Japanese

Presentation Materials

• Questioner No. 1

  Q1 Please provide some background as to how you arrived at your full-year results forecast for FY2011. Following the earthquake, many investors doubted whether you would increase dividends, but you decided to do so nonetheless, while at the same time taking appropriate measures for disaster restoration and preparedness. Am I correct to understand that you made this decision due to some kind of change you have seen in your earnings environment, such as a slowdown in the pace of decline in cellular services revenues?

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  A1 One of our guiding principles is to lay out the proper groundwork for providing communication services to our customers, and we believe that this will also lead to improved customer satisfaction. Therefore, we will prioritize thoroughly restoring facilities damaged by the earthquake, and implementing the new measures for disaster preparedness. We came to the conclusion that the prospects for generating profits remained good, even after implementing these disaster-related measures, and decided on a dividend hike for this fiscal year because the telecommunications business is relatively resilient against these kinds of difficult circumstances, and as such, we continued to generate a steady level of income. We hope the increased dividends will help revitalize the economy, even in a small way.

  Q2 You mentioned that you will increase the variety of smartphones and tablets so they will account for half of the total number of models planned for release in this fiscal year, but why is their contribution limited to only 30% of your total device sales? Can you also give us an outlook of the total number of tablets you plan to sell in FY2011?

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  A2 We basically intend to sell as many smartphones as possible. The functionality of smartphones can be upgraded through downloading of applications, so we would like to offer models that can sell in large quantities. However, among all the products that we introduce, some may sell well but others may not.
  Regarding tablets, we will aim to sell approximately 800,000 units in this fiscal year. Our main target is enterprise users, to whom we will try to market tablets in combination with various enterprise solutions.

• Questioner No. 2

  Q1 Let me ask a question about your packet ARPU forecast. In your presentation, you mentioned that you are expecting a 90.0 billion yen increase in revenues from smartphones in FY2011. If I calculate backwards from that number, it seems like you are expecting that subscribers migrating from feature phones to a smartphones will have the effect of boosting the ARPU by 1,200-1,300 yen. Don't you think that estimate is too conservative? One of your competitors commented that it already achieved incremental ARPU of 1,500 yen from subscribers migrating from feature phones to smartphones, and the number may grow even further in the future. Is this because your forecast is based on conservative assumptions? Or, if there are any special factors, please let us know.

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  A1 The packet ARPU for FY2011 is projected to increase by 130 yen compared to the previous fiscal year, and the ARPU boosting effect resulting from subscriber migration from feature phones to smartphones is estimated to be approximately 1,500 yen. A sample survey we conducted in the past showed an ARPU increase of approximately 2,000 yen from such users, but the estimate for this fiscal year has been lowered to 1,500 yen, because the introduction of "Pake-hodai flat" is expected to dilute the ARPU by 500 yen.
  In addition to subscribers migration from feature phones to smartphones, purchases of a second mobile device, such as tablets, also contributes to packet ARPU growth, and we take a more bullish view of the projected contribution of such second devices . Therefore, we believe that our forecasts of packet ARPU growth and the ARPU boosting effect from subscriber migration to smartphones are comparable to those of other companies.

  Q2 With regards to LTE, Verizon has already sold some 500,000 units of compatible devices. As you started the service around the same time, I get the impression that there is some great difference in the speed of adoption between the two companies. In addition, it does not seem likely that you will roll out LTE-enabled handset type devices anytime soon. Can you comment on your future LTE strategy?

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  A2 Any LTE handset we sell must be attractive and excel in quality, and we are currently moving forward with product development aimed at allowing us to roll out such devices as scheduled. Some devices, such as Wi-Fi routers and tablets, are planned for introduction in the summer or autumn, and we will strive to expand these sales thereafter.
  In addition to devices, coverage and services will also play an important role in the widespread adoption of LTE. We are still in the process of expanding LTE coverage—which is currently limited to Tokyo/Nagoya/Osaka, and services and content that are exclusively available to LTE are still under development. In light of these restrictions, we believe that the current pace of uptake is reasonable.

  Q3 As far as I look at your cellular services revenues for FY2010, the impacts from the decline of ARPU and the increase of active subscribers have almost canceled each other out. If this is correct, I think you can conclude that the phase of declining revenues has come to an end. But your presentation on this occasion did not carry such a message. Don't you think you should have given a clear message that the downward trend in revenues has bottomed out, and this is why you decided to raise dividends?

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  A3 The aggregate ARPU is expected to hit bottom in FY2011, and start rising again in FY2012. We plan to keep a close eye on how things unfold during this fiscal year. Regarding the full-year outlook for FY2011, this is the first time that we expect to achieve an increase, albeit small, in both revenues and income since FY2003.

• Questioner No. 3

  Q1 With regards to the factors behind the year-on-year changes in operating income for FY2011, you mentioned that you plan to increase the expenses for the measures aimed at future growth by 50.0 billion yen. Please elaborate on the individual items comprising these expenses. Also, how do you think these expenses will contribute to your operating income growth for the next fiscal year and beyond?

