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Edited Transcript of 9437.T earnings conference call or presentation 26-Jul-19 8:00am GMT

Q1 FY19 Term Ending March 31, 2020 NTT Docomo Inc Earnings Presentation

Tokyo Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of NTT Docomo Inc earnings conference call or presentation Friday, July 26, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hiroshi Tsujigami

NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director

* Hozumi Tamura

NTT DOCOMO, INC. - Executive VP, Executive GM of Network Division, GM of Network Department & Director

* Kenichi Mori

NTT DOCOMO, INC. - Executive VP, Executive GM of Smart-life Business Division and Director

* Naoto Okubo;Investor Relations

* Osamu Hirokado

NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department 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

* Hideaki Tanaka

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst

* Jun Tanabe

JP Morgan Chase & Co, Research Division - Analyst

* Kei Takahashi

UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst

* Satoru Kikuchi

SMBC Nikko Securities Inc., Research Division - Senior Analyst

* Tetsuro Tsusaka

Morgan Stanley, Research Division - Research Analyst

* Yoshio Ando

Daiwa Securities Co. Ltd., Research Division - Research Analyst

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Presentation

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Naoto Okubo;Investor Relations, [1]

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Now we would like to start NTT DOCOMO's results announcement for the first quarter of the fiscal year ending March 2020 or fiscal 2019.

Ladies and gentlemen, thank you very much for taking your precious time to attend our conference. I am the emcee for today's meeting. My name is Okubo from the IR Department of NTT DOCOMO.

Please be advised that this session is broadcast live via DOCOMO's information on our website, and the recordings will be distributed through on-demand service from the same site later on.

Before beginning the session, I would like to remind you on the 3 points: first, let me introduce today's participants from NTT DOCOMO: Senior Executive Vice President and Head of the Marketing Division, Mr. Tsujigami; and we also have 6 Executive Vice Presidents: the Executive General Manager of R&D Innovation Division, Mr. Nakamura; Executive General Manager of Network Division, Mr. Tamura; General Manager of Accounts and Finance Department, Mr. Hirokado; Executive General Manager of Smart West Business Division, Mr. Mori; Executive General Manager of Corporate Business Division, Mr. Tsubouchi; and General Manager of Corporate Strategy and Planning Department, Mr. Fujiwara.

Now let me confirm the schedule for today. First of all, Mr. Tsujigami, will begin the presentation using the presentation slides for about 15 minutes. Then after that, we would like to entertain your questions. We expect to finish the meeting at about 6:00 Japan Standard Time.

Finally, I would like to confirm the documents to be used for today's meeting. The presentation slides, together with the financial data book and other related material are provided through DOCOMO's IR website of NTT DOCOMO. Also for the business risk and also the -- including the forward-looking statements in the Q&A session, please refer to the final page of the presentation slides.

Now without further ado, we would like to go -- move on to the presentation of the results, Mr. Tsujigami, please begin.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [2]

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I am Tsujigami, Senior Executive Vice President. Without further ado, I would like to explain the results for the first quarter of fiscal 2019.

Please open Slide #1. Here is the financial highlights of the first quarter of fiscal 2019.

Operating revenues decreased by JPY 17.4 billion year-on-year to JPY 1,159.3 billion. Operating profit decreased by JPY 31.2 billion to JPY 278.7 billion.

We are making a steady progress towards our full year guidance. Also, the profit attributable to the shareholders of NTT DOCOMO, INC. decreased by JPY 26 billion year-on-year to JPY 192.3 billion. Free cash flow increased by JPY 104.3 billion to JPY 151.5 billion. Although we recorded a decline in both revenues and profit, however, this fiscal year, we will focus on increasing and enhancing our customer base with the introduction of Gigaho and Gigalight new business -- new rate plans, steady expansion of the smart life business and the further cost efficiency improvement exceeding 2018, so that we can achieve early recovery of our profit.

Please look into Page #2. This is the results by segment. In telecommunications business, operating revenues decreased by JPY 18.4 billion. Operating profit decreased by JPY 35.4 billion.

Smart life business and other businesses combined, the operating revenues increased by JPY 2 billion, and operating profit increased by JPY 4.2 billion.

Slide #3. These are the key factors behind the year-on-year changes in operating profit. Operating revenues recorded a decrease of JPY 17.4 billion. The key factors behind this include: the decrease of mobile communication service revenues of JPY 18.6 billion due to the expanded impact of customer return measures.

Optical-fiber service revenues increased by JPY 11.8 billion. Other operating revenues increased by JPY 0.3 billion. Selling related PL due to the reduction of the number of wholesale units sold, we recorded a decrease of JPY 11 billion.

On the other hand, operating expenses increased by JPY 13.8 billion due to the increase of point-related expenses, but this is already factored in, in our business plan.

Consequently, operating profit decreased by JPY 31.2 billion to JPY 278.7 billion. As I mentioned earlier, we are making a favorable progress towards our full year guidance.

Now Page #4. This shows the d POINT CLUB membership. The total number of d POINT CLUB members increased by 7% year-on-year and reached 71.31 million.

Among them, the total number of d POINT CARD registrants, who are the users who can earn and use points at the street stores increased by 44% year-on-year and reached 36.16 million.

Page 5. Now I'd like to talk about the operational performance of the telecommunications business. Mobile telecom service subscriptions increased by 3% year-on-year and reached 78.9 million.

The churn rate, excluding the MVNOs was 0.58%. The handset churn rate, in particular, achieved a significant improvement due to the new rate plans as well as the d POINT service and enrichment of the new services, we successfully reduced the number of churns.

And therefore, the handset churn rate improved significantly to 0.45%.

Page #6. The number of smartphones and tablet users. This increased by 5% year-on-year and reached 40.87 million. docomo Hikari subscriptions increased by 18% year-on-year to 5.99 million. And thereafter, on the 8th of July, the total number exceeded 6 million.

