Presentation Materials

You mentioned that your operating income for FY2011/1Q made positive progress reaching 31.5% of your full-year forecast, which can be interpreted as meaning that your profits have slightly outperformed your expectations. Operating income for FY2011/1Q was 11% higher compared to the same period of the previous fiscal year, but I believe this number is inflated due to revisions made in loyalty program expenses in FY2010/2Q. Do you foresee any possibility of your FY2011/1H operating income growing more than the amount for the same period of the previous fiscal year?

It is true that changes made to our handset repair system impacted on the year-on-year operating income growth recorded in FY2011/1Q. The differences arose because our FY2010/1Q results were compiled prior to the change of system, while our FY2011/1Q results were compiled thereafter.
On the other hand, the key factor in assessing the prospects for operating income is ARPU growth, and we expect smartphones to be the largest driver behind its increase. To give you an idea of ARPU growth attributable to the expanded adoption of smartphones, according to a sample survey of customers who purchased smartphones in April 2011, packet ARPU grew from an average 3,500 yen with i-mode handsets as of March 2011, to approximately 5,200 yen in May 2011 after switching to a smartphone. As shown by these numbers, the migration to smartphones had an ARPU-boosting effect of some 1,700 yen, and this is why growth in smartphone sales is very important for us. With regards to our recent smartphone sales, we sold a total of some 1.30 million units during the three month period of FY2011/1Q, and over 2.00 million units in the four month period between April and July 2011. If this pace of sales remains unchanged, the total number of smartphones sold within this fiscal year will likely reach 6.00 million units. However, we believe that actual annual sales will end up higher than this forecast, as we plan to add more variety to our product lineup in the second half of this fiscal year, and we project an increase of sales in the peak season towards the end of the fiscal year around March, 2012. Any review of our projections for operating income and smartphone sales will be at the end of the second quarter, but at this point, we believe that we may be able to add 1.00 million units in smartphone sales if we maintain our current momentum.

You mentioned that the total number of smartphones to be sold within this fiscal year may end up higher than your current forecast given the brisk sales recorded in recent months. Please comment on the future outlook.

We sold over 700,000 smartphone units in the period between July 1, and July 28, 2011. We now have a strong lineup of attractive devices such as the GALAXY S II, Xperia acro and MEDIAS WP, and these smartphones all enjoy positive reviews. At this point, it is difficult to predict whether we can achieve a comparable volume of sales in August and the months ahead, and actual sales will depend on our 2011 winter product lineup. However, we are committed to continuing our efforts toward sales expansion.

With regards to the "50.0 billion yen incremental expenses for measures aimed at future growth" presented in your initial business plan, can you explain your progress with regards to spending in FY2011/1Q, and any concrete measures implemented?

To provide you with a rough breakdown of the 50.0 billion yen of expenses set out, these include (1) expenses for creating new revenue sources, (2) expenses related to mmbi, and (3) expenses required for implementing high-priority measures. Expenses for creating new revenue sources have been used for the development of "personalized services," "social support services" and "converged services." Expenses related to have been appropriated to prepare for the service launch of the multimedia broadcasting service scheduled for April 2012. Expenditures for high-priority measures include development expenses for transferring i-mode services to smartphones, and expenses required for reinforcing the responsiveness of our call center and other customer-front operations. We expect to incur expenses related to mmbi in the second half of FY2011. In FY2011/1Q, we used approximately 5.0 billion yen out of the total 50.0 billion yen increase in budget for future growth measures, in comparison to the previous fiscal year.

I believe you are planning to cut costs by 40.0 billion yen in FY2011 through cost-efficiency improvement efforts. How was your progress toward this in FY2011/1Q? You explained that you have already achieved a reduction of 29.0 billion yen in "other expenses" alone in FY2011/1Q. Is there a possibility of achieving cost reductions in excess of 40.0 billion yen?

We expect to cut costs by a total of 40.0 billion yen in FY2011 through improvements in efficiency, of which a reduction of 10.0 billion yen has already been achieved in FY2011/1Q. This is a considerable improvement, achieved mostly through network-related costs. Our total expenses decreased by a larger amount, due primarily to efficiency improvements in costs resulting from revisions made to our loyalty point program and the handset repair system during the previous fiscal year.

"Other expenses" for FY2011/1Q has not changed significantly compared to the same period of the previous fiscal year, but I believe you are factoring in an increase in "expenses for measures aimed at future growth" in your business plan. Are you expecting a significant increase in "other expenses" in FY2012/2Q or subsequent quarters?

Allowances earmarked for loyalty point program expenses dropped significantly in FY2010/2Q due to revisions made to our handset repair system in FY2010/2Q. Accordingly, when you make a year-on-year comparison between the first quarters of FY2010 and FY2011, you can see a huge difference in the amount of "other expenses," but that will not likely be the case in the second and subsequent quarters. We also have been making steady progress in the reduction of our total expenses, particularly in the area of facility-related costs.

Going forward, I believe that an increasing number of low-usage i-mode users will begin to switch to smartphones. Do you think that these low-usage users will accept your current charges? I believe that your packet billing plans for smartphones are expensive by global comparison. Can you elaborate on your thoughts concerning future rate settings?

Users who have switched to smartphones so far were mainly heavy data users with high IT literacy. We intend to review our rates in the future, in light of the projected increase in the migration of low-usage users to smartphones. While working to steadily brush up our i-mode handsets, we will also implement thorough measures to improve the convenience of smartphones so that these users will be satisfied with our existing billing plans even after they migrate to smartphones.

Was the 1,700-yen data ARPU boosting effect caused by subscriber migration to smartphones in line with your expectations? Can you also comment on the details concerning related user attributes as well as expected future changes in user profiles?

A sample survey of users who migrated to smartphones showed a 1,700 yen increase in packet ARPU (increasing from 3,500 yen with an i-mode handset to 5,200 yen after switching to a smartphone). This is higher than our expectations, in which we estimated an increase of approximately 1,500 yen. However, as more subscribers to switch to the "Pake-hodai Flat" full flat-rate billing plan, we believe that post-migration ARPU will come down to around 5,000 yen. Users accustomed to spending 3,000 to 3,500 yen per month for packet access via i-mode may not feel any hesitation in switching to a smartphone, but lower-than-average i-mode packet ARPU users may not feel as comfortable. We will therefore implement various measures to facilitate their migration.