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Edited Transcript of 9434.T^H05 earnings conference call or presentation 5-Aug-19 7:00am GMT

Q1 2020 SoftBank Corp Earnings Call

Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of SoftBank Corp earnings conference call or presentation Monday, August 5, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Junichi Miyakawa

SoftBank Corp. - CTO & Representative Director

* Kazuhiko Fujihara

SoftBank Corp. - CFO, Executive VP & Director

* Ken Miyauchi

SoftBank Corp. - CEO, President and Director

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Conference Call Participants

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* Daisaku Masuno

Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan

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Presentation

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Unidentified Company Representative, [1]

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Ladies and gentlemen, thank you very much for waiting. We would like to start the presentation of earnings results for the 3 months ended June 30, 2019, of SoftBank Corp.

First of all, I would like to introduce to you the attendees from the company. From your right, President and CEO, Mr. Ken Miyauchi; Representative Director and CTO, Mr. Junichi Miyakawa; Board Director, Executive Vice President and CFO, Mr. Kazuhiko Fujihara.

The presentation today is streamed live on the Internet. Now Mr. Miyauchi will be providing you the presentation on the earnings results as well as their business.

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [2]

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Thank you very much for coming out of your busy schedules on such a hot day. I would like to start my presentation on the earnings results of the first quarter. Compared with last fiscal year, with consultation of Yahoo Japan, we were able to increase the revenue by 32%. Even after the adjustment, it is up 6%. If you look at the revenue, in all segments, we were able to see increase in the revenue. In that sense, we were able to steadily grow.

There is one material that I would like to show you which is very important. Inclusive of consultation of Yahoo Japan, SoftBank Corp.'s sources of revenue has been diversified. Mobile for consumers is 36%. Included here are various services like the guaranteed pack. So if we exclude that, that would be about 30%. In addition to that, Yahoo, Distribution, Enterprise and broadband segments. We have a diversified sources of revenue, which is well balanced.

In terms of operating income, compared with 2 years ago and last year, it has gone up 22%. So even after the adjustment, it has gone up by 4%. So we have been able to grow steadily in terms of the operating income.

So in Distribution, Consumer, JPY 220 billion plus in the existing business. And then in the new businesses, including Yahoo and PayPay, we have seen some upfront investments. So the upfront investments was about JPY 7.1 billion. And because of this, the operating income was JPY 268.9 billion.

Next is net income. So compared with last year, it's 6% up, and comparison after the adjustment is up 2%. So this is a chart of what I have explained. I think that you have already seen this. The revenue was JPY 1,164.9 billion, the operating profit was JPY 268.9 billion, and net income JPY 164.8 billion. Even after the adjustment, the figures are in the positive side.

The target that we have of JPY 890 billion for operating income and JPY 480 billion for net income for fiscal year 2019, we are progressing very steadily. For operating income, the progress rate is 30%. Net income, the progress rate was 34%. So we are progressing better than the forecast.

Another point that you are well aware of from R&I and JCR, we have been able to receive ratings A+ and AA- respectively, and it's quite high. Yahoo Japan has received a credit rating for the first time from R&I, A+. And from JCR, it's 1 notch up, AA-. So as SoftBank and Yahoo Group, as a group, we are doing very well.

So we have telecommunication business at the core and Yahoo. And as I will explain, new businesses, including AI and technology new joint ventures. Those 3 will be our pillars to go or Beyond Carrier. We have been saying about Beyond Carrier for 2 years now and now we have clearer picture.

So we would like to grow in line with our growth strategy. Now as part 1, I would like to deep dive into telecom business and give you some breakdown.

This is Consumer business. The revenue for the first quarter was JPY 658.1 billion, and the broadband and mobile are going up steadily even though sales of goods and others have gone down slightly.

And in terms of smartphone cumulative subscribers, we were able to grow by 8%, up 1.74 million subscribers. SoftBank, Y!mobile, LINE MOBILE, we have 3 brands which we market. So for each of the brands, we have been able to grow steadily for each brand.

From June 12, we started Smartphone Debut Plan. This is going better than the plan. The reason why we have Smartphone Debut Plan is that there are 30 million feature phones remaining in the 3 main carriers. We would like to switch them all to smartphones. So we created a Smartphone Debut Plan which has low entry barrier and the subscription is growing steadily. And in MNP we have been able to capture the customers from other carriers. So for July we are seeing better results.

In broadband, SoftBank Hikari and Air have gone up 15%. It is growing steadily. And in the future we would like to get to 10 million in terms of the cumulative subscribers. I think that we would be able to accomplish this.

Next is the Enterprise business. We have mobile and business solution and others. Fixed line, by the way, is flat, but business solution is growing significantly and mobile is also growing nicely so we have been able to increase 5% in revenue.

In terms of Enterprise smartphone subscribers, we are always checking to see what is the percentage of smartphone subscribers. It is now 54%, so it is growing. The other day, we have talked about this is the age of digitization and digital marketing, and this is the message that's always been sent out.

