Press Conference Minutes and Q&A

Date: April 26 (Friday), 2013 15:00-16:00

FY2012 Results Highlights
For the fiscal year ended March 31, 2013, the Company recorded an increase in operating revenue but a decrease in operating income over the previous fiscal year. Operating revenue was 4,470.1 billion yen (an increase of 5.4% or 230.1 billion yen year-on-year) and operating income was 837.2 billion yen (a decrease of 4.3% or 37.3 billion yen year-on-year). Net income was 495.6 billion yen (an increase of 6.8% or 31.7 billion yen year-on-year).
Actual operating income came in higher than our guidance of 820 billion yen, which was set as a result of a downward revision at the end of the second quarter.
As for other highlights with respect to the FY2012 results, the total number of smartphones sold increased sharply by 50.7% over the previous fiscal year to 13.29 million units, and the total number of Xi LTE subscriptions grew remarkably to 11.57 million as of March 31, 2013, recording a 5.2-fold increase compared to the quantity as of March 31, 2012.

FY2012 Selected Financial Results
I already covered the results for operating revenue, operating income and net income in the previous slide. Capital expenditures recorded an increase of 26.8 billion yen over the previous fiscal year, due mainly to building up the Xi LTE network in response to the steady increase in the number of Xi LTE users, dispersing important facilities in order to enhance disaster preparedness and other factors.
Free cash flow decreased by 277.9 billion yen year-on-year owing to a significant increase in the number of subscribers purchasing a handset using installment payments.

Key Factors behind YOY Changes in Operating Income
Let me explain the key factors behind the year-on-year changes in operating income (compared to FY2011).
On the revenue side, mobile communications service revenue (excluding the impact of "Monthly Support" discounts) increased by 40 billion yen. The negative impact from the "Monthly Support" discount program grew by approximately 200 billion yen. Other operating revenue increased by 128.9 billion yen due primarily to the growth of revenue from new businesses. Equipment sales revenue increased by 259.2 billion yen owing mainly to the increase in number of handsets sold.
On the expenses side, equipment sales expense (the sum of cost of equipment sold and commissions to agent resellers) increased by 95.6 billion yen in line with the growth in equipment sales revenue. Depreciation/amortization and loss on disposal of property/plant/equipment and other intangible assets increased by 39.4 billion yen as a result of expanded Xi LTE coverage. Other expenses grew by 132.4 billion yen primarily as a result of the increase in new business revenue.
As a result of the foregoing, operating income for FY2012 dropped by 37.3 billion yen compared to the previous fiscal year.

New Handset Sales and Net Additions
We sold a total of 23.55 million handset units in FY2012, up 6.6% compared to the previous fiscal year. Sales to new subscribers were also brisk, recording a year-on-year increase in all four quarters. With respect to the movement of subscribers using Mobile Number Portability (MNP) system, although we achieved an improvement in the acquisition of port-ins, because of the higher-than-expected port-outs, we faced an uphill battle in securing net additions.
After release of the 2013 spring handset collection in February, however, we have seen signs of recovery in our product competitiveness thanks to the effects of "DOCOMO recommended models" and various promotional measures, with the number of net additions for FY2012/4Q reaching 548,000 , a slight increase over the same period of the previous fiscal year.

Smartphone Sales & User Base
We sold a total of 13.29 million smartphone units in FY2012, up 51% over the previous fiscal year. We also expanded our smartphone user base to some 18.7 million as of March 31, 2013, up 87% compared to the number as of March 31, 2012. Because the increase of smartphone users is critical for our medium-term business strategies, we will continue to strengthen our smartphone sales with the aim of further boosting our packet revenue and income.

Xi LTE Subscriptions/Packet Revenue
We were able to increase the number of Xi LTE subscriptions to 11.57 million as of March 31, 2013, up 5.2-fold compared to the number as of March 31, 2012. The subscription count for Xi LTE service topped 12 million on April 20, 2013, representing some 60% of our total smartphone users. As a result of the increase in Xi LTE subscriptions and smartphone users, our packet revenue recorded a favorable year-on-year growth of 6% to 1,893.9 billion yen.

"dmarket"/Smart ARPU
We have hitherto endeavored to enrich our cloud-based offerings. As a result, the revenue from our "dmarket" portal recorded a remarkable 11.5-fold year-on-year increase to 23 billion yen. The "dvideo" service, in particular, generated 18.5 billion yen in revenue, or nearly 80% of total "dmarket" revenue, with a subscriber base of 4.13 million.
Thanks to the growth of "dmarket" revenue and other factors, the Smart ARPU for FY2012 marked a steady increase of 100 yen over the previous fiscal year to 460 yen.

