Japanese

Presentation Materials

• Questioner No. 1

  Q1 I would like to confirm your basic approach to shareholder returns. Your last round of share repurchase was also done on a fairly large scale of 500 billion yen. When I look at your history, it seems that you have been conducting sizable share buybacks once every several years. Can you explain your basic policies for carrying out a share repurchase program?

  Open

  A1 This time, we received an authorization to repurchase shares for up to 500 billion yen. As you rightly pointed out, we conducted share purchase in 2014 for the first time after a long interval. Because our equity capital is so large, the program needs to be carried out on a certain scale to make a meaningful impact on improving the return to shareholders and our capital efficiency. We therefore have always thought that if we were to implement any share repurchase program, we would seek a certain scale. In scrutinizing the feasible size this time around, we took into consideration the amount of free cash flow projected for this fiscal year and the amount of cash required for our business operations, and concluded that we can spend up to 500 billion yen.
  What underlies this decision is our desire to improve our capital efficiency over the medium to long term in light of the recent improvement in free cash flow generation and overall business performance.

  Q2 Let me ask about the issue of rectifying excessive handset subsidies which had been discussed in conjunction with the new rate plan. What are your views pertaining to handset subsidies?

  Open

  A2 The main objective is to rectify the excessive cash rebates and unhealthy practices. As for the review of handset subsidies, starting February 1, 2016, we plan to in principle prevent handsets from being sold at a price below 0 yen. The new rate plan are scheduled for launch in March 2016.

  Q3 You mentioned that you will aim to acquire 3 million "d POINT CARD" subscribers within this fiscal year. What is the target number of "d CARD" (credit card) subscribers?

  Open

  A3 We currently have 16.11 million subscribers to "d CARD." The number of net additions for the third quarter of the fiscal year ending March 31, 2016 (FY2015) was 190,000. We hope to bring the total number of subscribers to 20 million as quickly as possible.

• Questioner No. 2

  Q1 Regarding the new rate plan, do you think you have completely responded to the issues raised by the government task force with the new package you announced today? Are you contemplating the introduction of a 1GB data package?

  Open

  A1 The new plan that we announced today was developed to allow customers with relatively limited data usage to utilize our services at affordable rates in the form of a family—shareable package—a rate structure in which we have particular strength. Many issues were identified in the deliberations of the government task force, including the offers for long-term users and low-usage customers. We believe these issues should be dealt with in the competition with other providers, and we will continually look into these matters so that we can deliver better outputs. The announcement of the new plan this time around does not mean we have exhausted all options.

  Q2 I do not think the newly announced "Share Pack 5" is likely to gain broad adoption. How do you estimate its impact on your results?

  Open

  A2 Its impact on the results for this fiscal year would be negligible as the scheme will commence only in March 2016, but there will surely be a negative impact as this is definitely a price reduction. On the other hand, the new package is also expected to bring positive effects on our results as it could induce feature phone users to switch to a smartphone. We will therefore keep a close eye on how things unfold in the future. In any event, we do not anticipate anything sizable like the negative impact caused by the introduction of the new billing structure in June 2014. "Share Pack 5" was designed to make it easier for those who had been hesitant to sign up for "Share Pack 10" or feature phone users contemplating a switch to a smartphone to join the service. If the conversion is realized, it will have a positive impact on our P/L. The downgrade risk of subscribers switching from "Share Pack 10" to "Share Pack 5" is considered to be insignificant.

  Q3 Please provide us with an explanation about the review of handset prices. According to press reports, it is rumored that you will raise the handset prices by 10,000-20,000 yen per unit. You mentioned that you will reduce the handset subsidies starting February 2016, but in practical terms, how do you plan to cut down on the subsidies and "Monthly Support" discounts?

  Open

  A3 The basic premise is that handset prices are set by the agent resellers, so we plan to adjust the handset prices by controlling by the amount of "Monthly Support" discounts. However, we do not intend to manipulate the commissions payable to agent resellers.

  Q4 Let me ask about the outlook for the full year. You will only need to generate 25 billion yen of operating income in the fourth quarter to achieve your full-year target, but you have not revised your guidance. Does this imply you are expecting some extraordinary expenses in the fourth quarter?

