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Edited Transcript of 9437.T earnings conference call or presentation 29-Oct-19 8:00am GMT

Q2 FY19 Term Ending March 31, 2020 NTT Docomo Inc Earnings Presentation

Tokyo Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of NTT Docomo Inc earnings conference call or presentation Tuesday, October 29, 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

* Kazuhiro Yoshizawa

NTT DOCOMO, INC. - President, CEO & Representative 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

* Kei Takahashi

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

* Satoru Kikuchi

SMBC Nikko Securities Inc., Research Division - Senior Analyst

* Shinji Moriyuki

SBI Securities Co., Ltd., Research Division - 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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Thank you very much for your patience, and we would like to express our appreciation for taking your precious time to attend this meeting. From now we would like to start NTT DOCOMO Fiscal 2019 First Half Results Presentation. I am the emcee for this event. I am Okubo from the IR department.

Please be advised that this session is broadcast live on DOCOMO's IR web page and later on, from the same site, we'll be distributing the recorded video for on-demand distribution. Please be advised in advance.

Now I would like to introduce the 6 participants from NTT DOCOMO. We have 3 representative directors: our President and CEO, Mr. Yoshizawa; Senior Executive Vice President, Mr. Tsujigami; and also Senior Executive Vice President, Mr. Maruyama.

We have 3 EVPs and members of the Board of Directors: the CFO, Mr. Hirokado; and Executive General Manager of Smart Life division, Mr. Mori; and Executive Manager of Corporate Strategy and Planning Department, Mr. Fujiwara.

Now let me introduce today's schedule. First of all, we would like to have a presentation from President, Mr. Yoshizawa, using the presentation slides for about 30 minutes, and then we would like to move on to the Q&A session. We would like to finish the meeting at around 6:00 p.m. We would like to entertain as many questions as possible.

And finally, regarding the forward-looking statements, including those statements made during the Q&A session, please refer to the final slide of the presentation deck.

Now without further ado, I would like to invite Mr. Yoshizawa to begin his presentation.

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [2]

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Thank you very much, ladies and gentlemen, for taking your precious time to attend this meeting.

Before starting the results presentation, I would like to offer my heartfelt sympathy to those people affected by the Typhoons No.15 and 19 of 2019.

Regarding our responses towards the typhoon disaster and also for the additional disaster countermeasures for the future, I would like to cover these topics during the course of today's presentation.

Now I would like to begin my presentation regarding the results for the first half of 2019. This is the result highlights.

Operating revenues decreased by JPY 59.5 billion year-on-year to JPY 2,330 billion. Operating profit decreased by JPY 70.3 billion to JPY 540.3 billion. We are making a favorable progress towards our full year guidance.

The profit attributable to shareholders of NTT DOCOMO, INC. decreased by JPY 34.7 billion for the quarter and reached JPY 372.4 billion. Free cash flow increased by JPY 64.4 billion and reached JPY 439.1 billion. Although there was a decrease in both revenues and profit, but we are continuing on with our efforts from the first half -- first quarter of this fiscal year, actually, we have been striving to reinforce our customer base through our new billing plan, Gigalight, and expand the Smart Life business in a steadfast fashion so that we -- and also we are aiming for cost efficiency improvement, the larger in the size than last fiscal year.

For the results by segment. In telecommunications business, operating revenues decreased by JPY 89.7 billion, and operating profit decreased by JPY 78.8 billion.

Smart Life business and other businesses combined. In this area, operating revenues increased by JPY 32.5 billion, and operating profit increased by JPY 8.5 billion.

Please be advised that the Smart Life business includes the impact for -- from the consolidating NTT Plala subsidiary effective July 2019.

This shows the changes -- the key factors behind the changes in operating profit. Operating revenues decreased by JPY 59.5 billion. The key major reasons behind this include the decrease of mobile communication service revenues of JPY 37.9 billion due to the expanded impact of customer return measures, the increase of optical fiber broadband service revenues of JPY 24.6 billion and other revenues increase of JPY 26.3 billion due to the consolidation of NTT Plala Inc. And the equipment sales-related revenues decreased by JPY 72.6 billion due to the decrease in the number of wholesale handsets sold.

On the other hand, operating expenses increased by JPY 10.7 billion due to the consolidation of NTT Plala and the increase of POINT-related expenses. As a consequence, operating profit decreased by JPY 70.3 billion to JPY 450.3 billion (sic) [JPY 540.3 billion].

Now I would like to go into the operational results. d POINT CLUB members. The total number of d POINT CLUB members increased by 7% year-on-year to 72.34 million, of which, the total number of d POINT CLUB registrants, which represents the number of users who can use the d POINT at shops, increased by 38% to 38.35 million.