Page 7, please. The new rate plans, which was launched from the 1st of June. These new rate plans are receiving great reviews from our customers. After starting receiving applications from the 22nd of May, we have received so many applications from customers. And the total number of applications amounted to 3.75 million as of the 23rd of July.

And the subscription rate of Gigaho package, which is for high data usage customers accounted for less than 30% of the total.

The Minna DOCOMO Wari service application rate, which is for the family discount group of more than 3%, will receive JPY 1,000 of discount, and under which JPY 500 discount is provided for 2-member families. This Minna DOCOMO Wari application is about 85% of the total. This is especially well-received by customers, and we have heard many voices that people are willing to continue to use DOCOMO services, and we have seen voices that our rate structure become much easier to understand.

We will continue to conduct the rate consultation fairs and through one-to-one approaches to customers, we would like to facilitate the migration to the new billing plans.

Page #8. ARPU. The first quarter aggregate ARPU, excluding the impact of the discount programs -- including the impact of the discount programs was JPY 4,770. Although there was an increase of -- in a number of docomo Hikari subscriptions due to the expanded impact from the customer return measures, we recorded a decrease of JPY 30 year-on-year in aggregate ARPU.

Page #9. Cost efficiency improvement efforts. In the first quarter, we executed cost efficiency improvement totaling JPY 20 billion.

This is in line with our plan and towards our full year target of JPY 130 billion of cost reduction, we will continue to make efforts to streamline our cost spending.

Now on Page 10. This is the operating profit from Smart life business and other businesses combined. We achieved a 10% increase year-on-year, and the operating profit reached JPY 47.5 billion.

The -- this year, we revised the categorization of the Smart life businesses and the Content/Commerce services was integrated with the Lifestyle Services.

Out of the operating profit of JPY 47.5 billion, the contribution from each category was as follows: the Content/Lifestyle services, such as dTV, DAZN for docomo, accounted for 15%; the finance and payment services such as d CARD and d Payment accounted for 20%.

The peace of mind support services, such as the Mobile Device Protection service accounted for 45%. And other services, including corporate solutions accounted for 15% approximately.

Page 11. Finance and payment services. The total amount of transactions handled with our Finance and payment solutions increased by 28% year-on-year and reached JPY 1,130 billion, of which the d CARD transactions increased by 27% year-on-year and reached JPY 910 billion.

The d CARD memberships increased by 5% year-on-year and reached $20.18 million. d CARD GOLD continue to increase its subscriptions by 32% year-on-year and reached 5.62 million.

Page 12, please. Let me now talk about our efforts to expand.

Smartphone payment. Regarding d Payment, both users and the number of merchants continue to expand in a very positive manner.

And as of July 14, the number of app downloads exceeded 7 million. The number of locations were payment, iD and d POINT services are available reached 1.11 million, and is expanding in a very robust manner as well.

As we made an announcement back in May, we have been adding new features to the point apps.

In June, we launched payment services that can scan bar codes that are installed in various shops. And also we will provide wallet functions that enable remittance among the app users starting from September, and we'll also offer many apps that enable use of services provided by merchants through d Payment application.

And mini app will -- mini apps will be offered going forward, but the d APPS will be added as of September. We will add new functions that enable use of d APPS in various settings so that we can extend services that make our customers' lives more convenient with greater benefit.

Page 13, please. Let me now talk about the d POINT. We made efforts continuously to expand the number of shops that handle d POINT.

As a result, the usage of d POINT increased 15% year-on-year, reaching 46.9 billion points.

Now out of which the percentage of use at the d POINT partners now account for 26.5 billion, which is equivalent to 55% of the total. As for the number of d POINT partners, it reached 476, reaching a very strong increase.

Starting from June, we have launched the d POINT super return program. Going forward, we'll make active efforts to make our d POINT programs even more attractive and convenient for our d POINT CLUB members and also for our partners.

Page 14, please. Let me now talk about our efforts to expand +d PARTNERS. The number of partners continue to expand in a very robust manner. And as included in the partners you see on this page, the number has exceeded -- or correction, the number has reached 925 together with partners going forward, we'll make efforts to accelerate cocreation through d -- +d.

Page 15, please. From this point onwards, we would now like to talk about our actions in relation to the 5G. We are now working to build out the 5G network. And with -- taking the opportunity for Rugby World Cup 2019 in September, we will launch precommercial service for 5G. For the consumers to various events, such as Rugby World Cup, we would like to have these users experience the world of 5G. And also we would like to coordinate with our enterprise partners. And we would like to accelerate initiatives towards regional vitalization and solutions for social issues.

Please turn to Page 16. As we have announced through our press release today, at the Rugby World Cup 2019 that will start on September 20, we will deliver a new viewing style that leverages 5G technology.

To be more specific, we plan to deliver viewing assistance service in 8 different stadiums throughout Japan where multiangle viewing and additional information such as players' data can be checked using DOCOMO's 5G handsets, handsets that will be provided by 5G.

Indoors live viewing venues within Tokyo, you'll be able to enjoy high presence and viewing of multiple high-resolution video and sound transmitted through 5G.

Take a look at Page 17, please. Now prior to the 5G precommercial service launch, at the Tokyo Game show that will start from 12th of September this year, we will exhibit a booth.

As the 5G telecom sponsor, where you'll be able to experience the new world of 5G, together with various partners that are garnering attention in the gaming industry, we hope to present a new world of gaming culture through e-Sports events with multiple simultaneous matches and new game watching experience.

Going forward, diverse events such as live performance and music performance, we would like to consider various measures to people to allow -- to experience 5G.

Page 18, please. Next, let me talk about our efforts toward the Enterprise sector. In 6 different locations throughout Japan, from March through June, we launched -- or we carried out 5G business camp, and more than 2,500 people from 1,000 companies attended.

So for the precommercial service, inclusive of the 33 examples, which we've exhibited through these business camps, we are now promoting various solutions such as image transmission and XR.