In that sense, it's important that all employees use smartphones as their business handsets. And our activities to penetrate smartphone users is working well, and there's steady increase. As for business solutions, it's up 24% year-on-year. This, I believe, will become our big driver for growth. So whether it be digital marketing or IoT or AI, we have many new areas, which we can continue to expand.

The other day, and perhaps some of you here have seen this as well, but we hosted SoftBank World of 2019 on July 20 -- I'm sorry, July 18 through 19, which we do annually. We have a new attempt and many people viewed it. What I want to say here is that up until last year, online dealing wasn't done much. The venue, we do select the biggest venue in Tokyo. It's always full house, and it's always just overcrowded. So we have decided that not just the keynote speeches but all lectures and sessions would be open and viewable online, and we had now 100,000 online views. And I think we have been very successful in this event, and there was a lot of media exposure as well. So compared to last year, I would say more than 78x people were able to view this event, which is great for us.

And the main theme I have been talking about how we want to continue to grow Enterprise. And I say this because the social issues in Japan -- and you are the professionals, so you know this very well, but we see workforce shrinking. We had natural disasters. For example, last year, a year before, we have many, many natural disasters. We have aging infrastructure, illness, lifestyle diseases. And these are all social issues that are leading to economic losses. And it is the digital world that can solve these issues. We will do 5G. And with 5G network, IoT will spread very rapidly. And with that, we can resolve these social issues. This is the, I would say, the greatest challenge of enterprise and network teams of SoftBank, and that is why we are trying to work on this. So with leveraging technologies, we will solve social issues, and this is where our business opportunities exist enormously.

We have a little chart here, but the main industries we want to target will be retail and distribution. The supply chain will change significantly going forward. Real estate construction as well. They're dependent on manual forces. Same thing with services, tourism, health care. Wherever there's much dependency on human labor -- manual labor, we would leverage IoT, Internet and AI. We will -- taking all the big data there, and we will then be able to give a relief to the economic losses. So this is a cross-industry project which are launching starting from logistics into infrastructure. We will bring in our telecommunications capability, payment capability. And to say furthermore, we have maybe 100 companies or so that we are investing in today. This will probably reach 100 in the near future, and these are unicorns that are successful in the digital world. They will work with us to solve these issues.

Just the other day, we announced this in this enterprise meeting that we had, that we have 35 large projects in progress and there are 17 projects that will be monetized that will become a reality by 2020. Now if they are completely coming to place, then all these projects are monetized, and they will become a significant thing. So with this, we will be able to double our profit in Enterprise business. So that is how the telecom business will grow. We will continue to grow our existing telecom business, but we will also carry out project that will solve social issues that will also help grow telecom business, in particular SoftBank 5G.

Today, there is an article about how the Japanese management has less awareness on 5G. I believe that 5G has capabilities to fundamentally change the society. We have Miyakawa here today because I want to prove and demonstrate to you how much emphasis we are putting on 5G and what momentum we have.

Just the other day, we have rolled out our 5G precommercial service at the music festival in Japan called Fuji Rock Festival '19. I think it was in Niigata and Roppongi Hills, where the carrier is, that we linked the 2 venues. And we -- they can watch the VR and feel as though they are there in reality and enjoy this music festival. If you can perfect this, then wherever you are in Japan, you can enjoy this exciting shows and festivals like this. You can view this anywhere you are. Now this is a pilot program, but we can apply this to health care and other industries as well. So this is a technology that can respond to all the social issues that I have mentioned earlier.

With regards to 5G network, at least within 3 years, as quickly as possible, we want to roll out 5G network. If you have the smartphone, you can do 4G today, but you see 5G on your smartphone wherever you go in Japan. In addition to that, the infrastructure. So for example, bridges, there's landslides in the mountainside. In order to check the infrastructure, we can use 5G as a mechanism to do so and that is why we want to make 5G nationwide.

So for -- on a day-to-day basis, we are head to head in competition with KDDI. But as for the base stations in rural areas, we have decided that we will tie up with KDDI for the mutual use of other assets so that we can realize efficiency in CapEx. And there are many plants in the rural areas and regions. We can embed sensors in all these plants, and they can carry out e-manufacturing in these areas or the supply chain distribution network will be requiring 5G as well so we can build resilient and robust network. So on a day to day, we're competitors. But if we want to quickly roll out this network and to be competitive in the world, we have decided that we will partner with KDDI and the mutual use of the assets. And in fact that this autumn we have started joint trials and I believe there will be a time when all of this will contribute to many areas. So this is the telecom business. That's the part 1, the very bottom of it.