FY2012: Summary
As a result of successful implementation of "Family Set Discount," "Xi Smartphone Discount" and various other promotional measures, we were able to make tangible progress toward the establishment of a solid user base of smartphones for the future.
We also achieved a favorable increase in new business revenue as a result of enrichment of the "dmarket" store lineup with the launch of the "dgame" gaming platform and "dshopping" service.
Despite a favorable performance with respect to total handset sales and new handset sales, however, we struggled with the acquisition of net additions, as we failed to deliver sufficient results in preventing MNP port-outs.
Amid such harsh competition, we secured 837.2 billion yen in operating income, beating our revised full-year target of 820 billion yen announced at the end of the second quarter. This was accomplished by implementing various cost control measures, such as limiting actual additional expenditures to counter competition to approximately 70 billion yen vis-a-vis a budget appropriation of 80 billion yen through efficient utilization of expenses and freezing implementation of some measures.

FY2013 Forecasts
Looking toward a forecast for FY2013, operating revenue is expected to increase by 3.8% or 169.9 billion yen year-on-year to 4,640 billion yen, while operating income is estimated to be almost comparable to the previous fiscal year at 840 billion yen (up 2.8 billion yen year-on-year).
As for other principal indicators, free cash flow is expected to improve sharply to 400 billion yen, due mainly to progress with cash collection from subscribers of installments receivable for the handsets purchased in past fiscal years, and the completion in FY2012 of capital investments for improved disaster preparedness.

FY2013 Operating Income Forecast (Breakdown)
Mobile communications service revenue is projected to increase in FY2013 driven by an expanded smartphone user base, but the negative impact from the "Monthly Support" discount program will also continue to grow. In addition, we are projecting an increase in expenses required for reinforcement of Xi LTE service areas. We plan to mitigate the increase in expenses by promoting further cost reduction through structural reforms and improving profitability of our equipment sales and new non-core businesses. We thereby expect to achieve 840 billion yen in total operating income.

FY2013 Capital Expenditures Forecast (Breakdown)
The total amount of capital expenditures for FY2012 was 753.7 billion yen. For FY2013, because we do not need to appropriate funds for dispersing key facilities to enhance disaster preparedness, and also because we plan to improve the efficiency of our capital expenditures by more than 10 billion yen through savings on investments in information systems and R&D activities, total annual capital expenditures for FY2013 are expected to decrease to 700 billion yen.
Although total CAPEX for FY2013 is expected to decline compared to the previous fiscal year, we will maintain investments required for the network so as to respond properly to the surge in traffic resulting from the expanded uptake of smartphones, and instead efficiently reduce investments in FOMA service so as to accelerate the shift of resources to the Xi LTE network, and thereby strengthen our competitiveness.

FY2013 Operational Indicators (Forecast)
For FY2013, we set a target of acquiring 1.85 million net additions (up 440,000 year-on-year) and selling 24.50 million handsets (up 950,000 year-on-year), of which smartphones are expected to account for 16 million units (up 2.71 million year-on-year). The total number of Xi LTE subscriptions is expected to reach 25 million as of March 31, 2014.

FY2013 Business Management Policies
As a result of reviewing our corporate goal of transforming into an "Integrated Services Company," in the sense of the actual value that we can deliver to customers, we decided to tackle a new challenge of becoming a "Partner for a Smart Life" in FY2013.
In our core mobile phone business, we will thoroughly update the basic elements of our services, aiming to further expand our smartphone user base. In our new non-core businesses, we will work to enrich our cloud-based services in pursuit of new revenue sources.
To this end, we will endeavor to strengthen our competitiveness in devices, the network and services by implementing measures that reflect feedback from our customers, and at the same time, thoroughly implement structural reforms in an effort to reinforce our managerial foundation.

Devices
Handset models such as "AQUOS PHONE ZETA" released in November 2012 and "Xperia Z" introduced in February 2013 as our "No.1 recommended model" are both recording brisk sales. We believe this is an indication that our devices are steadily regaining competitiveness, and we are currently working to further improve the strengths and appeal of our products in the run-up to the launch of 2013 summer collection. Going forward, we plan to structure the lineup concentrating our resources on selected key models that are built with a strong emphasis on "innovation" and "ease of use and sense of security". I hope you will look forward to our 2013 summer new product/service presentation scheduled for mid-May.