The enterprises and organizations that are now part of the DOCOMO 5G Open Partner program exceeded 2,800 as of end of June. Together with some various partners, we would like to create new various business opportunities leveraging 5G.

Last but not least, before the launch of the 5G precommercial service on September 18, we will have an event to announce our 5G precommercial service. On the right day, we are planning demonstration of services for simultaneous solutions for enterprises we hope that you look forward to that event.

Please turn to Page 19. We would now like to talk about our first relating to our medium-term strategy "Declaration beyond." With regard to value and excitement to customers, as Declaration 1, we are now offering a functional enhancement of +Message service, enabling message exchanging between customers and businesses -- business websites.

Declaration number 2, we will develop blade-free drone.

Declaration number 3, we will carry out rate simulation and also easy-to-understand website and accelerate people's shift towards web and we've made efforts to mitigate congestion in our shops. When (inaudible) is formed, web and phone-based contract procedures to improve customers' convenience.

Page 20, please. Let me talk about value cocreation with partners, Declaration 4. We will develop solutions for foreign visitors and residents in Japan as part of Declaration number 4.

As part of the Declaration number 5, we have started offering docomo IoT Manufacturing Line Analysis solution for manufacturers.

And as for Declaration number 6, we have started offering a new enterprise CRM solution called "Fan Connect SPTM."

Now this is an end-to-end marketing platform and that assist our partners and their verification of the effects of their sampling as well as their campaign.

It will be done in a seamless manner. But aside from services that we introduced today, we are introducing various initiatives.

We will make efforts to realize Declaration beyond and to realize a bright future.

Next page, please. This is about share repurchase progress. The progress on share repurchase throughout the first quarter is as follows: from the 7th of May through the 30th of June, we purchased the shares on the TSE market, and we acquired 19.45 million shares. And also we carried out aggregate amount of repurchase of roughly JPY 48.2 billion. So the remaining authorization is JPY 251.8 billion. We'll continue to repurchase from the market going forward.

Page 22, please. And the -- this is the highlights and the summary of the first quarter financial results.

Last but not least, on Page 23. Fiscal year 2019, we have characterized as a year to implement transformation for further growth.

As far as the first quarter is concerned, we introduced new rate plans in order to enhance our competitiveness ahead of the change in the market environment.

We will continue to offer the most optimal proposal to individual customers, so that we'll be able to solidify our customer base.

With regard to 5G precommercial service launch, we will buildout various network throughout -- all across Japan. And also in relation to regional vitalization and providing solution to social challenges, we will expand cocreation with a wide variety of partners. Thank you for your kind attention.

The first quarter results presentation is now complete. Now before going into the Q&A session, I would like to mention that the operating expenses increased by JPY 13.8 billion compared to the first quarter of last fiscal year.

So I would like to make an additional comment to explain this increase. Going forward, the new rate plans Gigaho and Gigalight. This will have a larger impact of reducing our profits going forward.

So in this environment, operating expenses has been risen. So this has no rate concerns that whether we are successful in controlling our costs. So I would like to address this question.

First of all, the first quarter, is limited to only three months. And this is only a quarter-to-quarter, a year-on-year comparison in the 3-month period.

So therefore, depending on the year, the volatility could become large depending on the year. But for one thing, we have actively promoted Gigaho and Gigalight, the new rate plans, that's one of the reasons for this increase in operating expenses. Secondly, we have launched campaigns in order to promote cashless payments.

And number three, the point execution, which is a regular factor that did not exist last year.

And also for the precommercial service of 5G. We have accelerated the preparations for technical and service development.

So these are the factors or expenses that did not exist in the first quarter of last fiscal year. However, and this was already known when we developed our full year plan. Therefore, as I mentioned during the presentation, these are already factored in, in our business plan and the operating expenses for the first quarter is within the range of our expectations.

And the cost efficiency improvement of JPY 20 billion that we have achieved in the first quarter may look smaller compared to the -- we achieved last fiscal year.

But in regards to the cost efficiency improvement, we are expecting a larger delivery towards the latter half of the year.

So the full year target of JPY 130 billion cost efficiency improvement remains intact, and we believe we are making a favorable progress towards this target in any event, for the operating expenses.

Due to the meticulous management of the various initiatives and steady implementation of the cost efficiency improvement, we will like to make a full year control of the operating expenses. That's all for myself. Thank you very much.

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Naoto Okubo;Investor Relations, [3]

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Now we would like to entertain your questions. We would like to take as many questions as possible for many participants. Therefore, we would like to limit the number of questions to only 2 per 1 question.

I will look -- I appreciate your cooperation.

Now as we have announced before, please register your name and from among those who are connected to the system, we would like to take the questions in the order of arrival. Now the operator will explain how to use the system.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Now we have a question from Mr. Masuno of Nomura Securities.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [2]

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This is Masuno from Nomura Securities. I just have only basically 1 question, but when I look at the handset churn rate actuals, it was very low at 0.45%.

I think, many things happened behind this. April and May, you have continued the conventional sales method. And then in June, you introduced new rate plan and the new sales method. And therefore, I think there are many things behind this, but as it turns out, the churn rate has successfully brought down to 0.45% then you're making a very good control there. So how do you analyze this performance? That's my first question.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [3]

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This is Tsujigami. As you pointed out correctly, the handset churn rate has made a significant improvement. The major factors behind this include: the new rate plan -- the launch of the new rate plans. We have made this announcement from early on from some time ago, therefore, this is one factor that benefited the churn rate.

And of course, we have performed many different simulations, but we have also improved the contact point -- the touch points of customers. Not only the shops but also we have extensive leverage to web services, so this was another area that contributed to the improvement.

And also we are now providing services and reaching a point program pivoted on our membership base. And these offerings are making customers willing to use our services on a continual basis.

So all combined, I think, including this has improved the churn rate and also prevented the outflow to other operators.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [4]

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Another additional question. In relation to that is that the handset prices for June itself, when it is viewed from the customers, I think the prices have changed from before.

