing facilities with LTE.

In relation to your free cash flows projections, the capital expenditures for the first three quarters of FY2008 increased from the same period of last fiscal year. Do you think your full-year capital expenditures will be lower than last fiscal year? Also, you have spent some 100 billion yen for repurchase of own shares during this fiscal year. Do you plan to buy back more shares in the fourth quarter?

We mentioned earlier that our full-year handset sales are expected to end up 2 million units lower than our initial plan. In addition, we have seen an increase in the percentage of Value Course users choosing to pay for their handsets in one-time lump-sum payments. These factors will likely reduce the installment claims by approximately 80 billion yen. The factors, together with other factors, such as a decrease in corporate tax payment, etc., are expected to increase our free cash flows by nearly 100 billion yen. On the other hand, cash outflows associated with the investment in India’s TTSL was not factored in our earlier forecast. At the time of FY2008/1H results announcement, we estimated our free cast flows as of Mar. 31, 2009, to be 130 billion yen. However, with such cash outflows, our cash position as of Mar. 31, 2009, may turn negative.
For repurchase of own shares, we would like to buy more shares, but it will depend on our share price and other factors. We cannot comment at this point whether we will carry out share repurchase during the fourth quarter.

What kind of measures are you planning to implement in order to boost packet ARPU?

Video will be the key to growing our packet ARPU. Entertainment contents have so far been the main video driver, but we intend to expand into new areas such as tourtist guide services and others. For viewing video, subscription to a flat-rate pacakge is strongly recommended. By enriching our video content portfolio, we intend to grow the number of flat-rate subcriptions.

Other carriers have employed traffic restrictions for access on their networks. Don’t you plan to do the same? Or do you have sufficient capacity so you do not need to restrict the user traffic?

Because we have successfully constructed a "thick" network of high capacity, stress-free and comfortable access is not sacrificed despite the increase in traffic volume. However, we are contemplating some measures against super-heavy users, including the possibility to reduce the transmission speed of such users.
Conventionally, we restricted the traffic by controlling all flat-rate users covered by the same base station. We intend to change this to a new method, which will allow us to control more flexibly based on the actual usage of individual users. Leveraging the introduction of this new control method (dynamic control: planned for introduction on Apr. 1, 2009), we would like to accelerate the uptake of flat-rate service.

If India’s TTSL decides to take part in the 3G auction, do you foresee any need to provide more financial assistance in addition to the investment that was already announced?

We are discussing with TTSL various possibilities, including a possible increase in the reserved price. While it will depend on the future developments, we do not foresee any need to make additional investments at this juncture.

The LTE licenses to be allocated with the largest bandwidth in the 1.5GHz band are subject to various restrictions, and the spectrum will become available on a nationwide scale only around 2014. But it may be more efficient to use the 1.5GHz band, because a bandwidth of 10MHz can be secured, compared to a bandwidth of only 5MHz in the 2GHz band. When these factors are taken into consideration, do you think you may have to change your plans for LTE, which is currently scheduled for introduction around 2010, due to the allocated bandwidth?

We intend to start LTE services using the 2GHz band. We are currently accommodating the growing demand for video services with our HSDPA network, and we plan to roll out LTE gradually from areas where the HSDPA network capacity becomes tight. We therefore do not plan to wait until 2014 and build the LTE coverage simultaneously with a 10MHz bandwidth.

With respect to the depreciation of mova-related assets, in addition to the normal 30 billion yen depreciation for this fiscal year, you have added a total of 60 billion yen for accelerated depreciation (inclusive of the normal depreciation cost allocated for the FY2008/2H). Will it be correct to assume that your total depreciation for next fiscal year will be approximately 8 billion yen?

Without the acceleration, the depreciation of mova-related assets for FY2009 would have been expected to be around 21 billion yen. Due to the effect of accelerated depreciation, we envisage that the amount will be reduced by some 10 billion yen from that number.

I believe now is a good time to make investments for future growth. Please let us know if you have any plans to further accelerate your investing activities next fiscal year?
Can you also tell us, to the extent possible, how you have negotiated with your Korean partner upon the merger of KT and KTF.

You are correct, this may be a good timing to make investments, and if there are any good opportunities, we would like to explore them. As we presented in our middle-term vision, "DOCOMO’s Change and Challenge to Achieve New Growth", announced in October 2008, we aim to realize social platforms for health management, environment, etc., through the collaboration with external partners. We will proactively look into investment opportunities not only overseas but also in new business fields on a case-by-case basis.
Although the merger between KT and KTF materialized earlier than what we had anticipated, it was factored from the time when we negotiated our investment in KTF. Because the results of collaboration, e.g., contribution to roaming revenues through the roll-out of W-CDMA, joint handset procurement, joint establishment of investment fund, etc., were seen sooner than expected, we appreciate the value of investing in KTF. Because both sides have agreed to continue our mutual collaboration, the merger of KT and KTF is not perceived as a negative development.

Will it be right to consider that you will introduce LTE as one of a group of first adopters, and will never go too far ahead of other carriers as was the case with the roll-out of W-CDMA?
In the event other overseas carriers decide to postpone the roll-out due to the global economic slowdown, will you also delay your introduction schedule?

We basically intend to introduce LTE as one of among a group of first adopters. Although this is not assumed in our plan right now, if other overseas carriers decide to postpone their roll-out schedule, we may also follow suit.
Please understand that we are planning to introduce LTE not only to enable a smooth delivery of video and other killer content, but also to build up our network capacity. From what we hear from our exchange with various overseas carriers who have plans to introduce LTE, no carriers seems to have decided to delay the roll-out, so we do not see any problems with our current schedule at this juncture.

Certainly, reduction in handset costs can be expected from the development of Operator Pack and the financial assistance to manufacturers. When such price reduction is taken into consideration, how many handsets do you think you can sell during the next fiscal year?

We have just made a downward revision of our full-year handset sales forecast to 20 million units compared to 22 million units at the time of our FY2008/1H results announcement. For the next fiscal year, we would like to release attractive handsets at appropriate prices in a timely fashion, to stimulate Japan’s domestic demand and contribute to its economic recovery. Our goal is to achieve a level similar to this fiscal year, but we may see a decline if the current economic trends persist.