Japanese

Presentation Materials

• Questioner No. 1

  Q1 The number of net increase in subscriptions that you acquired in FY2017/1Q appears to be small. Of the these net increases, can you give us a breakdown between DOCOMO brand and MVNO subscsriptions? Meanwhile, the churn rate seems to have increased. Can you also explain the reason behind this?

  Open

  A1 The number of net increase in subscriptions we acquired in FY2017/1Q was 230,000, recording a decline compared to the same quarter of the previous fiscal year, due primarily to two reasons: (i) a decrease in communication modules sold, and (ii) slower-than-anticipated growth of MVNO subscriptions. While we would like to reserve comments on the breakdown between DOCOMO brand and MVNO subscriptions, the number of net increases excluding the MVNO subscriptions was in slightly positive territory.
  The increase in the churn rate was mainly attributable to the rise of contract cancellations in the months of April-May 2017 in reaction to the expansion of tablets sold during the peak season of spring 2015 as these contracts came up for renewal this year. However, the impact of this irregular factor has been eliminated from June 2017. We therefore aim to secure a solid number of net increases through tablet sales throughout the rest of the year.
  The churn rate of handsets, on the other hand, has been improving. We are seeing a favorable trend with the numbers of port-outs and cancellations faring lower compared to the same period of the previous fiscal year. We believe the retention measures that we have implemented over the last two years, our "Smartphone Debut Discount" and other initiatives designed to encourage users to switch from feature phones to smartphones as well as the diversification of our billing plans have lead to this improvement.

  Q2 ARPU excluding the impact of various discounts seems to be stagnant. Can you give us more details?

  Open

  A2 The voice ARPU for FY2017/1Q excluding the impact of discounts dropped by 20 yen from the same period of the previous fiscal year due mainly to our aggressive rollout of customer return measures. While our upsell efforts and other factors positively affected the ARPU, the negative impact has outweighed the positive elements thus far.
  The packet ARPU for FY2017/1Q excluding the impact of discounts also recorded a year-on-year decline of 20 yen. Similar to voice ARPU, the main reason behind this drop was the negative impact from the customer return measures, etc., which could not be completely offset by the positive impacts from our upsell activities and other initiatives.
  The customer return measures more significantly affected the packet ARPU than voice ARPU.
  Finally, in comparison with the previous quarter, data inclusive of irregular factors show a 50-yen increase for voice ARPU, but a decrease of 130 yen for packet ARPU.

  Q3 How do you assess the impact of "Ultra Pack"?

  Open

  A3 The contribution from "Ultra Pack" is included in the impact of the customer return measures that we explained earlier. We would like to reserve comments on concrete numbers including the actual amount of impact.

• Questioner No. 2

  Q1 Regarding the ARPU excluding the impact of discounts, when you take into consideration the strengthening of your customer return measures and also given that you cannot expect a huge increase in the number of subscribers switching to smartphones in the future, do you think your ARPU will remain flat at best going forward? Or do you believe there are opportunities to achieve further growth?

  Open

  A1 It is somewhat difficult to comment on the medium-term ARPU outlook because this relates to the future. First of all, I hope you would understand that the rationale behind our aggressive customer return measures is to expand our customer base—the source of our future revenues. Naturally, these measures are not intended for simply providing customers with discounts; we are aiming to secure and expand our customer base through these initiatives.
  With the aim of boosting ARPU, we are encouraging subscribers' migration from feature phones to smartphones through new measures like "Smartphone Debut Discount" and "docomo with". We are also working to increase the usage of "DAZN for docomo" and other large-capacity content services offered in Smart Life business to stimulate packet consumption, thereby upselling customers to larger data plans.
  The implementation of customer return measures will be determined by the competitive dynamics, but we basically plan to grow our overall business by properly controlling the negative revenue impact of the customer return measures. Our goal concerning the ARPU at this point, in light of the projected softening of the negative impact from "Monthly Support" discount program, is to maintain the current level or achieve a slight increase over the medium term. We expect that our aggregate ARPU will grow at a moderate pace going forward due primarily to the contribution from docomo Hikari ARPU.