But after June, have you seen any impact on the churn rate after June? And the new rate plans that has been -- subscription has risen to 2.75 million in the end of June and has risen to 3.75 million as of July.

So have you seen any changes in the uptake -- the pace of uptake because the churn rate is low. I think there are -- there should have been any problems, but have you -- can you also comment on the performance in June and performance in July?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [5]

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If you just see, just a similar amount of June on a year-on-year basis because there was a last-minute demand in May, so it's very difficult to make a proper analysis there. But if you look at the churn rate alone for June and July, it's almost comparable to the performance of the same month of the previous fiscal year. So I think we are delivering a favorable performance in churn rate on a continual basis.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [6]

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3.75 million, I think, is the new rate plan, I think, is that correct, right?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [7]

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So 3.75 million subscribers. I wasn't really sure about your question. So the pace of uptake in June and July. I think it's different from June and July.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [8]

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So if you look at the -- you have already commented that churn rate has not really changed between June and July. So therefore, the new rate plan has not really affected your churn rate. Is that correct?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [9]

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The new rate plans. You have to first apply for that, and then after -- in the single month of June. And then in July, they are actually converting into actual subscriptions.

So of course, the number of applications per day has come down over time. But the Gigaho and Gigalight packages that we have introduced this time around, compared to the Kake-hodai package that we -- and Pake-aeru that we have introduced several years ago, this and -- the new rate plans, there are so many customers who are still enjoying the monthly support discount program. So we have performed simulations for each customers. And we are advising for those customers who we are -- who has the remaining period of the monthly support customers to finish up the monthly discounts first and then migrate to the new rate plans.

So those customers who have joined the service or those who have finished receiving monthly support discounts. And then once customers are finished receiving those monthly support discounts, I think they will continue to migrate to the new rate plans going forward.

So and that is already the case today, and that's continue -- that is likely to be the case going forward.

So the monthly support, as people finish using the monthly support in the future, at that point, they, I think, will come to the new rate plans and their network traffic increase subscriptions of the new rate plans going forward.

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Operator [10]

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Next from JPMorgan Securities, Mr. Tanabe. Tanabe-san, if you'd like to ask a question.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [11]

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Tanabe from JPMorgan. I have 2 questions. I would like to ask a similar question to Mr. Masuno. With regard to the handset sales, 5.92 million, so that represents an increase of 20% year-on-year. But starting from April, up until June, I think you launched a new smartphone program, so the competitive landscape for handset sales is undergoing a change.

I think there are a lot of original specific campaigns. So how do you see the competitive environment for the sales of handsets right now? And also you mentioned that there was a less amount and less demand up until May. But if possible, can you show on a monthly basis, the churns of the handset sales on monthly basis.

And also, in July, have you noted a change in the environment? And what is your outlook for this situation going forward. I appreciate your comment. So that's my first question.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [12]

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Thank you. Tsujigami here. Let me respond to your question. Well, with regard to handset sales, among the total handsets, are you asking based on the total sales of smartphones, is that the best -- specific question.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [13]

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Well, more than handsets that was the basis of my question. Or if we have a response based on the smartphone sales, that's fine as well.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [14]

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So they will be fine. Point taken. As for -- we're talking about handset sales. So it's a -- it's the sum of both handsets as well as tablets.

So in the first quarter, 170,000 increase year-on-year. But this -- but the percentage of tablet sales significantly down -- reduced.

And 210,000 increase for smartphone sales. Well, on an annual basis, we expect a significantly down -- reduction in the smartphone sales.

As far as the first quarter is concerned, it did not decline. It actually -- smartphones sales actually increased for the first quarter. This might be the impact of the last minute sales 200,000 perhaps last minute sales of smartphones in May.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [15]

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But what about June then?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [16]

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As far as June is concerned. As far as -- well, there was a review of the handset sales method.

And to the pace of replacement will slow down as a result. That was our expectation. But then this time around, our new product lineup was very attractive and was very well received by customer base. So this has probably pushed up handset sales. So we were able to have handset sales on par with sales in the same period in the previous year. Thank you very much. That's my response.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [17]

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What about the competitive landscape? There are campaigns launched by the competitors. So how do you see the competitive landscape right now? If you could respond to that question as well please.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [18]

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As -- well, as far as this question is concerned. It's not so much of our handset sales, perhaps, you're talking about MNP related environment?

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [19]

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Well, everything is -- everything included. Yes, if you could respond based on everything included.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [20]

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As far as the MNP is concerned, we'll be focused just on the first quarter. For both port in and port out, it's really equivalent to the previous year.

So customers coming in, customers outflow are the same as the previous year.

Now among the competitors through distributors, some of the competition are allowing their distributors to provide very generous cash back. We see space of such trends. But I think, by and large, I think discipline has been maintained in the market.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [21]

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So that being the case, we did not note a major significant change in the competitive landscape.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [22]

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At this moment, that is not the case.

We do not see any major change in the competitive landscape.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [23]

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My second question is related to the ARPU. In the first quarter ARPU, the gross ARPU and the amount of discounts applied, I would imagine that there is a slight impact from the new rate plans. That is my understanding. So if you could share with us what elements reduce the gross ARPU? And also, is there an increase in terms of the impact of the discount? Can you provide that insight please?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [24]

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Thank you, Hirokado, Head of Accounting and Finance.

With regard to the Gigaho and Gigalight impact, the new rate plan impact. We're just talking about 1 single month up until now.

So the impact is not as significant at this juncture. And also besides to this point, we do not see any other significant factors as well. So there's the impact of the expansion of the basic plan.

And also we see factors that are only the order of JPY 10 or JPY 20. And that's about the impact we see, as far as ARPU is concerned.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [25]

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What about the discount? Is there an increase in the discount? Can repeat your answer, please?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [26]

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Well, from last year, we have implemented the basic plan and that has had an impact. Well, if we compare with the fourth quarter, we do not see any factors that can actually have an impact of maybe JPY 30. Any impact we see is only in the order of JPY 10, JPY 20. That's the level of the impact we see from discount.

