Japanese

Presentation Materials

Analyst Meeting Q&A (Earnings Release For the Nine Months Ended December 31, 2018)

Announced on Feb. 1, 2019

Please be advised that the following text has been edited/modified from the original Q&A conversations for the sake of clarity.

Opening comments

Before going into the Q&A session,I would like to spend a few more minutes to comment on some of the questions that we have received during the 3Q.

First, I would like to touch upon the objectives and timing of the "customer return measures of up to 400 billion yen." On January 17, the Ministry of Internal Affairs and Communications finalized and presented a new regulatory framework known as the "urgent proposal for rationalizing mobile services, etc." The proposal has two pillars. As you are aware, one is the realization of "rate plans that are simple and easy to understand" and the other is "ensuring appropriateness in the business operations of sales agents".

Media reports are generally written from the perspective of consumers, focusing on the "ban of bundling service charges with handset prices" and the "contraction of handset market as a result of soaring handset prices. "However, when we look at this regulatory change from a competitive policy perspective, the "complete separation of telecommunications service charges from handset prices" (1-(1) of Urgent Proposal) and "ban on excessive time-binding contracts" (1-(2) of Urgent Proposal) can be construed as measures aimed at prohibiting or restricting the retention measures promoted by the carriers hitherto. It is thus obvious that the regulatory authority's primary aim is to ensure equal footing with MVNOs and new entrants or to promote competition in the market.

Now that smartphones are widely used among the population, we have received complaints and criticism against our rate structure due to its complexity, incomprehensiveness, lack of fairness and relatively expensive rates. Amid this environment, we are about to experience a major change in the regulatory framework and the entry of the fourth player in the mobile market. When we look at precedents in Europe or the United States, markets with four mobile players have seen a significant reduction in mobile rates and a huge volatility in market share distribution. We therefore considered that the impact of the new entrant must not be underestimated. By announcing a large-scale customer return program ahead of the competition in light of these changes in environment, we intend to clearly present our position as a "market leader" to win greater confidence and understanding from our customers, so we can take an initiative in the competition ahead.

Second, I would like to talk about the "path to profit recovery after introducing the new rate structure." We have received complaints for "too limited information disclosure" and we feel very sorry about that. But at this juncture, it is too early for us to give you any indication on the "P/L impact of the new rate structure" and the "path to profit recovery". Accordingly, we would like to ask you to wait until the FY2018 full-year results announcement because we plan to present the guidance for FY2019 on that occasion. Having said that, however, I would like to add one comment, which is about the role of "telecommunications business" in our profit recovery. Under the new regulatory framework, the effects of the "retention measures" of each carrier is expected to become weaker, which will likely result in higher user liquidity. DOCOMO will not only take the lead in reducing our rates but also evolving our customer touchpoints (e.g., shortening wait time/attendance time) and proactively use micromarketing to further enhance customer loyalty, thereby defending our telecommunications customer base.
Also, as we still have a large number of feature phone users on our network, we will focus on revenue growth and upsell activities by strongly promoting their migration to smartphones, leveraging the upcoming rate revision. Furthermore, given the projected decline in business revenues, we cannot spend costs the same way we did in the past. We will pursue a drastic operational reform both in our sales and network-related units to achieve cost reduction.
By driving growth with the "two wheels" of telecommunications and non-telecommunications (e.g., Smart life, corporate and 5G, etc.) businesses to deliver profit improvement, we will strive to recover our operating profit to 990 billion-yen as early as possible.

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