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  A1 Measures for future growth are made up of various elements. To provide you with a rough breakdown, these include (i) investments and R&D outlays relating to service development projects for transplanting i-mode and various other new services into smartphones; (ii) R&D and content-related expenses for multimedia broadcasting service for mobile devices; and (iii) alliance building and content-related expenses for the three business areas that we are cultivating to create new revenue sources. For these activities, we plan additional expenses totaling some 50.0 billion yen. The actual returns will vary depending on how far we can expand our multimedia broadcasting service and the three business areas that we have targeted for new revenue creation.

  Q2 Were it not for these incremental expenses, don't you think you would be able to expect a higher income for this fiscal year? Am I correct to understand that you decided to allocate additional expenses toward these measures because your revenues are beginning to recover? Can I also understand that you will be able to achieve an operating income exceeding 900.0 billion yen in FY2012, by executing these measures?

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  A2 We have been focusing on these three business areas as new revenue sources ever since we formulated our medium-term vision. We will take appropriate actions to grow these three areas towards our goal of delivering tangible results in FY2012. In other words, we did not decide to make these additional expenditures as one-off expenses because we foresaw an improvement in our financial position.
  With regards to operating income for FY2012, we will work toward our target of achieving over 900.0 billion yen.

  Q3 It seems that you are anticipating a huge decline in communication network charges for this fiscal year. Is this because you are assuming a considerable reduction in the access charges of other companies, or are there any other factors?

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  A3 While we cannot comment on detailed figures, we assume that other companies will bring down their access charges by a rate similar to our 35% reduction.

  Q4 I believe that 35% was the rate of reduction you applied in the last fiscal year. Are you planning to cut your interconnection charges again this fiscal year?

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  A4 We have no choice but to decrease our access charges this year again. We will carefully examine the rate for this fiscal year, which we believe will have the effect to decreasing both our revenues and expenses by approximately the same amount.

• Questioner No. 4

  Q1 I believe you are planning to reduce your capital expenditures to below 700.0 billion yen in the next fiscal year following a temporary increase this fiscal year due to the impact of the earthquake disaster. Over the long term, do you foresee any impact on your CAPEX level from the disaster? Please comment on whether you have made any changes to your investment policies following the disaster.

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  A1 The disaster will not impact our log-term approach to capital expenditures. The facilities that were damaged by the disaster were mostly base stations. If the higher nodes had been affected, there might have been some impact on our long-term investment policies. It was fortunate that the damage was for the most part limited to antennas, because we believe we can repair them by implementing already planned restoration measures, or with new disaster preparedness measures. We hope to complete the execution of all these measures within this fiscal year, but some may be carried forward to the next fiscal year due to a lack of sufficient supply of batteries, or for other reasons.

  Q2 I think you are already paying a considerable amount in electricity charges, but do you foresee any risk of increased power supply costs over the long term?

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  A2 The large zone scheme with 360-degree antenna directivity that we plan to install as part of our new disaster preparedness measures will start transmitting radio signals only after occurrence of a disaster. Then, the transmission equipment will switch to a hot-standby mode, but this will not likely result in a significant increase in electricity charges. Batteries will require electricity when they are recharged, but once the charging is complete, they will not consume any more power. Therefore, we do not foresee any significant increase in electricity charges.

  Q3 I believe the losses incurred by India's TTSL have been expanding. What are the prospects for the next fiscal year?

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  A3 With respect to the outlook of TTSL's financial performance, we basically expect that it will continue to run at a loss for some time. However, the cellular penetration rate in India is still limited to 65%, and TTSL's subscriber growth rate shows no signs of diminishing constantly acquiring some 2.00 million net additions every month. However, competition in the market is fierce and the ARPU of the whole industry remains lower than our earlier projections, so it may take longer than expected for TTSL to become profitable. But we do not think this will diminish the financial position of the company to a level that will require us to take a pessimistic view.

  Q4 There have been reports about a corruption scandal involving the spectrum allocation by the former telecommunications minister of India. Please provide us with an explanation of the facts of this matter. Also, will this have any impact on TTSL operations in terms of compliance?

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  A4 There are many speculative reports, and we do not think we are in a position to comment on this matter, but we believe the truth will be revealed through the investigations being carried out by the parliamentary committee and the investigatory authorities of India. Judging from the current situation, we believe that the results of the investigations are increasingly pointing to Tata's innocence. Although we think the situation is turning out toward the better, we are not in a position to comment on whether this will be reflected in interests relating to spectrum administration.

• Questioner No. 5

  Q1 With regards to your FY2011 forecast, were it not for the 50 billion yen increase in expenses for future growth initiatives and the 20 billion yen impact from the earthquake disaster, you would be able to achieve approximately 920 billion in operating income, which exceeds your 900.0 billion yen target for FY2012. Can you explain what kind of steps you are planning to take to accomplish your goal of generating over 900.0 billion yen in operating income for FY2012?

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  A1 In FY2012, we would like to achieve a rebound in aggregate ARPU excluding the impact of the Monthly Support discount program. To this end, development of attractive services for smartphones is essential and we are actively working on this right now. As a result of these endeavors, we believe we will be able to achieve our operating income target of over 900.0 billion yen. We also intend to make proper spending to implement the measures that are required for the continual growth of our business.

  Q2 You mentioned that your aggregate ARPU will start rising again in FY2012 if the impact of the Monthly Support discounts is excluded. On a quarterly basis, when will it begin to increase?

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  A2 We would like to reserve comments regarding the timing of recovery on a quarterly basis.