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Operator [27]

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Now we'd like to take the next question. The next question is from SMBC Nikko, Mr. Kikuchi, begin your question.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [28]

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This is Kikuchi. I have 2 questions. One is the new rate plans. This time around, 3.75 million is the number of subscriptions. And everybody, 85% of them have applied a Minna DOCOMO Wari discount. So I think with 70% being eligible, I think, it's a quite large number. So I think those are the customers who will benefit by migrating to the new billing plans.

In the first quarter, I think it's just 1 month after the launch of it, so the impact is negligible for the first quarter. But now, if the current trend continues, how do you think the impact will appear in the second quarter and the third quarter? Mobile communication service revenues, how much decline do you foresee from the new rate plans in the second and third quarter? If not, it's okay. But with those customers, I think those are the customers who will benefit from migrating to new rate plans. Can you comment on the average reduction that these people can enjoy -- the first early adopters, average rate reduction?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [29]

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This is Tsujigami. 85% of the application rate of the Minna DOCOMO Wari discount is that -- actually, this was almost in line with our earlier prediction. 70% that you mentioned are those who are joining the family discount service with 3-member family or more.

Minna Giga -- so as I said, if you have applied to this with more than 3-member family, you'll be able to receive a discount of JPY 1,000 per 1 circuit. And if it's a 2-member family, JPY 500 per one member.

So all combined, we believe that 85% application rate is almost in line with our earlier prediction, all combined.

So it's only just month after the launch of the service. And on a full year basis, how much uptake will grow is something that I cannot really comment immediately. But given the precedence of the Kake-hodai and Pake-aeru, we believe, 70 million is the prediction that we have at the moment.

And the impact on a full year basis is estimated to be JPY 250 billion on a full year basis, which is currently remained intact. And we would like to keep a close eye on the future performance before making any decision to revise this or not.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [30]

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Relatively speaking, the uptake seems to be slow. The subscription increase is -- seems to be slow, as initial uptake of the new rate plans.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [31]

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This is Tsujigami. Compared to our initial prediction, yes, the subscription appears to be somewhat smaller compared to our earlier predictions.

But 3.75 million applications, that I mentioned, is not really so small. It's not really absolutely small.

I think we are finding good response from the market. And as I said, there are some customers who are waiting to finish and complete receiving the monthly support discounts. And I think they are taking time to consider which handsets to buy next.

So those are -- we believe there is a considerate number of customers who are waiting for their purchase or the switches for those reasons.

And I think once they finish receiving discounts, they will migrate to the new rate plans.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [32]

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My second question is about -- related to Page 3 of the presentation. It's on Page 3. These are the key factors behind the changes in operating profit. So I would like you to elaborate on this.

Operating -- the mobile communication service revenues declined. I think this was more related to the DOCOMO with program, which -- and therefore, the discounts applied was larger than expected. But the discounts offered under the DOCOMO with is going to become smaller in the future. So I'm not really concerned about that.

But you mentioned -- you made additional comments regarding operating expenses. So I would like you to elaborate on that one.

You mentioned 3 factors, promotion expenses, promotion for the new rate plans and the d POINT -- the allocation of d POINT and 5G. And those are the things that you mentioned.

But can you comment on the impact from each element on your operating expenses? And I think, can we consider it's only a one-off thing? And do we have to expect these expenses from the second quarter onwards?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [33]

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This is Hirokado, CFO. The reasons for the increase of operating expenses, the POINT impact was about JPY 10 billion, close to JPY 9 billion or so. And of course, there are more factors that are in the excess of JPY 2 billion.

But those are expenses that are linked with the revenues, such as docomo Hikari related expenses, finance and payment service-related expenses and corporate SI -- system integration-related expenses.

And for the new rate plans, the A&P, the advertisement and promotion expenses increased compared to last fiscal year. But single item does never exceed of JPY 2 billion. So those are the individual factors for that.

For the full year operating expenses, of course, we were able to successfully contain that for the first quarter below the target numbers. And I don't think -- but on the full year basis, the operating expenses will be controlled within the plan, I think.

For the cost efficiency improvement, we are expecting a large amount of cost efficiency improvement towards the second half of the year. So therefore, the first quarter efficiency improvement was limited to a smaller number relative to the second half, but we are not really concerned about that because that's planned.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [34]

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For the 9 -- POINT program, JPY 9 billion, you mentioned the expenses for the POINT program of JPY 9 billion. Of course, there are many different points that you are offering for customer returns, for example, and also the POINT program for d Payment service and also for the reaction from last fiscal year.

But can you comment on the breakdown of each element that I just mentioned. And from the second quarter onwards, the D Payment point, and if customer return unless your points are not going to increase significantly in the future, can we expect a similar pattern of point increase in the second quarter onwards?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [35]

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The POINT will be up here in the reduction of revenues and also increase in operating expenses. So all the main tax factors that I mentioned are represented in increase in expenses.

But those are the things that does not really provide us with revenue. So therefore, that is the general increase.

Last fiscal year, the d POINT expiry had an impact. So if you offset from that, the January increase is not as much as JPY 9 billion.

So going forward, of course, there is a potential of further increase, but the decrease in revenues and increase in expenses, the point cost altogether for the full year. On a combined basis, JPY 140 billion for the full year is estimated. So this represents an increase of JPY 10 billion compared to last fiscal year, but we will properly control this going forward.

And the payment service. In order to promote the payment service. In some cases, we may have to launch some campaigns and may -- additional -- may -- allocate additional expenses for the campaigns.

But if that is the case, we only do so when there is an expected positive impact on the revenue side.

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Operator [36]

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Next question from Mitsubushi UFJ Morgan Stanley, Mr. Tanaka.

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [37]

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I'm Tanaka from Mitsubushi. I have 2 questions as well. I would like to ask each question one by one.

