Presentation Materials

You mentioned that you changed the estimation method of the allowances for "Nikagetsu Kurikoshi" (two-month carry over) service and "docomo point" service during FY2009/3Q. Please give us more details on the changes made.

There are primarily three factors that impacted the financial results for FY2009/1-3Q.
More than two years have elapsed following the introduction of the new discount services (e.g., "Fami-wari MAX 50") and the new handset purchase method (e.g., "Value Course"), and now that we have a sufficient number of users and usage records for these services, we found it necessary to review the estimation method of allowances.
With respect to the "Nikagetsu Kurikoshi" (two-month carry over) service, previously, we carried over the revenues of the unused portion of free communication minutes bundled in the basic monthly charge to the following month and beyond. However, after the launch of "Fami-wari MAX 50" and "Value Plan", we saw a gradual increase in the number of subscribers whose free communication minutes exceeded the amount of basic monthly charge after applying the discounts. Therefore, we decided to alter the estimation method of the amount to be carried over, from previously a method based on the amount of free minutes to a new method based on the amount of basic monthly charge after applying the discounts. This resulted in a decrease in the carry-over revenues from 91.2 billion yen to 73 billion yen, and the difference of 18.2 billion yen was accounted for as an increase in voice revenues. In terms of ARPU, the FY2009/3Q ARPU was boosted by 110 yen by this change.
The point service allowances for the first three quarters of FY2009 grew to 159.5 billion yen, up 43.3 billion yen compared to the same period of the last fiscal year. This increase includes the impact of over 30 billion yen due to the upward revision of point allowances for the "Mobile Phone Protection and Delivery" service, and the impact of other repair-related allowances of approximately 26 billion yen. Upon the introduction of the new handset purchase methods, we revised the "Mobile Phone Protection and Delivery" service, enabling those customers who have not used the insurance service for over two years to receive 3,000 points as a special benefit when they replace their handsets. Because we anticipated an increase in the number of customers who will likely use this special benefit upon the expiry of the contract term, we decided to allocate additional point service allowances during FY2009/3Q. However, this is a one-time event and we do not foresee that we need to allocate allowances of this magnitude for the 3,000 points provided for unused insurance service, so the future increase of allowances is expected to be moderate.
Furthermore, in the previous fiscal year, there was an irregular factor of the accelerated depreciation of PDC-related assets. The cumulative amount of depreciation for the first three quarters of FY2009 decreased by approximately 70 billion yen compared to the same period of the prior year. Of this decline, approximately 50 billion yen was due to the impact of accelerated depreciation of PDC-related assets, and the remaining 20+ billion yen decrease was achieved as a result of reduced capital expenditures.

It seems to me that you have not been so active in the sale of smartphones or PC data cards. When compared by the effect of raising packet revenues, don't you think it makes more sense to generate an additional 10 billion yen in revenues by increasing the user base of smartphones and PC data cards, assuming that it could grow to up to 1 million, than spending efforts to boost the usage of approximately 50 million i-mode users to gain an additional 60 billion yen? What are your views on the balance of revenues vis-a-vis subscriber growth?

We are currently focusing on the smartphone and PC data card business. The ARPU of smartphone and PC data card users is generally higher, and we would like to strengthen our sales in this area. With respect to PC data cards, in particular, we are currently reinforcing its sales, handling them at docomo Shops in addition to the conventional channel of mass retailers. If you visit our shops, we believe you will be able to understand how strongly we are trying to expand its sales, because PC data cards and netbook PCs currently occupy the best shelves in our docomo Shops.

With respect to the outlook of operating income for the next fiscal year, voice revenues are expected to decline by some 200 billion yen in FY2009, and I believe it will continue to fall in FY2010 due to the expanded uptake of "Value Plan". Even if you try to sustain your revenues by growing packet usage, your packet ARPU growth may end up weaker than your competitors, remaining almost flat at around 2,400-2,500 yen. In such case, I believe you will have to slash your costs even further, but it is not clear how much room is left for further reduction. Can you comment on the likelihood of your operating income remaining unchanged at around 830 billion yen next fiscal year, and the grounds for that assessment?

While we cannot be precise because we are still developing the plans for the next fiscal year, we basically intend to make up for the decline in voice revenues by growing the number of cellular subscriptions and boosting the data ARPU. In addition, we will aim to achieve revenue growth by tackling the "Challenge" items and work to cut costs by implementing the efficiency improvement initiatives under the "Change" programs. After the integration of our former regional subsidiaries in FY2008, we have streamlined the call centers and other operations, and the effects of these efforts are expected to become more visible going forward. Furthermore, we are also promoting best practices, horizontally applying good initiatives undertaken in one region to other regions across Japan to improve our operational efficiency.
Although the situation remains tough, we will aim to achieve a year-on-year growth in operating income next fiscal year.

The idea of adopting or selling Google's or Apple's content is fine, but the added value will all be controlled by Google or Apple. Do you plan to accept the role of only providing a network without offering any added value, or do you plan to deploy your own content and platform? It seems that you have not decided on your policy in the areas of "docomo market" and the content platform on open operating systems. I think you should work on the development of "docomo market" sparing hundreds of engineer resources. What size of business are you contemplating, and what kind of actions are you taking at this point?

We plan to deploy the "docomo market" in two phases, Step 1 and 2. In Step 1, scheduled for launch in April 2010, we plan to introduce popular content or other recommended content, to enhance the convenience of smartphone users. In Step 2, which is currently planned to begin in the winter 2010, we plan to allow users to make payments for the content or other applications they purchase using our phone bills. With the "docomo market", we plan to offer content and applications developed by ourselves, as well as other content developed by general developers. We are currently working to create a scheme that can well serve the needs of both developers and users.

It seems that you have been actively selling data cards bundling them with PCs. Is this a profitable approach, when you consider the balance of the required commissions and the projected ARPU from these users?

We have strategically allocated sales commissions to popularize the use of PC data cards. Currently, we spend a higher amount of commissions for data cards compared to i-mode or other handsets, but only to the extent permissible in view of its financial implications and have secured profitability of this business.

The Android-enabled Xperia device you unveiled the other day seemed very well designed. How do you position this device vis-a-vis your Operator Pack products. Do you plan to shift the focus of your development from Linux- or Symbian-based i-mode handsets to open OS devices in the future?

Going forward, we would like to integrate i-mode handsets with open OS devices, but we do not think this can be achieved immediately. So, for the time being, we will pursue two avenues. We believe the number of users choosing open OS devices will increase in the future. We plan to offer open OS devices to such customers in view of the "second phone" demand.