Xi LTE Service
In FY2013, we will employ exhaustive measures to improve the connectivity of Xi LTE service and, at the same time, enhance its transmission speeds. Toward this goal of delivering outstanding connectivity and usability with our Xi LTE network, we will advance the base station roll-out plan by one year and raise the cumulative number of Xi LTE base stations to 50,000 by March 31, 2014, double the number from March 31, 2013.
Meanwhile, we have successfully improved the voice call continuity rate of Xi LTE service. For example, the continuity rate of our Xi service on the JR Yamanote Line was 97.1%, the highest of all carriers, and we also delivered high rates in other major traffic routes. Going forward, we will continually strive to improve the Xi's call continuity rate on other major roads and railway routes across Japan.
With respect to deployment of high-speed areas, we will roll out base stations compatible with 75Mbps and 112.5Mbps services ahead of our original schedule. Further, we also plan to start delivering even higher speeds of up to 150Mbps downlink in some limited areas within FY2013.
This fiscal year, we will step up our activities to construct a LTE network featuring outstanding connectivity and usability, bringing forward the implementation of various initiatives. Needless to say, the reliability of the network is of upmost importance, so we will make an all-out effort to maintain and even improve our network reliability.

Third-Party LTE Quality Survey Results
Let me introduce the result of a third-party LTE quality survey conducted by Nikkei BP Consulting, Inc. According to the survey, which investigated LTE area coverage in 1,188 locations across Japan using the principal handset models of each carrier, DOCOMO was ranked No. 1 in both coverage and transmission speed. We are pleased that our network earned recognition for its quality. However, we are also aware that network quality can be measured using various different methodologies, and the network is something like a living creature whose properties change depending on the time, location or usage behavior of users and other factors. We will therefore continue to increase the installation of base stations compatible with high-speed services to enhance the throughput of the Xi LTE network, and pursue connectivity superior to the competition.

"docomo Service Pack"
In mid-May, we plan to launch two new service packages under the name of "docomo Service Pack" to provide an affordable assortment of popular services so that our services can be enjoyed affordably, conveniently and without worry.
The first, the "Osusume Pack," provides a bundle of recommended services comprising the "Sugotoku Content" (which is an assortment of some 100 popular content created by collecting the top 3-4 titles in each category (e.g. news, etc.) so as to cater to the requests of many novice smartphone users seeking recommendations from the vast amount applications that are available on the network), "i-concier" mobile concierge and other services, for a monthly rate of 525 yen.
The other package is the "Anshin Pack," which provides subscribers who worry about how to operate or the security of their handsets with comprehensive access to our "Mobile Phone Protection & Delivery," "Anshin Network Security" and "Smartphone Anshin Remote Support" services for a monthly fee of 630 yen. We intend to promote these two packages - the "Osusume Pack" and the "Anshin Pack" - emphasizing their convenience.

Accelerated Expansion of "dmarket"
In FY2013, we plan to further increase the number of stores and items handled by each line of service at our "dmarket portal," i.e., digital content such as "dvideo," which accounts for some 80% of "dmarket" revenue, physical commerce and life-support services. With the ambition to develop "dmarket" into a "marketplace that offers infinite enjoyment," we plan to offer services and merchandise matched to the needs and interests of users, thereby further enhancing its attractiveness.

Priority Project: Health
We are currently tackling health as a priority project, and docomo Healthcare, Inc., a joint venture established by DOCOMO and Omron Healthcare Co. Ltd is expected to play a central role in this undertaking. We aim to provide total support for customer wellness by linking the three elements of "diet," "exercise" and "sleep/healing" with user health data, placing health at the core of our activities.
As part of this effort, we announced today our capital alliance with Nihon Ultmarc Inc. to accelerate our activities in the field of medical services. Nihon Ultmarc operates a medical database business and possesses specific strengths in this field. By incorporating a company that owns such unique assets into our corporate group, we will aim to facilitate the advancement of our medical/healthcare business.