With regard to Smart life business. Smart life business, per se, it seems that there's a slight decline in operating income on a year-on-year basis. And as with regard to the other business part, it seems that you have seen increase -- significant increase in the operating income for this particular business. So if you could provide us an analysis, both the difference between the 2 categories.

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Kenichi Mori, NTT DOCOMO, INC. - Executive VP, Executive GM of Smart-life Business Division and Director [38]

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Mori from Smart life. Yes, with regards to Smart life business. Let me focus on Smart life business section.

You're talking about decline in operating income. But then regarding d Payment campaign and also with regard to content, we just need direction at the zone. We carried out very elaborate marketing campaign, and we believe that this will lead to increase in future customer base going forward.

So we made an advanced investment. And yes, so that's Smart life business per se. So that's the driver behind the decline in the operating income for Smart life business.

But regard to finance payment, we have seen very robust increase. So as far as the first quarter is concerned, expenses are in line with our initial expectation.

So 400 million negative on a year-on-year basis. But with regard to other business, support services, customer piece of maintenance, mobile phone protection service. There is an increase in the number of subscribers, slight increase. So that has had a very good impact.

So that is the factor behind the number you see today.

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [39]

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Okay. Point taken. A follow-up question. So as far as the content, Walt Disney and DAZN related content are concerned, you reinforced your marketing, I understand. But what about the -- has this had an impact in terms of increasing the customer base for these services.

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Kenichi Mori, NTT DOCOMO, INC. - Executive VP, Executive GM of Smart-life Business Division and Director [40]

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Well, as far as Disney is concerned, indeed, there is something service that we launched this year, and we want to further expand this.

As far as DAZN is concerned, we have been carrying this out, well, for a little while.

First, the seasonality during winter time, there is the baseball game. So therefore, that has an impact in terms of bringing down the contractor base.

But then, from spring, we've been promoting baseball. So as a result, we are promoting the customers. And that is the reason for carrying out a campaign.

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [41]

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What about the other business? You talked about the mobile phone protection service. How can I put it? Can we take it that, going forward, there could -- the momentum, if you will, the increase has stabilized. So is your impression is that the momentum for growth and the take up for support services may decline going forward? Or is this still growing at this moment? And also, is this still generating profit? How do you see the outlook? How do you see the potential growth for mobile phone protection service going forward? Do you believe it will be very strong? And what about the increase this summer and in the first quarter?

And also, if you could comment on the outlook as well. I would appreciate it.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [42]

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Tsujigami. I would like to respond to that question. As far as the mobile phone protection services is concerned, we have a very strong stock of take-ups. So the pace of the growth is beginning to slow down.

But at the same time, this, of course, is an insurance of when there is a breakdown in the phone, and so the repair rate is improving.

And when there's a need for repair and the customers paying to the parts, we've been working with various centers and manufacturers, and we've been able to reuse the handsets.

And so we've been promoting various efficiency and also reviewing the insurance rates and so forth.

So as far as the profit is concerned, it's still growing very strongly in a very positive manner as far as the mobile protection service is concerned.

So the pace in the revenue may not be all that large, but we have seen improved efficiency. So therefore, as far as the increase in the operating profit for the other business part is concerned.

Secondly, contribution from the mobile phone protection service.

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [43]

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My second question. Well, in the media, there's talk about Rakuten. Of course, although we do not know about the timetable, but there's an outlook in the media that Rakuten might be announcing their rate plans eventually.

And I would imagine that if need be, you will also address and respond to whatever rate plans that will be addressed by -- announced rather by Rakuten.

So right now, you have Gigaho and Gigalight customers that are now joining.

So you have existing customers who have joined a similar plan. Are you going to increase application of the newer plans among your existing customers as well? Or focus on just new acquisitions? Can you please share with us the potential customer base for the applications of new -- for the new rate plans?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [44]

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Well, you're asking a very specific question, and it will be difficult for me to respond specifically, but naturally, with the way the Gigaho and Gigalight new rate plans are concerned, and we have launched this plan ahead of the competition in June, we wanted to -- we have done so in line with the competitive landscape going forward. So as far as the Rakuten's new rate plans are concerned, that is going to be, of course, a point of interest. So Gigaho and Gigalight based on this new rate plan, we want to, of course, think about the situation. But depending on how the competition will react, naturally, we may have to consider other possibilities. But right now, our focus is on the new rate plans that we announced and launched.

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [45]

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Well, my -- the justified question is this, so you have existing plans. And whatever rate plans that are introduced, it will be even more cheaper compared against the existing plans. So if you're focused on the short-term performance, it will not be beneficial for you to apply the new rate plans to existing customers. But then, on the long-term basis, you have existing customers. It could be that when these customers join new rate plans, their customer satisfaction could drop, and that could potentially lead to increase in churn rate. And this could actually undermine the customers' loyalty for DOCOMO. So one way of thinking is that of allow existing customers to apply new rate plans beneficial for them even without making announcement. You have good rate simulations. I'm sure that you'll be able to control that. So I really want to know your philosophy in terms of application of the new rate plans.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [46]

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Well, on that note, as far as this particular issue is concerned, we have to take a look at the rate plans of the new entrant. And also, we have to see the responses, but the competition vis-a-vis the new entrant. I think that's the business of whatever we can do. So at this juncture, there's nothing that I'm able to share with you. Thank you very much.

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Operator [47]

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The next question please. Now from Daiwa Securities, Mr. Ando.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [48]

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I have 2 questions. My first question is about your cost reduction. Towards the second half, you are expecting a large amount of cost efficiency improvement, as you mentioned. But once again, in the second half, what kind of cost items are you anticipating towards the second half? Can you elaborate on that point?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [49]

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This is Hirokado, CFO. The cost efficiency improvement plan for this fiscal year, the major bulk will come from the marketing cost, especially the agent resellers, our commissions, those are the cost that the finance -- the discount programs because of the revision of the telecommunications business app before October. From earlier, we have squeezed the amount of commissions paid out to the agent resellers. And I think the impact of that will become larger towards the latter half of the year.