  Open

  A4 Based on the pace of operating income generation through the first three quarters, we believe there is a good possibility of achieving upside compared to our full-year guidance. However, it is difficult to precisely estimate the range of income as we are expecting an increase in the number of handsets to be sold in the fourth quarter—the most active season in the year. Still, we do not anticipate any extraordinary expenses in the fourth quarter, so the full-year operating income will likely end up higher than our minimum commitment of 710 billion yen.

• Questioner No. 3

  Q1 Even if there is an increase in expenses, I believe you will most likely generate operating income of some 100 billion yen in the fourth quarter. Thus, by simple calculation, your full-year operating income is expected to come in at the upper 700 billion yen level. This, I believe, will allow you to consider bringing forward the target date of achieving your medium-term operating income target of 820 billion yen. How do you view your business plan for the next fiscal year and your medium-term targets in light of your recent favorable performance?

  Open

  A1 Please wait until the announcement of the FY2015 full-year results for the details concerning the plans for the next fiscal year. Having said that, however, when the current trends are taken into consideration, we believe there is a good chance of achieving our 820 billion-yen medium-term operating income target earlier than initially planned. Yet, we need to carefully observe the variables, such as the change of handset sales method, the moves of our competitors with respect to rate plans and other factors, in developing the plan for next fiscal year. If the current trend can be sustained, we shall be able to expect strong results for next year's income.

  Q2 I know the renewed "d POINT" loyalty program was launched only a short time ago, but can you comment on your views concerning its "trade balance," i.e., the balance of the points that circulate inside and outside DOCOMO group, taking into consideration how the accumulated points are used for payment of phone bill or data top-up in 1GB units? Also, how do you think will such "trade balance" impact your financial results over the medium term?

  Open

  A2 Since it has only been a short while after the launch of service, we will need to fine tune how to circulate the points on an ongoing basis while carefully observing the trends. It is important that we strike a proper balance between the points utilized by our partners and those consumed within DOCOMO including the application to payment of phone bills. There are two business models; (1) a model in which we earn revenues by having our partners purchase the points, and (2) a model in which we receive commissions by allowing the points to be used as a means of settlement. We will aim to construct an appropriate collection model keeping an eye on the circulation of points inside and outside of our group. We intend to develop a business that can generate an adequate amount of profits.

• Questioner No. 4

  Q1 How should we evaluate your income-generating capability? In each of the first three quarters of FY2015, you have constantly generated some 200 billion yen in operating income. Your cumulative mobile communications services revenues for the first three quarters increased by approximately 30 billion yen over the same period of the previous year. In your current financial structure, can we assume that all the incremental revenues you generate will directly translate into incremental income, unless there is a huge increase in costs? If you can generate 200 billion yen or 250 billion of operating income every quarter, you shall be able to expect an annual operating income of 800 billion or 1 trillion yen. How do you assess your actual income-generation capability?

  Open

  A1 The recovery of telecommunications business has been sustained by the improvement of ARPU, which has been driven by the expanded uptake of the new billing plan. Although we expect this improved trend of ARPU to continue for some time, it will eventually level off once the majority of users complete the migration to the new billing plan. We plan to make up for the projected slowdown in ARPU growth by expanding the Smart Life business and Other businesses. These business segments have grown at a pace faster than planned. We expect the renewed loyalty point program, "d POINT"—which allows users to accrue points by paying with our credit card and use the points at greater number of locations—will provide us with an opportunity to boost the size of our credit card commission business. We believe we are well positioned to expand our income by moving ahead with the "+d" initiatives. We have hitherto increased our income by addressing cost reduction, but the key to growth going forward is how to expand the Smart Life business and Other businesses over the medium term.

  Q2 My question was about the projected size of operating income for the future. I understand that your previous annual target was 900 billion yen. Do you have any ambition to aim for a higher amount?

