Presentation Materials

Have you developed any contingency plans in the event of a possible reoccurrence of network troubles due to shortage of capacity occurring even after implementing the newly announced network infrastructure advancement measures?

As we explained in the presentation of our network infrastructure advancement plans, we believe it is important to take measures to handle the "quantity," i.e., the increase in network traffic and control signals. This is because we do not foresee any changes in the "quality" as the types of control signals that we need to handle are not likely to increase. As part of the newly developed countermeasures, we plan to implement a signal volume measurement function in the packet switches, which will allow us to keep track of the number of control signals in each switching system. We believe we will be able to make proper response in the future by effectively utilizing this function.

You mentioned that the primary cause of the recent network failure was the greater-than-expected increase in the volume of control signals transmitted from smartphone applications, but wasn't the increase of traffic anticipated in the first place given the widespread adoption of smartphones? Please explain your current assumptions concerning future traffic growth and how you plan to respond to it.

To respond to the network congestion caused by the increase of smartphones, we have developed a new, larger-capacity packet switching system that can handle greater volume of traffic, which is planned for introduction shortly. On the other hand, the surge in the volume of control signals resulting from the expanded use of VoIP or chat applications exceeded our earlier projections. To cope with the increase in signal volume, about six months ago, we started the development activities to implement a signal volume measurement function in our packet switches, and this feature is expected to enable us to more accurately predict the signal volume in the future. Regarding the impact of applications, previously, we were able to exercise a certain level of control because the applications were developed mainly by ourselves. Currently, however, we are no longer able to control the packet volume, and carriers around the world are struggling due to this problem. Going forward, we intend to closely keep track of the increase of signals from applications and take proper countermeasures.
With mobile phone systems in order to use the radio spectrum efficiently, VoIP or other applications that require constant connection constantly generate signals, and user's mobile phone repeats the process of connecting and disconnecting with the network. This process of connection and disconnection generates control signals. Such constant connections are not an issue with fixed-line systems, because they do not cause significant burden on the network. We hope that applications providers, who have hitherto developed applications mainly for fixed-line PCs, will be aware of this difference between fixed-line and mobile environments. Going forward, to curb the volume of control signals emitted from applications, we would like to cooperate with other telecommunications carriers around to world to communicate information to operating system developers such as Google and application providers. We already informed Google of this problem.

I heard your Android devices sales have picked up since December 2011, but I am concerned about the increase in churn rate and subscriber outflows to other operators. Do you think you will be able to improve your performance in these areas?

As background to that question, I guess you are asking our views concerning competing against the iPhone4S. In October 2011 when the iPhone4S went on sale, the number of port-outs from DOCOMO to other mobile carriers increased to 2.5 times compared to the same day of the previous month, but then by November it stabilized to 1.1-1.2 times compared to the previous month. In December when many new models were released, the absolute number of both port-ins and port-outs increased. In fact, for December 2011, the number of port-outs was 1.3 times the level of the previous month, but the number of port-ins jumped to 1.7 times. Regarding our recent performance, the number port-ins for January 2012 has slightly weakened. While we have traditionally focused on the reduction of churns and port-outs, we will implement measures aimed at acquiring greater number of port-ins starting February. We will strive to improve our MNP performance and aim for a churn rate at around 0.50%.

You have constantly maintained your churn rate at low levels over the last several years. However, the rise in churn rate and sales commissions in FY2011/3Q makes me concerned that the foundation of your business may have begun to shake. When there is a possibility of expanding discounts in your rate plans, the key to achieving a stable growth in operating income would be the acquisition of net additions. But if the churn rate is kept at this high level, you may have to anticipate other impacts such as an increase sales commission for the acquisition of subscribers. What are your views on these circumstances?

We do not think our foundation is shaken. We will endeavor to bring down the churn rate from the current level of 0.59% for FY2011/3Q. Also, while the actual amount of commissions will depend on the circumstances, we plan to step up the initiatives aimed for increasing the number of port-ins. By the time the Xi rates resume to normal in October 2012 after the expiry of campaign discounts, Xi-enabled devices are expected to account for the majority of smartphones sold, which we believe will have an effect to boost packet ARPU. In addition, as the adoption of smartphones expands to middle-usage customers, we will study the possibility of offering more affordable billing plans for users with limited data usage. We will aim to increase our packet ARPU as a result of a comprehensive study on these issues.

It seems that your packet ARPU growth has lost momentum. In fact, when I look at the quarterly changes in cellular services (voice + packet) revenues, they have recorded year-on-year decreases of approximately 12.0-13.0 billion yen in each of the last few quarters. Although I believe there is only so much you can do with cost savings, when do you think you can start achieving a healthy increase in income after reversing the downtrend in revenues?

While the year-on-year growth of packet ARPU for FY2011/3Q (three months) was limited to 150 yen, or 5.9%, our total packet revenues expanded at a higher pace of 9.5%.
With respect to cellular services revenues, for FY2011/4Q, we believe the increase of packet revenues will nearly offset the decrease in voice revenues. While this will depend on the future smartphone sales and MNP subscriber acquisition performance, if we can successfully achieve a steadfast increase in packet revenues through the implementation of various initiatives, we may be able to start posting gains in cellular service revenues from the next fiscal year.

My question may overlap with the previous questioner, but it seems your packet ARPU growth has weakened. You explained that this was attributable to the sluggish smartphone sales in October and November 2011, but your sales recovered in December 2011. Please elaborate on users' recent usage trends excluding the impact of October-November 2011 sales.

According to a survey we conducted in the spring of this year, the packet ARPU of users who have switched from a feature phone to a smartphone showed a 1,700 yen increase after the migration. We carried out a similar survey in November 2011, according to which the increase of packet ARPU remained unchanged at 1,700 yen. Also, after a temporary slowdown in October and November, our smartphone sales recovered in December 2011. Because of these factors, we are not concerned about our performance.

Do you think you can maintain your annual CAPEX at around 700.0 billion yen despite all these measures to solve your network troubles? Or, if you can keep your annual CAPEX for the next fiscal year at the current level in spite of the increase of expenditures due to the network countermeasures, don't you think you would have been able to achieve a greater reduction in the previous fiscal years?

With the past investments, we have nearly completed the expansion of 3G area coverage. Therefore, had it not been for the expansion of smartphone adoption, our annual CAPEX for the next fiscal year would be much lower at around 650.0-700.0 billion yen. But now that we need to make additional spending to accommodate the increase of smartphone traffic, we currently intend to maintain our annual CAPEX at around 700.0 billion yen. For the next fiscal year, however, our annual CAPEX is estimated to be slightly over 700.0 billion yen.