Next, the operation of telecommunications business. The mobile telecommunications service subscriptions increased 3% year-on-year to 79.2 million. The churn rate, excluding the MVNOs, was 0.57%, a slight increase year-on-year but maintained at a very low level.

On the other hand, the handset churn rate in particular, remained flat due to the provision of the new rate plans and the enrichment of the d POINT program and the evolution of customer touch points.

So despite the harsh competitive environment, we were able to successfully reduce the churn, and the handset churn rate remained flat at 0.46% year-on-year.

Now the number of smartphone and tablet users increased by 5% year-on-year to 41.15 million. I'll come back to the details later. But for those customers who are going to replace from a 3G feature phone to a 4G smartphone, starting November 1, we will be introducing what is called the Hajimete Sumaho Kounyu Support program and the Oshaberi Wari 60 discount program.

Through these measures, we would like to accelerate the migration to smartphones.

And on the right-hand side, the docomo Hikari subscriptions increased by 16% to 6.17 million.

Next, about the new rate plans. The new rate plans continue to enjoy great reviews from customers, and the number of applications as of the 21st of October exceeded 8 million. So the latest information says there are more than 8 million applications. So we are making a favorable progress towards achievement of the 17 million full year target.

For the achievement of the full year target, we'll continue to accelerate the migration to smartphones. We will conduct rate plan consultation plans. And through one-to-one approaches, we would like to aggressively pursue the migration of subscribers to the new rate plans.

Next, about the enrichment of the new rate plans. Starting October 1, for those customers who are applying for the new rate plans, if they agree to switch to d CARD for the payment method, we will like -- we will go -- providing a JPY 170 discount on a monthly basis, which is called the d CARD Oshiharai Wari program. So with this program, even without a 2-year term contract, customers will be able to enjoy the same low rate, monthly rates, and the cancellation fee for the 2-year term contract users was reduced to JPY 1,000. And we'll continue to further enrich the rate plan programs in order to ensure worry-free use of customers.

The ARPU, the aggregator ARPU for the second quarter, including the impact of various discounts, was JPY 4,740, the increase of docomo Hikari subscribers despite that. Because of the expanded impact from the customer return measures such as the new rate plans, we posted an JPY 80 decline compared to the same period of the last fiscal year.

Cost efficiency improvement for the first half total, we achieved a cost efficiency improvement totaling JPY 40 billion. This is a progress as planned. And towards the full year target of JPY 130 billion of cost reduction, we will continue to work on further improvement of efficiency.

Smart Life operating profit and -- from Smart Life and other businesses, operating profit increased by 10% year-on-year and reached JPY 94.5 billion. The contribution of each category for this JPY 94.5 billion, there are 4 categories, in fact. The first and foremost, DAZN for docomo and dTV. These content and lifestyle services accounted for 15% approximately. The second one, d CARD, e-payment and other finance and payment solutions accounted for 15%.

The peace of mind support, such as the Mobile Device Protection Services, accounted for approximately 45%; and the enterprise solutions and others accounted for approximately 20% of this profit.

And NTT Plala, which became a subsidiary from July onwards, are included under the content and lifestyle category.

And the finance and payment services. The total amount of transactions processed with our finance and payment services increased by 31% year-on-year to JPY 2,390 billion, of which the d CARD transactions increased by 28% year-on-year to JPY 1,910 billion. Due to the effects of various campaigns, the amount of transactions has increased steadily.

The d CARD members increased by 5%, as you see on the right, to 20.39 million users. d CARD GOLD also continued to increase its subscriber base to -- up 31% year-on-year to 5.98 million. And in fact, the number exceeded 6 million on the 4th of October.

Now I would like to talk about the expansion of smartphone payment. We have rolled out many different measures. As for the d Payment service, we have successfully expanded the number of users as well as the merchants in a steadfast fashion, and actually, the number of application downloads topped 10 million on October 5 and the total amount of transactions processed in the first half amounted to JPY 121 billion. The locations where d Payment services and POINT services can be used increased to 1.22 million allocations expanding steadily, and we have also introduced a wallet functions that allows the remittance between d app -- d Payment application users from September onwards.

Going forward, as you can see here, with all these people -- partners we will be launching our d CARD mini applications, which can be accessed from the d CARD applications in order to provide coupons and other preorder services. We will continue to add new functions in order to make the payment usable in various scenes of customers' lives and expand the number of partners so that we can offer enhanced convenience to users.

As for the d POINT, we continue to expand the number of shops and as a result, the d POINT users increased by 9% (sic) [19%] year-on-year to 94.3 billion points.

And the total number of d POINT partners reached 582 partners, continuing to increase at a favorable pace.