Next, I would like to move on to talk about Yahoo. So recently, there was announcement of the earnings results. The revenue has gone up 3%. Especially in the area of commerce, there was a very good growth, the amount of volume handled in e-commerce by Yahoo. So we are linking it with SoftBank, and ID linkage has been done in the volume of 15 million. So this is the slide that I wanted to show you. The e-commerce transaction volume is up 9%. So e-commerce has been -- steadily been increasing. Yahoo Japan's monthly log-in user IDs, it was up 11%. So number of IDs are also steadily growing.

One thing I would like to say is, by having Yahoo as our subsidiary, we can do the following: we can create a future others cannot copy. Yahoo is a big data company. There are many traffic. And all of the Japanese people are using Yahoo services in some way, for example, search engines. But we will be growing the e-commerce going forward. So big data will be very important. So big data from Yahoo and SoftBank has the telecommunication call capabilities, 5G, smartphones. We would like to grow in these areas. And in addition to that, we have AI companies.

The SoftBank Group's Vision Fund portfolio companies, they have cutting-edge technologies so we are able to combine this. We can do a lot of initiatives in a rocket start in short amount of time. So with that support, Yahoo will be able to grow their business steadily. So we want to grow Yahoo business.

The third area is the new business. I think majority of you know about our new business. And first is PayPay. It's a smartphone payment service. It's growing very well. It's growing on everyday basis. So the announcement at the time of Yahoo and other announcements, compared with that, it has been growing even more than that. So we have 9.8 million registrations. So I have said that I want to have the registration amount of 1/3 of the population, but it's a very big number. I think that we can grow it even more.

So when there was a drastic growth, there were some things that -- some complaints made to us for the 10 Billion Campaign, which had to be finished in 10 days. But we have been conducting various kinds of campaigns, which would increase the frequency of use of PayPay.

So today when I left the office, I was able to check the most recent number. And in the 10 months after the launch of service, the number of payment, cumulative number of payment have -- had been 100 million times. So it's a commemorative day. So we have this huge momentum. PayPay will be expanding the cashless payment arena. So a lot of people say many things, but I think that this momentum should be continued.

So this is the recent PayPay campaign. Maybe you have used this (foreign language) PayPay Campaign. So a 20% -- the maximum of 20% PayPay bonus in restaurants and supermarkets. And this month, at maximum 20% of PayPay bonus if you use it in convenience stores, et cetera.

So the habit of use will be expanded because you can use it in all of the major convenience stores and 90% or so drugstores enable the use of PayPay. So we have been able to increase the frequency of use. We have been cultivating the user habit. And for -- we are enabling the use in the online service in Yahoo Auctions or Yahoo Shopping. And from the fall, we will start new e-commerce service online, for example, PayPay Mall or PayPay flea market. And so that's what we will be doing.

And another important point that I will like to mention is that our smartphone users, 50% register credit card and up -- 40% maybe and 60% bankcards. And now we will enable something closer to post pay where you would be able to pay with PayPay when you pay for your smartphone service fee. So I am connected with my -- connected my PayPay with banking account to top up my account in PayPay. But SoftBank smartphone users, Y!mobile smartphone users, they would be able to link the payment of the service fee to pay for PayPay.

Next is WeWork. And we have launched the service for 1 month -- 1 year and 4 months, and now we have 15,000 members. So the momentum is very high for increase in the numbers. In Shizuoka City, NETI officials are using WeWork. And the Shizuoka City has been able to have a networking experience with 300 companies in 6 months, so this is a tool for communication intercompany.

Hokkaido Gas. They have met 70 companies. Onward Company -- ONWARD KASHIYAMA Corporation. Because they have been -- they are able to host seminars, they have been able to promote high traffic to their sites. So we conducted a survey on the contribution of WeWork to their business. 80% of the people replied that it contributes positively. It changes their work style. But more than that, they have been able to grow through usage of WeWork. We have 5 cities and 19 locations. We are still expanding, and it is growing steadily. They have hardly any vacancies, so we're starting out strong.

Next fall, our headquarters building will be powered by WeWork -- or by Wii, and we will have WeWork in there as well, and that's our showroom, and I think it will help us expand furthermore.

Next is OYO. OYO Hotels have started. OYO Hotel globally in 1 year has grown by 8x, and they have 1.1 million rooms altogether. So they're #1 in terms of hotel rooms. So this is -- Marriott is #1, and they are just quickly catching up. And what's really amazing about them is that -- hotel industry is very weak in IT. Top class hotels do well with IT implementation. But with OYO Hotels, if you have a smartphone and OYO apps, then the user who wants to stay in a hotel and the hotels can be linked. And then whether it be employee education or if they need to renovate the old hotels, the speed of the renovation is somewhat slower in Japan. But whether it's India, China or United States, they can upgrade it -- renovate it just within 3 weeks.

At the same time, many users will look at this. And they will see that AI, heat map, dynamic pricing, and they will be able to see that there are many cheap hotels. They range at JPY 3,000, JPY 6,000. A full-scale opening is actually September, but they have now more than 80 hotels that are operating under OYO in Japan. So you still have to go to the English site. And if you have to click on Japanese, then you can see the Japanese site. But the Japanese website will also start to run in full scale. So they can see which was used to be 30%, 40% can improve, and they -- we have received the report that the vacancy rate has fallen to 20% or so. So the occupancy is very high now.