Now, as for the network, we will coordinate the schedule of implementation and also integrating equipment. And for the network side, the fourth quarter will -- we expect a significant amount of network cost reduction in second -- in the fourth quarter. So in last fiscal year, it was even out. But in this fiscal year, we're expecting a large amount of cost efficiency improvement to be achieved in the fourth quarter of this fiscal year.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [50]

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My second question is about your countermeasure against Rakuten. So as for the new rate plans, the previous question, I asked a question and I found that you are struggling to answer that question. But overall, when you look at the overall situation when it comes to network, for example, and demography of your customer base, including all those elements, well, how do you think about the resources of Rakuten? And how do you think there are -- what kind of places, do you foresee that you have to defend or whether you have to fight fiercely against the Rakuten when you look at those individual aspects of the overall composition of the business?

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Hozumi Tamura, NTT DOCOMO, INC. - Executive VP, Executive GM of Network Division, GM of Network Department & Director [51]

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This is Tamura from the Network Division. This is about the overall -- the competitors. So we're not really in a position to comment on the other company's position.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [52]

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So for example, when it comes to marketing, overall, not only the rate plans, what kind of marketing -- what kind of areas do you have to compete against Rakuten in terms of marketing, overall, for example?

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Hozumi Tamura, NTT DOCOMO, INC. - Executive VP, Executive GM of Network Division, GM of Network Department & Director [53]

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I think the main points is about the rate plans, the network quality and the coverage, the breadth of the coverage. I think those are the important points in the competition with other players. In any event, although we are not really sure about the plans of Rakuten at this point of time, we don't really have a clear picture yet. But in terms of overall marketing, for example, if -- because that's your question. First and foremost, we will leverage the new rate plans and try to defend our customers so that they can continue to use DOCOMO service. We would like to establish a solid base of customers through these measures. And also, as we have realized with -- in looking at the first quarter performance, the d POINT has expanded to one of the largest point program, common point program across Japan already. So d POINT, these initiatives are well received by customers. So the d POINT service, the credit card service and also the payment solutions. Through these various means and services, we would like to promote them so that the customers will fully utilize them. And working together with our +d partners, we would like to further develop these services and develop a proper ecosystem. These are the areas that we would like to work on going forward. But in any event, as far as the telecommunications business is concerned, the handsets, the price plans, the rate plans and network and also the customer support, I think we have an edge in all these areas. So -- and also for the new nontelecommunications areas, we would like to strengthen our capability so that we can compete on a comprehensive basis. Please, if you can allow us with that comment. Thank you.

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Operator [54]

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Next question from UBS Securities, Mr. Takahashi.

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Kei Takahashi, UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst [55]

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Takahashi. I would like to ask 2 questions. The first question is with regard to the new rate plan and the initial response. 2.75 million as of June, and 3.75 million as of July 23. Can you elaborate further, if you will, on the take-up of this new rate plans? For example, within these numbers, these are new subscribers, but others are probably transitioned from different -- from all those traditional plans. But people who use the handsets for more than 3 years, for example, is the percentage of those type of customers very high in the take-up? Or, for example, after 2 years, has lapsed, the monthly report has now -- it has expired. So are those the type of customers that are actually taking up this new rate plan? So can you give us a breakdown of the type of customers that are taking up the new rate plans, please?

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Unidentified Company Representative, [56]

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Please bear with us -- please spend with us for a little while, please.

Thank you. So -- well, you're talking about the attributes of the characteristics of customers that have transitioned from traditional plans to the new rate plan. As far as the use of the handsets for these type of customers, we have not been able to analyze the customer profile. But as we have consistently repeated during the session, customers whose monthly support programs already expired, naturally, for those type of customers, they are quick to transition to these new rate plans.

I would say, if the share pack is about 3 people, the coshare is about 4 plans -- 4 people. But anyway, if you group whose monthly support has already expired, then the percentage of take-up of new rate plans are quite high. But if we were talking about 1 person or 2 people whose monthly support program has not yet expired. Still, we have people who are transitioning to the newer plans, still. But this is in line with our expectation. So I think, as time goes on, there will be a take-up of the new rate plans among the various customers. As far as Gigaho take-up is concerned, I mentioned there is a -- 30% is the rate. As far as this number is concerned, we're talking about 30 gigabyte for the Gigaho. Only one particular number is provided. So high -- so people of high-volume users who are actually very just -- who were, if you will, compromising under a very slow number -- a very small number, are very happy to take up with this 30-gigabyte plan. So the thing is, among -- so I think, the take-up of the new plan among these high-volume users are quite high because they were really waiting for a higher data bracket. So that is our understanding of the composition of the take-up.

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Kei Takahashi, UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst [57]

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Okay. Point taken. So as far as the first quarter is concerned, the new -- the amount of the new rate plan -- correction, the amount of the impact of the new rate plans in the first quarter. How do you see that?

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Unidentified Company Representative, [58]

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Well as far as the exact number is concerned, we are not able to share that. But the amount was not that high. We're talking about several billions of yen.

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Kei Takahashi, UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst [59]

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Okay. My second question, it's about the net adds for the first quarter, the net adds.

The net adds for the modules are probably the bulk of the net adds for the first quarter, I would imagine. Now at the -- at the time of the fourth quarter results, with regard to handsets, I think, you mentioned that you were able to deliver quite strong net adds for the handsets as of the fourth quarter. But what about the first quarter? Take a look at the first quarter, I get the sense that the modules account for the bulk of the net adds. And I would imagine that there's an increase on the MVNOs. And also as far as the tablet are concerned, they are into that positive territory. So maybe it's the handsets that are facing a very challenging situation. That's how we see it. But the churn rate is so low. It's coming down so low. So if we assume that the handset net increase was very tough for the first quarter. If that is the case, in terms -- did you struggle in the net -- the new acquisitions for the first quarter? If you could elaborate on the situation, please?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [60]

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Tsujigami here. Let me respond to your question. You're talking about the net 440,000 -- 430,000 full modules that's the aggregate and the module net adds for the first quarter, 440,000 and 430,000.