Next, I would like to talk about the expansion of plus d partners. The number of partners continued to expand at a favorable pace, and in fact, the number of partners exceeded 1,000 as of the end of September. And in fact, that total number right as of today, as of the end of September, was 1,028. We'll continue to accelerate the collaboration, co-creation with -- together with plus d partners.

Next, about the 5G-related initiatives. As you're familiar, we've launched the 5G precommercial services nationwide on September 20. In line with the Rugby World Cup, we are providing new experience such as real-time multi-angle viewing using 5G smartphones to coincide with the Rugby World Cup, and this proved to be very well-received.

And so in terms of co-creation with our partners, remote monitoring -- remote monitored fully -- full autonomous driving tractor in Iwamizawa in Hokkaido is a case in point. And also we're providing remote golf lessons using image analysis tools in cooperation with PGA. [So are involved in the demonstrations].

Going forward, we are preparing using 5G base initiatives to various events such as Tokyo International Film Festival, and we're going to be creating various 5G services solutions so that we can provide commercial services come next spring.

Next, I would like to talk about the 5G base station deployment plan. Based on the 5G base station and solution plan which we have submitted to the Ministry of Internal Affairs and Communications, in fiscal 2024, the 5G base stations are going to be [26 through 34], and also deployment rate will be 97%.

This is the minimum level, which we can achieve definitely. And we are considering possibly moving forward the schedule so that we can have as many people experience the benefits of 5G universe as soon as possible. And also toward the bottom left, the number of engineers involved in 5G, we hit -- that number has exceeded 10,000 inclusive of the group operating companies. So it is [initiative], which DOCOMO, as a whole, is involved in. So through the system and institution by end of June 2020, we would like to deploy 5G base stations throughout 47 prefectures. And also toward the end of June in 2021, we would like to build out 10,000 5G base stations by that time.

Going forward, we'll actively promote 5G network building in various places throughout Japan nationwide.

Next, I would like to talk about the termination of FOMA or 3G service. As far as 3G is concerned, we have already suspended the reception of new subscriptions for voice plans and i-modes. However, as further services as well, we will complete the receiving of the applications for new services at the end of fiscal year 2019. And by the end of fiscal year 2025, former 3G services are fully terminated.

For those customers who are using 3G services, especially retail customers, on top of the diverse 4G smartphones lineup, we are going to provide handsets that can have same operability such as the clamshell folding-type phones. And we would like to provide 4G network whereby customers will feel safe and secure in using.

And also we're considering further expedition of the 4G network. We will continue to upgrade the network in the coming 5G era.

Next, as we announced at the announcement of the new product lineup for the winter/spring model for 2019/2020, we are going to set up a standard model at a very affordable price. So with the enriched 4G lineup, we would like to have as many people utilize smartphones as possible.

And also from November 1, for the customers that are using 3G feature phones, we're going to be introducing something on the top right, which is entitled Hajimete Sumaho Kounyu Support. Also for those customers who migrate from 3G feature phones to 4G smartphones and for those customers who are above the age of 60, we are going to be providing Oshaberi Wari 60 discount.

So if you combine this with the Hajimete Sumaho Wari discount, which is very well received at this moment, I think our subscribers will be able to start using these services starting from a monthly charge of JPY 980. So through such initiatives, we like to further promote and encourage migration to 4G.

Next, we'd like to talk about our efforts to reinforce customer touchpoints. We have implemented various measures to improve the waiting time and the attendance times at the DOCOMO shop. By the end of this fiscal year, we are aiming to reduce the attendance time by half by using digital transformation or DX. We would like to achieve an attendance time of less than 1 hour as soon as possible.

And also from December, in all DOCOMO shops, we are going to be providing free of charge services -- free of charge basic support services for initial setup as well as data migration.

Also in smartphone classes, we are going to be reaching the curriculum programming classes, medical classes and other curriculums as well.

We would also like to talk about efforts to really improve customers' web experience. And this -- we have divided this between our procedures and handset purchases. In the case of procedures, we are going to -- by extending chat support and support hours up to 24 hours we can support customers during nighttime of where the web-based procedures are concentrated. And also we like to support customers after reception hours are over at the shops and at call centers. So this is from September 6 -- correction, November 6 onwards.

Also in the billing simulation sites. Based on the most recent usage record, we would like to offer the most optimum plans to the customers. And also in terms of the handsets purchases, we would like to reduce half the switching of the screens upon this procedure so that we can reduce the application time.

And also for those customers who want to receive smartphones as soon as possible, in order to respond to that requirement, we are now going to be starting a same-day delivery service starting from November 5 this year.