So this is like a preparatory start. It's actually 2 months start already, and they're already at scale. And this is because they work with the Vision Fund team and it's Yahoo's capabilities in network. In terms of sales and marketing and network, it's SoftBank. And so with this combination, we can rocket start. A lot of people were not able to believe that we were able to do this, but I think we have now come to a point where people can believe in us.

Next is DiDi, this is a taxi-hailing platform. This is supposed to start in October, and so it's been 10 months since we have announced this. In terms of number of monthly downloads, we're #1. When we started, maybe we only had 4 or so. So we were very low ranked, #4, but grew it very quickly, and we're now #1 just after 10 months since launch. As you can see here, we have expanded to 9 areas. This speediness is important. The world of digitization, digital business, you can create this speediness. The world of non-digitization, you cannot realize the speediness. So you're linked with taxi company, and the taxi companies become digitized. And that's why we have been able to expand to 9 areas. We plan to expand to 13 areas this year so we can rapidly expand our service area.

So the new business domain, new areas, as you can see here, this is all in collaboration with SoftBank Vision Fund. So we have so far 4 joint ventures, and there are a few others, which we cannot announce yet because this is presigning. But in terms of collaboration, there's about 5. So I would say maybe about -- we have plans to do some sort of business in Japan with 9 unicorns. And I -- we're all -- there's a lot in the pipeline, so we will continue to increase the number of partners. But aside from that, we also have MONET, Cybereason, HAPS, J.Score. The list is here. There are many other partners. SoftBank Robotics, we will continue to collaborate with them so that we can grow our all 3 businesses.

So with smartphones, we can grow our business with a number of smartphone penetration or smartphone users. And at the same time, we can collaborate with new unicorns so that we can advance our businesses. So growth strategy is about increase and evolution. Without evolution, you can't grow. And I think it's 5G and digitization that allows us to evolve. So we will digitize every industry so that we can grow our business. So information revolution, happiness for everyone, this is our mission.

So this is the end of my presentation. Thank you very much for your kind attention.

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Questions and Answers

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Unidentified Company Representative, [1]

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Thank you very much. We would like to move on to question-and-answer session. If you have any questions, please raise your hand and please state your affiliation and your name, and a staff will come to you with a microphone. We would like to limit the questions to 2 questions because we would like to take as many questions as possible for as many people. Please raise your hand if you have questions.

The second row from the front, gentleman sitting there, please.

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Unidentified Participant, [2]

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From Nikkei Shimbun Newspaper, [Igawa]. There are 2 questions. The first question is, for the first quarter, relatively speaking, it was doing very well. So Docomo and KDDI had seen decrease in the profit, but SoftBank was able to do well in profit. What was the reason? What was the key for you to grow while others were decreasing in profit? That's the first question.

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [3]

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Should I answer this first? I have shown you the figures earlier on. But smartphone grew very steadily last year in September in SoftBank brand. We unbundled the handset and the service fee, and we created the 50-gigabyte plan, Ultra MONSTER Plus. It was well received by active businesspeople as well as young generation. And some people have said, do you really need 5 -- 50 gigabytes? But actually, 50-gigabyte plan had driven the growth. I think that was the biggest reason for our growth in the profit.

Also Y!mobile is growing in volume, so that is another reason. And other segments, for example, Distribution segment. The margin is not so big, but it is steadily growing, even though we didn't state the details. Also Enterprise segment, the Enterprise smartphones is growing steadily as well, though there are cases where there are switches from competitors to our Enterprise smartphone. So mobile business was very good. So Enterprise was steadily growing in the solution business. So those are the reasons. Mr. Fujihara, anything that you will like to add?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [4]

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As the President explained, we were able to grow the existing business in a balanced manner. The mobile, BB, distribution, all grew.

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Unidentified Participant, [5]

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The number of smartphones and the APRU, so on year-on-year basis, did it grow?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [6]

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Yes, both grew. 3 brands had done very well.

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Unidentified Participant, [7]

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Number of subscribers, Y!mobile, LINE MOBILE, you have -- multiple brands have contributed, but why did ARPU grow? What were the elements?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [8]

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In terms of the ARPU, before discount and after discount, you have to think separately. But as for before discount, LINE MOBILE and Y!mobile increased. And because we have the unbundled plan, the ARPU decreased. But because we were able to have 4-year installments and unbundling plan, we -- after the discount, we were able to add on JPY 120.