  Open

  A2 I construed that you are asking the range of operating income that can be generated in the fourth quarter. The operating income for the fourth quarter of FY2014 was limited to approximately 50 billion yen as as result of incurring impairment loss of some 30 billion yen from the business assets pertaining to mmbi, Inc. Had it not been for this impairment impact, the operating income for the period would have been approximately 80 billion yen. For FY2013, we generated 200 billion yen in operating income for each of the first three quarters, and about 130 billion yen for the fourth quarter. As we are operating a facility-based business, structually, we tend to incur a larger amount of expenses in the second half of the year than the first half due to the depreciation burden associated with the investments made in preceding periods. In order to fill in this gap, we have been striving to expand the Smart Life business and Other businesses. The operating income for the fourth quarter of FY2015 is difficult to estimate at the moment due to the uncertainties of handset sales during the peak sales season ahead. For this reason, we have decided not to revise our full-year operating income guidance.

  Q3 If I put together all your explanations concerning the newly announced rate plan and the new handset sales method, it seems that the new rate plan will negatively affect your ARPU because it contains elements of price reduction, while the review of handset sales method, which you plan to realize through controlling the "Monthly Support" discounts, will likely make positive contribution to your ARPU. At the end of the day, do you think the overall ARPU impact will be neutral, with the two factors (new rate plan and review of handset sales method) cancelling out each other? Which of the two will have a stronger influence?

  Open

  A3 That is a difficult question, but I think you made an accurate description about the basic framework. Because these actions will be undertaken amid competition, we will need to make appropriate responses in view of the competitive landscape, so we must further build up our cost competitiveness. We hope to offset the negative impact through cost reduction as much as possible. However, there is a possibility that the negative impact from the new rate plan may outwiegh the positive effects of the sales method review. As I just mentioned, we will try to absorb this with cost-cutting efforts to avoid any adverse impact on our income.

  Q4 Once you complete the 500 billion yen share repurchase program, you will be able to save dividend payout due to reduced number of outstanding shares. What are your plans pertaining to the use of the amount saved?

  Open

  A4 We will make a decision after comprehensively studying various factors. As you pointed out, as a result of a decrease in the number of outstanding shares, there might be a possibility to conduct a dividend hike, but the exact amount and timing of such increase will be determined in view of the prevailing circumstances. It is too early to comment at this juncture. We will first focus on properly executing the authorized 500 billion-yen share repurchase program.

• Questioner No. 5

  Q1 The pace of growth of "dmarket" subscribers seems to have slowed after a constant increase. If the growth moderates in the future, will you attach priority to expanding the usage and revenues per subscriber, or would you continue to seek further subscriber expansion?

  Open

  A1 When you look at the chart that plots the growth of "dmarket" subscribers, it may appear that the pace of growth has somewhat slowed. We believe it is important to establish a sales structure that will allow us to secure subscribers who will use our services for a long period of time, rather than indiscriminately pursuing subscriber count.

  Q2 Your competitors seem to be struggling in developing businesses similar to "dmarket." How do you analyze the factors behind your successful subscriber acquisition?

  Open

  A2 We have been working keenly to make our quality and services superior to those of the competition even by a small margin. We are trying to win the support of our customers by offering overwhelmingly strong products. The challenge we must tackle is to ensure attentive care to customers in our sales activities, so we can garner their usage for a long period of time.

  Q3 What is the level of churn rate of "dmarket" subscribers?

  Open

  A3 The churn rate of "dmarket" subscribers has steadily decreased as a result of our meticulous sales efforts.

  Q4 I understand that your student discount program and other discount campaigns are generally applied to handset purchases by new subscribers or handset upgrade. Do you have any plans to offer promotions that can cover your entire subscriber base including existing users to deal with the issue addressed by the government task force, i.e., how to value long-term users?

  Open

  A4 The negative perception concerning mobile services that was addressed by the government task force was the sense of unfairness caused by the privileges made available only to a limited segment of customers. The challenge that we need to tackle is how to eliminate the handset discounts that benefit only the frequent carrier hoppers using the Mobile Number Portability (MNP) system, and properly reward the long-term users. At the same time, we also need to review our handset sales method. Although the task force has not yet published its guidelines, we will make sure to be well prepared.

  Q5 At this point, do you have any plans to make an aggressive move against other carriers (e.g., launch a price discount)?