  Q2 The impact of "Monthly Support" discounts on your ARPU has decreased over time. Once things settle down after the implementation of the current round of customer return initiatives, at which level do you think the "Monthly Support" impact will stabilize? The impact of "Monthly Support" has come down after you started rolling out the customer return initiatives last year, and you are projecting a full-year ARPU impact of 980 yen for FY2017. I assume the impact will continue to decline going forward, so could you give us an indication pertaining to the impact for FY2018 and FY2019? Conversely, at which point do you think the improvement will come to a halt?

  Open

  A2 This fiscal year, we foresee that the negative impact from the "Monthly Support" program will improve by a total of some 100 billion yen. Although the pace of improvement is expected to slow down gradually after next year, we can expect a certain degree of improvement to continue through around FY2019. Allow us to reserve further comments concerning the amount of ARPU impact.

  Q3 In a nutshell, I construed that your ARPU will keep expanding and will not fall, because the impact of "Monthly Support" discounts will continue to improve and your ARPU excluding the impact of discounts will stay flat or grow slightly. Is my understanding correct?

  Open

  A3 Besides "Monthly Support", the size of our customer return measures is another factor that could potentially affect the ARPU. We mentioned earlier that we plan to properly control this. We will take necessary actions, if the customer return measures cause a steep decline in ARPU to significantly impact our overall revenues. We do not intend to pursue a strategy that will shake our foundation.

  Q4 Based on your previous comment, I interpreted that you are anticipating a growth trend for the ARPU. Is it not the case?

  Open

  A4 That is the trend the management is planning to create. However, we will need to keep a close eye on how the competitive landscape unfolds and make decisions accordingly. How successfully can we respond to the competition is of vital importance.

  Q5 I understand that the sum of i-mode and sp-mode subscriptions represents the size of your customer base, and this number recorded a decline from the previous quarter. We see a continuing trend of increased sp-mode subscriptions falling short of making up for the decline in i-mode subscritpions. This trend appears to be contradictory to your earlier comments, e.g., your "customer base is expanding" and you "secured net positive DOCOMO brand subscriptions despite weak net additions performance." What do you think?

  Open

  A5 The combined subscriptions to i-mode and sp-mode recorded a net decrease due to the irregular factor in the first quarter, i.e., the large amount of churns of tablet subscribers using sp-mode upon the timing of contract renewal. As this irregular factor ceased to exist after June 2017, we will strive to secure net additions for the full year.
  Please also be aware that the total number of our handset/data plan subscriptions includes a considerable number of enterprise accounts without any i-mode or sp-mode subscription. I hope that you will understand that the combined i-mode and sp-mode subscription count reflects such accounts.

• Questioner No. 3

  Q1 Can you explain the overall picture, including the timeline, as to how you plan to balance the amount spent for customer returns with reduced handset subsidies (including the savings of "Monthly Support" discounts)?

  Open

  A1 The implementation of customer return measures will have a negative impact on our P/L for the current fiscal year, but the positive impact from savings on handset subsidies realized through reduced "Monthly Support" discounts will be spread out over a span of two to three years. As these two will not balance out in a single year, we will try to make up for the shortfall through cost efficiency improvement. Customer return measures executed in the last fiscal year and this fiscal year had a negative impact totaling 50 billion yen and 10 billion yen, respectively, in FY2017/1Q, while the positive impact from reduced "Monthly Support" discounts was comparatively smaller. For the full year, we expect the impact from customer return measures implemented in FY2016 and 2017 will total 300 billion yen. Because the savings from "Monthly Support" alone is insufficient, we will try to strike a balance also through cost efficiency improvement.

  Q2 Will you be able to achieve a state of balance with the 90 billion yen cost efficiency improvement planned for this fiscal year?