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Unidentified Participant, [9]

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One last question. I would like to ask about your prospect for the second half. You were able to increase the profit more than expected but in the -- but in terms of the full year, you did not change the forecast. So could you update on how you feel you would do for the second half?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [10]

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For the second half, there would be a change in the business law from October 1. And we are making preparations for the change and there are concerns about decrease in the sales of the handsets. But even though they are small amount of possibility for that happening, I still believe that smartphone sales will grow. One prominent example is the Smartphone Debut Plan. It grew more than we had expected. Also we would like to grow SoftBank brand, Y!mobile brand and LINE MOBILE brand. And the Y!mobile and SoftBank brands are the mainstay brands but these are growing steadily. So we would like to grow in a balanced manner and I think that we can achieve the figures that we have promised you.

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Unidentified Company Representative, [11]

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The next question in the center block, the gentleman in the front row.

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Unidentified Participant, [12]

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[Fujishima] from Nikkan Kogyo newspaper. Two questions. Related to the earlier question about Q1 result, Docomo, they have the impact of the new plan and the pricing. And KDDI, the migration promotion fee was the reason for the decline in profit level from -- but the reason why you have been able to increase both revenue and profit was why? Can you give us a little more specific reason as to why you were able to offset some of these losses that the other players have experienced?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [13]

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I cannot speak for others. But you have also said that if Docomo launches a new plan, would you be in trouble, wouldn't it be hard, challenging, but I have always said that we always react with just a minor change. And in reality, although there were many speculations, we have been able to perform very steadily. So competitors had to lower their prices, revise their prices but we have not done so. That's because, as I have been saying from last year, we have always been doing -- offering low prices. Y!mobile, we're meeting the needs of the users from there. We also have 50-gigabyte offerings, which is actually reasonable in terms of price.

So we have the ability to endure, to persevere. So I think the reason why we have been growing is because of the volume increase. I don't know about others. I think they have been facing sluggishness in the growth of smartphones. I can't speak for them but as far as I see the numbers, I think that's probably the reason. So maybe that's the reason. So maybe if I were to compare the reason, it's probably the volume.

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [14]

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May I add? Sales -- selling expenses have been increasing for our case as well, same trend as you see in KDDI. But as the President just explained, we have very competitive plans, and in fact, we have been able to offer many competitive plans, and I think that's one reason for sure.

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Unidentified Participant, [15]

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The second question, last Friday, ASKUL shareholders meeting and there was an announcement of the president. And Mr. Son said that I am in objection. But I would like to respect their opinion because they -- he said that they feel as though they are friends not foes. Miyauchi-san, can you comment on this?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [16]

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As Mr. Son said, Yahoo is a public company, so it's the decision of the executive team of Yahoo. But I myself is sitting on the board at Yahoo, and myself and Mr. Kawabe exchange information on a day-to-day basis. In that sense, we want ASKUL to continue to grow. I think it was a difficult decision because we wanted to let ASKUL grow, but I would like to respect Yahoo's decision, that Yahoo's decision will be understood by everyone in the future.

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Unidentified Company Representative, [17]

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Next question, please. The gentleman sitting in the very front, in the central block.

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Unidentified Participant, [18]

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From Weekly Diamond, my name is [Marai]. I would like to ask about ASKUL. So Yahoo's explanation was included because they're a consolidated subsidiary. With that in mind, I would like to ask my question. ASKUL and LOHACO business. So SoftBank and Yahoo's e-commerce, in order to promote it, how important is ASKUL and LOHACO business? That's what I would like to ask. You have said that the decision made by Yahoo Japan was a very difficult decision, and in the future it would be understood by the public. ASKUL and LOHACO for Yahoo and SoftBank, what is their significance? Could you elaborate?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [19]

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For Yahoo, especially, from the perspective of Yahoo executive management team's perspective, maybe you have asked this to Yahoo team. But Yahoo's e-commerce on a quarterly basis, it has grown to JPY 480 billion and that includes ASKUL figures according to my understanding. Going forward, in growing the business significantly, there needs to be deeper partnership with ASKUL and work together. I think that was the decision made on Yahoo's side.

So in terms of the details, I would not be able to mention it myself. I would not be able to do that. But the new management team in order for them to grow the business, I would like to provide support from the SoftBank Corporation. So in the past few years, we have been conducting various campaigns like 10x more point campaign with Yahoo, for example. So for ASKUL, I think that there are many collaborations that we can do for generating new values.

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Unidentified Participant, [20]

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So I would like to ask another question. So I have to ask the specifics to Yahoo's management. ASKUL's management is asking for the cancellation of the capital relationship. And before the shareholders meeting, Yahoo's policy was not to cancel the capital alliance. And from President Miyauchi's perspective in terms of the capital alliance in which ASKUL wants to cancel, what do you think?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [21]

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Well, I don't know about that. I don't know whether they really want that. So that was what past management want, and I don't know what the new management headed by Mr. Yoshioka would be wanting. I have not confirmed their intent yet. But according to what I hear, they believe they -- I hear that some people are saying that they would like to partner with Yahoo, but Mr. Kawabe and Mr. Ozawa will be more fit to answer this question.