Enrichment & Expansion of Health Services
Here, let me introduce some concrete actions undertaken by docomo Healthcare. In April 2013, docomo Healthcare launched a health platform called "Watashi-move" which provides a safe storage of a user's body data. By storing user health information and comparing it to national data, etc., we believe we can present a user's current health condition in a visual format and promote a healthier lifestyle.
In June 2013, docomo Healthcare plans to launch a new service dubbed "Karada-no-kimochi" targeting women. The service allows a user to grasp his or her daily biorhythm, using such data as basal body temperature, based on which various proposals will be given to the user.
In the winter of 2013, another new service, "Body care agent (tentative name)," is scheduled to launch, targeting men and women in a broad age range. This is an agent service that provides a user with assistance to lead a healthy life catering to the needs of each individual. Placing health at the core, we intend to provide proper support for customers' wellness by mutually linking the elements of "diet," "exercise" and "sleep/healing."
Some people may suggest that similar services can be found elsewhere. However, we believe that the ease of use and convenience—such as the ability to measure basal body temperature in just 10 seconds, or capturing weight data measured by the scale into a smartphone via FeliCa-based data transfer—will hold the key to continued use of the service. By emphasizing these points, we will aggressively promote our medical and healthcare business in FY2013, aiming to develop them into the core of Smart Life.

Become a "Partner for a Smart Life"
Aimed toward our medium-term growth, we proposed the slogan to "Partner for a Smart Life." To address the question, what is meant by "Smart Life," we aspire to create a world in which the service we offer through our smartphones and other devices will serve the needs of each and every user, and impart a sense of safety, security, convenience and comfort in their everyday lives.
Heretofore, we used the term "Integrated Services Company" to express our ambition to enter into eight new fields in partnership with external players. This time, we rephrased this term from a customer-centered viewpoint, because we believed an expression that conveys our aspiration to become a "Partner for a Smart Life" would be easier to understand.
With an abundance of information available in the world, it may seem possible to do just about anything, but in reality exploiting such information to the fullest is difficult. Through the provision of "advising," "monitoring," "matching" and "planning" functions, we would like to offer services tailored to the individual requirements of each user, which will serve as the foundation for an "evolution of communications brought about by mobile."

Evolution to becoming a "Partner for a Smart Life"
In order to allow users to enjoy the maximum value of various usage scenarios, we believe it is imperative for us to transform ourselves into a service provider. From the perspectives of platform, mobile network and devices, our goal is to pursue three directions of "transformation into a platform & service provider," "network independence" and "device independence."
With respect to the goal of becoming a "platform & service provider," we plan to further step up the activities undertaken for our "dmarket" portal—a marketplace directly operated by DOCOMO as a service provider.
In the area of the network, we will aim to create a "network-independent" environment that allows customers to have seamless access without needing to be aware of the network type they use. Leveraging various technologies, including mobile networks and Wi-Fi, we must devise ways to efficiently transport huge volumes of information data.
As for "device independence," we need to prepare an environment in which users can freely access services from virtually any device they own.
To allow a greater number of users to utilize our services, we plan to change the user identification method from the traditional mobile phone number-based method to a new approach that uses a "docomo ID" assuming the use of services over multiple devices by a single user. We have already defined the scope of "docomo ID" use and are currently working on construction of a platform that controls the ID use. Our plan is to open up access to our services to subscribers of other networks, and further down the line to foreign users subscribing to overseas networks, positioning them as members of DOCOMO. To this end, based on the premise of using a "docomo ID" for user identification, we will endeavor to create attractive services catering to the needs of users by leveraging cloud technologies, so that we can continue to garner customers' usage over a long period of time.

Global Strategies
As for our global strategies, the different approaches we employ in overseas markets are explained here. The vertical axis represents the three areas of business in which we intend to be involved, i.e., the network, platform and service platform, and the horizontal axis plots the development stage in each market, i.e., voice-centric, mobile internet and smartphone.
While the development stage may vary by country/region, each market is expected to eventually advance to the stage of "Smart Life" after progressing from the lower stages on the vertical and horizontal axes. We thus plan to deploy businesses suited to the development stage in each market, envisaging evolution toward Smart Life in the future.
In retrospect, although we made various attempts to deploy services in various markets in our collaboration with overseas carriers, we regret that we were not necessarily successful in having them take root in society. However, because we believe we already laid the groundwork in each market, we will continue to roll out services, one after another, based on this scheme while also involving our investees and alliance partners.

Organizational Change: Establishment of Smart-life Business Division
Effective July 1, 2013, we plan to establish a new business unit, the Smart-life Business Division.
Under the current organizational structure, we see some overlapping of operations with the implementation of initiatives in the eight new non-core business areas. Eliminating these redundancies and clarifying the roles of each business unit, we will endeavor to shorten the lead time for service development and strengthen our alliances with partners aimed at expansion of the eight business areas. Thereby, we will accelerate our service creation and enrichment efforts.