  Open

  A2 The 90 billion yen cost efficiency improvement is of course one of the important funding sources, but we will also aim to boost our income through various management efforts including upsell activities.

  Q3 You mentioned that the effects of "Monthly Support" reduction will be split over two to three years. Will it be correct to construe that you expect to achieve a better balance between customer return measures and reduction of handset subsidies in a few years from now?

  Open

  A3 That is correct.

  Q4 Smart Life business recorded a decline, but Other businesses posted a significant growth in income. Can you explain the reasons behind the performance of these two segments?

  Open

  A4 As for Smart Life business, the drop in operating revenues was due mainly to formality requirements, i.e., the change of accounting treatment at our group company, D2C Inc., from previously gross amount to net amount revenue/expense recognition, which resulted in a negative revenue impact of approximately 10 billion yen. Operating income was affected mainly by three factors. The first one, which is a proactive reason, is the expenses required for the launch of new services, such as customer acquisition costs and marketing expenditure. Specifically, we expect an expansion in businesses like "DAZN for docomo" and "DOCOMO Insurance Consultation" services. Meanwhile, we are also revamping our existing services through the enrichment of our content portfolio and other means. The second factor is the contribution from our group company, Oak Lawn Marketing, Inc. With the demand for popular products leveling off, the income from this company recorded a year-on-year decrease in FY2017/1Q after also marking a decline in the previous fiscal year. However, as a result of the various initiatives we have implemented, the downtrend has already stalled, and we expect to see an improvement in the subsequent periods. The third factor is related to the procedural change in accounting treatment of deferring the revenue recognition of dCARD GOLD membership fee for 12 months, which had a certain impact on our income.
  Among the various components comprising Other businesses, "Support Services for Customers' Peace of Mind" have shown a remarkable growth. The total number of "Anshin Pack" subscriptions, while continuing to increase, has reached a considerable size. Thus, cost efficiency improvement is expected to have a greater impact on its future income growth. Specifically, the improvement of handset failure rate, use of refurbished products and our other endeavors have begun to deliver results.
  The "Support Services for Customers' Peace of Mind" accounted for approximately 35% of the total operating income from Other businesses, and "Enterprise Solutions" also made meaningful profit contributions.

  Q5 Operating free cash flow, which you raised as your managerial target in your Medium-Term Strategy 2020, "Declaration beyond", recorded a decline in FY2017/1Q due to the irregular increase in capital expenditures. Can you explain the full-year outlook?

  Open

  A5 At this juncture, there are no changes to our full-year operating free cash flow projections. We are confident about its recovery and the attainment of our full-year guidance which projects an increase from the prior year. The FY2017/1Q capital expenditure recorded an increase because the amount for the same period of FY2016 was relatively small. We will properly manage our capital expenditures throughout the rest of the year, so we can achieve the operating free cash flow target as planned.

• Questioner No. 4

  Q1 Regarding your billing strategy, the Ministry of Internal Affairs and Communications (MIC) announced earlier this year that they will stay vigilant to determine the need of introducing a mechanism to ensure that the billing plan subscribed by each user is optimized according to their actual usage. What are your thoughts about this?

  Open

  A1 The MIC provided us with explanation in a briefing session. According to the explanation, we understand that there were discrepancies between customers' actual data usage and the billing plans of the three mobile carriers combined. We, at NTT DOCOMO, have already started the migration to the "Kake-hodai & Pake-aeru" billing scheme, and have aggressively promoted the "Share Pack" which allows sharing of packet allowances among family members to eliminate waste. As a consequence, we found no significant disparity between the billing plan our customers subscribe to and their actual usage. KDDI recently introduced a new billing plan, but as we do not foresee any immediate impact on us from this new scheme, we will continue to closely track the developments in the market.

  Q2 With respect to your churn rate, you mentioned the churn rate of tablet users increased in FY2017/1Q. Did the actual number of tablet subscriptions register a net increase in FY2017/1Q?

  Open

  A2 Yes, we recorded a net increase.