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Unidentified Company Representative, [22]

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Any other question? Then one on the left block, the gentleman in the very front.

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Unidentified Participant, [23]

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[Yamada] from Toyo Kasei. Similar question about ASKUL, I apologize. But in January this year, LOHACO business should be transferred to Yahoo. And when Mr. Kawabe said that to [Mr. Ibata], that he said that they can sense that it was actually the intention of Miyauchi and Mr. Son. And Mr. Son denied that in a comment, and we now think that it's Mr. Miyauchi's intention.

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [24]

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Media writes like that, but Yahoo did not display -- state that sort of intention. But in any case, at that time, I think it was from February, there's a -- we were thinking about integrating with Yahoo. So at that stage -- so for example, I think it's wrong, it's an error, miscellaneous -- I'm sorry, it's a misleading reporting to say that we instructed them or we told them to integrate. So the new management team of ASKUL and -- excuse me, the new management team from Yahoo like, for example Mr. Kawabe, has been saying for a number of times that they really want to reinforce ASKUL and they want that, that business grow. So I've been hearing that. But I don't think -- I'm not very familiar with the M&A and I did not know much about the contract that existed between Yahoo and ASKUL.

But what we can say is media writes upon different things, but I myself as President of SoftBank Corporation, unless you grow your performance, you do well with business, there's really nothing you can say. I think you need to take actions as a management to grow your business. So there's a lot of unfortunate situations. But when I looked at the number of LOHACO later on, it's only like JPY 9 billion, which is not -- minus JPY 9 billion, which is not -- losses, it's not very good. So they do have to renew their structure, their organization. I think that's what Mr. Kawabe thought. And so I'm not sure how the negotiation went but in exchanges that took place, there was some perception that, that maybe SoftBank's intention behind the scene, so that's how it's been perceived. So with the [state] of these activities in advance, if Yahoo can grow their business, I would support them.

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Unidentified Participant, [25]

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So Mr. Son has said -- he said that I am in objection with all of these things. You are not necessarily in objection Mr. Miyauchi?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [26]

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Well, for me Yahoo is one of the important growth engine for SoftBank, so we want to affirm the actions of Yahoo. And I think they have to demonstrate themselves that they can -- actually demonstrate that they can grow and expand their business. I think that's most important.

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Unidentified Company Representative, [27]

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Next question. The left-hand block, second row from the front.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [28]

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From Nomura Securities, my name is Masuno. There are 2 questions I would like to ask. First, in terms of price competitiveness, how do you evaluate your competitiveness, Smartphone Debut Plan? But Y!mobile has said that it will be decreasing its price and also 50-giga plan. What is your -- so what is your competitive edge?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [29]

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So we wanted to have a new plan in place for Y!mobile, but I think Rakuten -- companies like Rakuten will be making various announcements going forward. So we would like to see how their pricing would be. Y!mobile does not have the unbundled plan yet. So when it is announced in August, we will announce it at the end of August and if later than that, maybe September, at the end of September. This is just a speculation but I believe that Rakuten will be having a plan close to that of MVNO pricing plans. So I believe that they will try to compete in the area of MVNO. So I don't know specifically about what they will do because it's about a different company but that's what we believe.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [30]

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The second point, Mr. Miyakawa said that he would like to roll out the 5G nationwide in 2021 and that would be 1.5 years after the service in next year. So how would you accomplish that, I would like to know.

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [31]

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So around 2021, all of the -- the main handsets will be launched for 5G. So 90% of the 4G areas, we would like to bring it into the scope of 5G. And the new 5G frequency, 3.8 gigahertz and 28 gigahertz. In the 3.8 gigahertz, there are interference with satellites, so the rollout will be slower. In terms of 28 gigahertz, the radio wave would not be sent far so there would be small cell sites in large numbers. So the existing frequencies, there are 8 types of frequencies, the spectrums, so we would like to combine the usage of -- to support the rollout of 5G. So in total in the middle of 2021, we would like to get to 90% coverage nationwide. That's our intention.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [32]

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The 4G spectrum, are you going into those areas?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [33]

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So from 3G to 4G we made a switch. So we will take time in switching from 4G to 5G. So simultaneously we will work on that. So we will renovate the existing base stations as well in addition to adding new base stations.

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Unidentified Company Representative, [34]

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Thank you. Then the gentleman in the center block again.