Projected Growth of Total Revenue
As for the outlook for total revenue, as we have stated on other occasions, we project a continual decline in voice revenue, but we will strive to offset this by boosting packet revenue to 1.5 times the current level by FY2015 through the expansion of the smartphone user base and additional revenue from new businesses.

Expansion of New Business Revenue
We set a target of 1 trillion yen in new business revenue for FY2015. For FY2012, we recorded approximately 535 billion yen in new business revenue, beating our original target of 520 billion yen. For FY2013, we will aim for a higher target slightly north of 700 billion yen. We will continue to strive toward our 1 trillion yen target for FY2015 strengthening our new businesses and forming alliances with external partners. We are already beginning to see tangible progress toward this goal.

Reinforcement of Management Foundation
We plan to employ measures aimed at reinforcing our management foundation and accelerate structural reforms. We set a target to improve our cost efficiency by 250 billion yen by FY2015 compared to the level of FY2011. Although the "Monthly Support" discount program will continue to have a negative effect on our revenue in FY2013 and to some extent in FY2014 as well, I believe it will start to balance out from around FY2014.
During FY2012, we achieved a cost reduction of over 50 billion yen. In FY2013, we are planning an additional 110 billion yen reduction, to achieve a cost reduction amounting to 160 billion yen for the two years combined compared to the level of FY2011. As for a breakdown of the planned 110 billion yen decrease, 25 billion yen is expected to be achieved from the savings in revenue-linked expenses, 40 billion yen from the total of communication network charges, depreciation/amortization and loss on disposal of property/plant/equipment and other intangible assets, and 45 billion yen from "other expenses" such as reduction of testing operations and maintenance expenses payable to vendors.

Return to Shareholders
Considering return to shareholders, one of the most important issues in our corporate management, we have striven to continue stable dividend payments and to maintain one of the top payout ratios among Japanese companies, while strengthening our financial position and securing internal reserves. In accordance with this policy, we plan to pay an annual dividend of 6,000 yen per share for FY2013. Although the conditions surrounding our business remain harsh, we intend to continue stable dividend payments over the medium term adhering to our basic policy. We will continue to strive to meet the expectations of our valued shareholders.

Summary
For FY2012, we managed to secure operating income higher than our revised target of 820 billion yen. We believe we are currently undergoing the most significant transition in our business. This is nothing unique to DOCOMO, since all other mobile carriers in Japan are faced with a common challenge. Under these circumstances, we will shift resources to priority areas and review every aspect of our operations from scratch. The first step in this exercise will be the establishment of the Smart-Life Business Division, which will be followed by a sweeping review of our company-wide operations.
Our goal is to generate over 900 billion yen in operating income—the initial target we set for FY2012—at the earliest possible date, driving growth through the two vehicles of business expansion and structural reform. To this end, we will rigorously tackle the theme of serving customers as their "Partner for a Smart Life".

Q1

You mentioned that the iPhone was a factor behind your decision to appropriate additional sales expenses of 80 billion yen, which resulted in the year-on-year decrease in operating income. Can you give us a recap on your performance over the last six months? Please also explain how you assess your ability to counter the iPhone.

A1

Upon the announcement of our FY2012/1H results, we revised our operating income guidance downwards by 80 billion yen in order to secure funds for the implementation of additional measures aimed at boosting our competitiveness. Specifically, we reviewed the discount services offered to the purchasers of Xi LTE handsets and replaced it with a discount program bundled with the "Ouen Student Discount" program setting our target on family users. We also improved our cost efficiency by decreasing the amount of incentives for smartphone-to-smartphone handset upgrades as they do not directly lead to a boost of revenue. Through such creative measures, we achieved a 10 billion yen saving in the actual amount spent of the appropriated budget. With respect to competition with the iPhone, we struggled very hard for acquisition of MNP subscribers particularly in the months of October and November 2012 due to the impact of the release of the iPhone 5. However, some products among our new 2013 spring models that went on sale from February 2013, such as the Xperia Z, have been enjoying great reviews. This resulted in a year-on-year increase in the number of net additions for FY2012/4Q, and improvement in our MNP performance compared to the preceding three-month period (FY2012/3Q). For these reasons, we believe we are beginning to see tangible signs of improvement.

Receive Email Updates

Receive email updates for selected press releases, operating data, and other information.