So I think your question was that perhaps the subscribers for the handsets are declining, if you will -- the net adds rather.

As far as the handsets are concerned, on a year-on-year basis, if we compare with first quarter of the previous year, it has shown improvement this year. We may be able to reduce churns.

On the other hand, with regard to the data plans. As was mentioned earlier, in this first quarter, unfortunately, we experienced a net decline in the data plan.

The demand for second handsets. It has saturated. That's the backdrop. But also this time around, there's an announcement to the new rate plans.

And Gigalight without the original first handset, then unless the first handset joins Gigaho and Gigalight, then you're not able to benefit in the second data -- you're not able to enter the benefit of the new rate plans.

So data plans is very cheap. We wanted to offer straightforward plan. So that being the case as far as the new adds are concerned, the new acquisitions are concerned, yes, there has been a slight decline.

So -- we compare like-for-like, apple-to-apple. It has only declined -- it declined.

But then, we will be expanding this plan going forward. So I would imagine that it will might take time. But the situation will improve eventually.

And also on top of that, net adds on the part of MVNO on a year-on-year basis is showing as slowed down, that is true.

So the churn rate for handsets, as you see, as far as the handset churn rate is concerned, as you see from the number, for the first quarter, yes, we still continue to see improvement as far as the trend is concerned.

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Kei Takahashi, UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst [61]

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Well, you mentioned that the churn trend. Is the trend for the churn is improving, does that represent the net add is increasing?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [62]

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Well, yes, improvement. Things are improving. That's all I can say.

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Operator [63]

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So this will be the last question. Since we are running out of time, this will be the last question for today's session. Morgan Stanley, MUFG, Mr. Tsusaka, please begin your question.

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Tetsuro Tsusaka, Morgan Stanley, Research Division - Research Analyst [64]

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This is Tsusaka. I, too, have a question regarding Rakuten, your strategy against Rakuten. Especially how capable are you in defending your revenues. And the framework of competition.

According to my understanding, the Ministry of Internal Affairs and Communication, believes that there are not really sufficient competition in the market yet, and therefore, they would like to further liquidify the customer and subscriber movement. So a new scheme is currently contemplated. As far as the rate plan is concerned, we don't know how Rakuten will set their prices going forward.

So you don't have to rush, but what kind of countermeasures do you have to think about is the question here.

But I think you only respond after their plans are unveiled. But if hypothetically, if Rakuten comes up with a very aggressive rate plan and if the customer liquidity in the overall market increases many types of new competition may arise.

But in that scenario, in the current entity DOCOMO's capability, to what extent will you be able to withstand a reduction of mobile communication service revenues by cutting down on your expenses.

So that's my first question.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [65]

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This is Tsujigami. To what extent can we sustain a reduction in mobile communication service revenues? So to which level can you withstand a reduction in revenues?

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Tetsuro Tsusaka, Morgan Stanley, Research Division - Research Analyst [66]

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So at which level, will you be able to sustain your business through a cost reduction? That's my question.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [67]

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As you may know very well, for the short term, as for the short-term volatility, we can, of course, work on cost reduction. And those are the only means that we can rely on to get through the circumstances.

Of course, overall, in the entire company, the expenses that we spend is enormous. So in that regard, whether we have flexibility there, we do have flexibility, if you ask the question.

But then on the other hand, for the -- if the competition intensifies further down the road, if we can continue to improve our efficiency and control cost, we have to make necessary preparations for that.

In terms of sales and marketing that I'm responsible for, for example, as we have been talking about over time, the online services and web services will have to utilize this more heavily, so that customers will take care of themselves without using our personnels.

And of course, they will just purchase the handsets. And of course, the call centers are all done by AI, for example, without involving humans or will be answered by machines.

These solutions will have to be adopted going forward in order to further reduce our costs.

So of course, for that, we require some system investments and other necessary preparations are underway already.

But if you can immediately reduce our cost just for the sake of intensified competition, it's not going to be that easy. So we have to combine the near-term measures with the longer-term measures. And over the medium term, we have to continue to address cost reduction. So all these means that I just mentioned, in all possible aspects of the business without any sacred cows, we are going to roll out these measures.

And through these measures, we would like to reinforce our competitiveness.

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Tetsuro Tsusaka, Morgan Stanley, Research Division - Research Analyst [68]

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Now one more thing. So, sorry, the cancellation fee, this will be reduced to JPY 1,000. If that is the case, what kind of impact do you foresee on the overall industry in your view?

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [69]

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The view of our company, that's very difficult to answer. But certainly, so far, we have been charging JPY 9,500 for cancellation fee. If this goes down to JPY 1,000, it's almost nothing. So there won't be any retention effect from that aspect almost.

But on the other hand, at least, from October, that is going to be implemented according to our assumption.

The mobile communication subscription contract will not be the condition for the handset contract. So the communication service contract itself, that subscription may be continued.

But the only upper limit for that is JPY 20,000 including carriers and also the distributors -- so in 24 months.

There is a window of 3 months, that doesn't require any cancellation charges. And you --will even though those windows. The -- that window was available, people had to pay -- significant number of people paid for the cancellation fee because of the handset benefits.

But if we have a stabilized rule across the industry, this cancellation fee in itself may not necessarily be -- we don't see carrier switch as significant as before, if this works out well. So anyway the handset costs will be separated completely from the communication charges, handset is handset, communication charges will be communication charges and customers will make a decision and choose carriers accordingly based on these different elements.

So we will set the handset charges at an attractive levels as well as the communication charges, so that we can be chosen by customers. We would like to prepare a good menu for customers. That's all for myself. Thank you. Thank you very much.

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Operator [70]

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All right. Thank you. Ladies and gentlemen, thank you very much for bearing with us for such long hours.

With this, we would like to finish the results presentation, for the first quarter of fiscal 2019. Thank you very much for your participation.

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