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Unidentified Participant, [35]

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Hugo from Bloomberg. Two questions. First question about ASKUL and Yahoo's conflict. In 2018, November 29, Miyauchi-san and Shimba-san, Mr. Kawabe and [Ozawa-san] discussed about spinning off LOHACO business. Mr. Koshimizu and Mr. Yoshioka and [Tamai-san] were reported -- so Mr. Koshimizu reported, Mr. Yoshioka and [Mr. Tamai]. Can you confirm this is a factor in that? And on the next day, they rediscussed with the relevant people and then Yahoo has decided that they will ask ASKUL to spin-off LOHACO. And that there was an opinion about absorbing the business on the Yahoo side. So can you confirm whether that's a factor or not?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [36]

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So we and Yahoo have a weekly synergy meeting, but I don't recall talking about LOHACO in any of these meetings. We did talk about -- and in fact we talk about all the time about reinforcing collaboration, but we have 45% of ASKUL, so it doesn't make sense to spin off. I am not sure I will be talking about that in place like -- in a discussion meeting like that. The fact that Mr. Shimba and myself were there together, I mean that -- I believe it was a synergy meeting but the synergy meeting is a talk -- we would talk about Yahoo shares and PayPay, and that's where the management come together and talk about those issues. At that time, we talked about those issues. And maybe the ASKUL subject did come -- came up, but I can't recall specifically about -- talking about spinning off and independence and all that.

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Unidentified Participant, [37]

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What about absorption? And -- so there was no talk about that? And a question about your earlier answer. So management should focus on improving the performance. LOHACO business, you have collaborated with Yahoo. Yahoo and ASKUL have collaborated on LOHACO and they have been experiencing losses month by month. It's been the case. Why is it that suddenly 3 independent directors had to be sent and you had to interfere with the management? And I think you're expressing your concern about the performance. But Yahoo in the future, if a situation like this, would you also handle in the same way if something like this happened with your subsidiaries and investees?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [38]

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I am not in a position to talk about -- in detail about matters like that. But I wish that the reporters will investigate on the management situation of ASKUL. And in the investigation, you will be able to find out if Yahoo is right or truthful or what the actual situation is. I briefly mentioned that -- I'm not sure if it's 6 months or so we can probably prove this, demonstrate this. I say that because the very difficult decision that they had to make was -- it had a big reason to do so in order to grow that business. So if you investigate for yourselves then I think you will know. So I think you should.

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Unidentified Participant, [39]

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One last question about OYO. When you grow your top line, you're trying to diversify monetization. I think you have acquired of course investment and they also had many hotel chain. What is the synergy effect with that chain?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [40]

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I feel like there is a synergy effect but it's more -- Fortress is the distressed asset, it's almost collapsing. So we acquired distressed asset and we're trying to revitalize this. So I think it's called Mystays Hotel. It's growing so there is room for collaboration, of course. But at this stage, at this point in time, for OYO, there's millions of rooms and Mystays is at the top tier. But the top-notch companies do not really need much support from OYO. It's the -- through the sort of bottom-tier hotels, business hotels, Japanese hotels that may not survive tomorrow. And they're trying to develop business with these low-tier hotels. And to work with those hotels, they can improve their occupancy. And in fact, that's been the case. And they can align -- form an alliance with Fortress. But at this point in time, OYO is on its own developing business with these lower tiers.

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Unidentified Company Representative, [41]

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Next question is from the central block.

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Unidentified Participant, [42]

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My name is [Ishikawa], freelance. Recently, KDDI announced upgrade program to be launched by the end of September. And I would like to know how the SoftBank will do with 50% support through the device. And also -- so the -- and I would like to know what the impact would be for JPY 1,000 cancellation fee.

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [43]

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What KDDI has announced is not unbundled plan. So as of October 1, the 50% support bundled service, which we do, even though it's not announced, it will be discontinued. So it's the same discussion. Does that answer your question? And to your second point about the cancellation fee of JPY 1,000. In terms of that JPY 1,000 was determined, there's nothing that I can say about it because it has been decided by the authorities and so I would like to change our mindset.

There are negative factors, but of course there are positive factors. We would be able to have better liquidity in the customers, so we would be able to capture the customers who used to have subscription with our competitors. So not everything is negative. Also for the handsets, we would like to have low-end, mid-end and high-end devices and we would like to market it well. So marketing power will be critical from October 1. When the new law will be implemented, we would like to create various plans which would respond to it.

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Unidentified Participant, [44]

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So I think that you would launching a new iPhone at the middle of September. And what kind of initiatives will you take from the middle of September to end of September?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [45]

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Well, that's what we are wondering about. So frankly speaking -- so for 10 days -- well, I cannot say when I should not say 10 days. So when the new iPhone will be launched, no one knows yet. But it will be a very strange situation. Maybe we should front-load the implementation. And after 10 days, if it becomes unbundling and before then, bundling plan, if it exists, that would be very strange. So I'm hoping that the industry could collaborate in this area.

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Unidentified Company Representative, [46]

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Then the gentleman on the right-hand side block.