  Open

  A5 We have stated from before that we will refrain from excessive handset discounts such as cash rebates. We currently have no intention of taking any action inconsistent with this direction.

• Questioner No. 6

  Q1 How did the operating income for the first nine months of FY2015 fare compared to your internal plan? Can you also describe the progress vis-a-vis the plan by segment (Telecommunications business and Smart Life business/Other businesses)?

  Open

  A1 As we do not publicly disclose our quarterly income plan, we cannot give you any concrete numbers, but Telecommunications business and Smart Life business/Other businesses both delivered results better than our internal forecast.

  Q2 Can you give us your current estimate for the full-year capital expenditures?

  Open

  A2 We set a target of 600 billion yen for the full year of FY2015 and the progress hitherto has been in line with the plan. We had estimated that the CAPEX for the second half of the year would be larger than the first half due to the costs required for efficient roll out of a new network using the 3.5GHz band, which is scheduled to go live next fiscal year, and the PREMIUM 4G service that was commenced in the fall of 2015 to offer Japan's fastest transmission speed of 300Mbps. We will continually work to improve the efficiency of our capital investments, aiming to bring down our annual CAPEX to below 600 billion yen if possible.

  Q3 At which pace do you plan to buy back shares under the share repurchase program announced today?

  Open

  A3 Nothing has been decided with respect to the repurchase method. However, based on the experience from the last repurchase, we are aware that there is a limit for the daily trading volume in case of repurchase from the market. Because of this restriction, we set a relatively long repurchase period (from February 1 to December 31, 2016).

• Questioner No. 7

  Q1 Regarding your ARPU, the growth seems to have moderated between the second quarter and the third quarter after recording a constant increase. Can you explain the reason for this?

  Open

  A1 The increase in voice ARPU between the first and second quarters of FY2015 appears to be steep, because the first quarter ARPU was negatively impacted by the one-time irregular factor of adjusting for "Zutto Kurikoshi" service that allows perpetual carry-over of unused communication allowances. The effective increase in voice ARPU after correcting this impact would be about 50 yen excluding the impact of the various discount programs. The growth from the second quarter to the third quarter of FY2015 was 10 yen. Therefore, the voice ARPU continued to increase, albeit at a slower pace. Also, the packet ARPU for the second quarter may have been boosted by a seasonal factor of increased data usage resulting from many users taking summer holidays. However, the ARPU so far has been faring slightly higher than our full-year forecast.

  Q2 Does that mean we do not have to be overly concerned about the slowdown of ARPU growth? Although there might be slight ups and downs, can we expect the current improvement trend to continue for some time?

  Open

  A2 We are not concerned about the performance for this fiscal year. However, for the next fiscal year, there are still many uncertainties about the factors that could impact the ARPU, such as new developments in response to the government task force discussions. We will give you a more detailed explanation after developing next fiscal year's business plan.

  Q3 Can we expect the pace of subscriber acquisition of "docomo Hikari" optical-fiber broadband service to gain further momentum as a result of improved sales efficiency? Please also explain your plans relating to retail electricity business.

  Open

  A3 We have implemented various measures for "docomo Hikari," dispatching helpers from the third quarter of FY2015 to strengthen sales activities, and revamping docomo Shops where sales had been sluggish. These measures are beginning to deliver tangible results. And we will continue to step up these measures to further grow our sales. We will aim to accelerate sales in the fourth quarter as we believe the next 1-2 years will be the most crucial period for "docomo Hikari."
  At present, we are still studying our approach to the liberalization of retail electricity market. We are not interested in offering simple bundle discounts. We rather intend to make valuable offers centered on our services. The potential format of such service may include a joint payment scheme introduced as part of our "+d" strategy, or reinforcement of loyalty point alliances. In fact, we have already started collaborating with Chubu Electric Power Co., Inc., Tokyo Gas Co. Ltd., The Chugoku Electric Power Co., Inc. and The Kansai Electric Power Co., Inc. on loyalty point programs. The second axis of our approach is how to offer highly value—added in—home services to customers. We are currently exploring the possibilities of retail electricity business. We would like to keep a close eye on future developments in the market, including consumers' reaction to the plans that have already been announced by other market entrants.