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Unidentified Participant, [47]

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[Hotaka], Nikkei Shimbun. Two questions. First question about April, June telecom business. A supplementary comment I would like to get is that one of the drivers for this strong business is that there's been a lot of switch from competitors. You've been basically taking the shares away from the competitors. So I want to ask about that. October 1 -- before October 1, as Mr. Fujihara said, each of the players are really spending a lot of -- selling expenses to expand their customer base, to acquire customers and I think competition is intensifying. So my first question, how much customers are you taking away from your competitors? It can be qualitative. Can you explain?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [48]

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Not certainly in those days when we just first started out in -- started SoftBank. But it's for sure we've been taking shares away from the competitors. Y!mobile is strong but operating expense is probably about the same, maybe we're probably spending about the same amount. And if you don't want to overspend, the operating expense will be in trouble. So we're checking to be sure that we stay within the guideline. But we do spend sufficient amount of operating expenses.

The 3 brands marketing positions have finally become clear. And also as I said earlier, from the 12th of June, Smartphone Debut Plan has been launched, and I think this has proven to be successful. And before to that, the numbers until March has contributed to this number as well. So everything was going well even up to that point. And so if anything, I could say about this, I haven't really said this much but structural reform has been progressing well. Cost reductions is in line with our plan so maybe that's been the reason for positive result.

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Unidentified Participant, [49]

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You've been spending a lot of operating expense on this because you want to solidify your foundation in the market before October 1. Is that your intention for spending a lot of expenses?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [50]

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Not so much that but this is all about competition. So for example, KDDI, if you go with this pattern then we need to compete against that. It's not the -- we don't really have much -- we're not too much conscious about October 1. And of course, we are putting our heads together to expand our customer base. Just because telecom business changes, doesn't mean that it will be sluggish. We want to be sure that that's not the case.

Now if 5G could be rolled out quicker, then 5G has that explosive power. But in the case of Japan compared to South Korea, we're probably 1.5 years to 2 years delayed. You know South Korea, right? In 70 days, it exceeded 1 million. And so its initial behavior, it's far more advanced than when 4G was launched just in terms of volume. So it's a little more time consuming for Japan. But ultimately, 5G smartphone is another explosive, I think, that we can really leverage.

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Unidentified Participant, [51]

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And the second question about Huawei, can you give us an update on your business with Huawei? KDDI just announced that will launch P35 in August 15. So what about the new models of Huawei's, how are you handling that and also base stations? So the frequency that allocated for 5G, you will now use the base stations of Huawei. But what about 4G in existing facilities? I think you said you will gradually replace them. So what is the current situation? Can you give us an update on Huawei?

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [52]

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As for Huawei handsets, I just heard that KDDI made that announcement. So why do we stop selling for the time being -- suspended that? It's because if you cannot upgrade the operating system, you will cause problems for the customers. And this is a trade war between the U.S. -- or the export restrictions on Huawei by the United States government, and that has been mitigated slightly. And so we will resume P35. That's one point. And network, Mr. Miyakawa, can you talk about it?

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Junichi Miyakawa, SoftBank Corp. - CTO & Representative Director [53]

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As you point out, 5G is a European vendor. So we will use European vendor for 5G. So we don't have any plans to work with Huawei in 5G. As for existing 4G infrastructure, as we said before, the core telecom facilities, the replacement construction work has already been started. Some take as long as 1.5 years to complete the constructions. As soon as we complete this task -- construction, then everything will be basically replaced by the European vendors. And then we can [utilize] wireless base stations, cell stations, and there's many that's running in place. But for maintenance and card enhancements, you need to add capacity, you will insert cards. That portion we have business with Huawei today so far.

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Unidentified Participant, [54]

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As for replacement cost, I think you said several billions of yen, that remains the same?

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Junichi Miyakawa, SoftBank Corp. - CTO & Representative Director [55]

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Actually, to be honest, it's much cheaper now, it's lower. The European vendors because it was a great business opportunity for them, they gave us a very low quote. So it's half of what we had estimated initially.

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Unidentified Company Representative, [56]

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Because of the time, we would like to take the last question. Any questions from the floor? In the left block, the third row from the front.

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Unidentified Participant, [57]

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From ITmedia, my name is [Tanaka]. I have a question related to 50% support to the devices. With the Telecommunications Business Act revision, the discount is up to JPY 20,000. So you will not be able to provide 50% support for the devices. So what kind of initiatives will you be taking? You said that the 50% support will end but when will it end? I would like to know about the timing.

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Ken Miyauchi, SoftBank Corp. - CEO, President and Director [58]

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So what we will be doing from October 1, I would not be able to elaborate now. However, when the customers buy the handsets, we don't want them to have a plan which gives them higher hurdle for buying the handsets. So even though it's unbundled, we would like to provide something that would enable the users to buy the handsets more easily. So we are considering various ideas. The 50% support is bundled plan. So basically as of the end of September, we will discontinue the 50% support as of -- the one that we have now.

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Unidentified Company Representative, [59]

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We would like to end the question-and-answer session. This will conclude the presentation on earnings results for the 3 months ended June 30, 2019. On the website, the contents of the presentation will be uploaded on the website. Thank you very much for coming to today's presentation on earnings results for the 3 months ended June 30, 2019.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]