Next, we would like to talk about our initiatives in relation to the Declaration beyond our medium term strategy. First, with regard to the initiatives that relate to value and excitement for customers, Declaration 1, in relation to Declaration 1, the user base of +Message services topped 10 million.

Also in relation to Declaration 2, we have concluded alliance with Paronym Inc. for next-generation interactive video technology. This -- with this collaboration in TIG or [TIG with Paronym] is a technology that displays all the information that you want by touching the video.

Also Declaration 3, we're going to be adding Anshin Pack Home, which supports digital equipment at home. And also with regard to mobile device protection services, we are going to be providing replacing handsets on the same day.

Next, I would like to talk about our efforts in relation to Declaration 4, launch of 5G service in Guam, FWA for enterprises. Today, actually we're launching the 5G -- commercial 5G services.

And also for Declaration 5, we have agreed to invest and have a business alliance with a company called Edgematrix, and we're going to seek to build an ecosystem to invigorate AI-based solutions.

Declaration Number 6, for financial institutions, we're going to be delivering DOCOMO lending platform.

So aside from what we have already introduced today, we're carrying out various initiatives towards the implementation of Declaration beyond. And also to realize a very rich future, we like to further accelerate our initiatives.

Next, let me talk about ESG valuations. As you can see, for [the subscriber] we have been a Top 10 constituents of 3 prominent ESG indices as well as all the ESG indices that are selected by GPIF. So that is the situation.

Furthermore, with regard to our indices for the fiscal year in relation to ESG, let me highlight 4. Starting from top left. This is the task related to climate change. For the first time in the domestic telecom industry, we have declared our support for TCFD. Going forward, we would like to appropriately disclose the information about climate change based on this initiative.

And the second, on the top right, our efforts in relation to privacy. So the customers can use DOCOMO services with a sense of security, what we have done is to announce and publish the note -- NTT DOCOMO Personal Data Charter.

And bottom left, in order to prevent any risks and problems pertaining to the usage of smartphones and mobile phones, we've carried out 83,000 smartphone and mobile phone safety classes up until September, and the number of participants have now topped 13 million overall.

And also on the bottom right, as initiative to provide solutions for domestic challenges through -- we're going to be -- we started natural communication-enabled AI guidance service called Oshaberi Annaiban.

So towards the -- or through the implementation of Declaration beyond, we're going to work toward achieving a sustainable society.

Next, let me talk about our responses to Typhoons No. 15 and No. 19. On a daily basis, we have created a team of 2,000 at maximum to carry out restoration support activities by providing free of charge charging as well as WiFi services and also by providing disaster-related information to visitors in Japan. We've been able to react so that we can minimize any effect of the disaster.

And also we have begun the disaster data unlimited mode service as well. So therefore, based on the data charge which the customers were using prior to the disaster, without limitations to the communication speed, they will have unlimited data communication access.

With regard to disaster relief areas that -- whereby the disaster relief act was supplied for Typhoon No.19, we will continue to implement these initiatives into the month of November as well.

Next, let me talk about DOCOMO's disaster preparedness measures. First, with regard to our -- first to strengthen our emergency power supply. For medium-term base stations we're implementing uninterrupted power supply or 24-hour battery. And also with regard to core disaster medical hospitals, which are very important -- the examples that we are providing, 72-hour battery as well. We were considering possibly enriching the activities there.

And also on the top right, preparedness using AI and also efforts to provide improvement of node buildings that have flood control. These are the measures which we'd like to enhance.

Going forward, DOCOMO will, on a day-to-day basis, reinforce and expand our disaster preparedness, and we would like to make efforts to continue to improve the network safety as well as reliability even in the face of disasters.

Next, let me talk about the progress of the share repurchase program. This is the update of the progress of -- up until second quarter. From May 7 up until September 30, through market -- buying of the market at TSE, we have acquired 47.71 million shares. And also we've also acquired JPY 122.8 billion. And also the outstanding shares would be JPY 177.2 billion. We will continue to buy our shares on the market.

Next, let me talk about the revised guidance for fiscal 2019. This is self-explanatory. As you can see, we have decided to revise the guidance, which I've shared with you at the outset. As for operating revenue, this has been increased upwards by some JPY 60 billion and has been changed to JPY 4,640 billion.

For operating income or operating profit, as I mentioned earlier, we are going to be involved in the promotion of migration and also we want to enrich various measures in terms of the Smart Life business. In particular, we want to promote cashless payment. So d Payment initiatives, we need to accelerate those efforts. So that being the case, that impact will be felt. So as far as operating income is concerned, we're not going to change our guidance at this juncture because of those elements.

So last but not least, I'd like to give you the summary of the first half of fiscal year 2019. This is -- I hope that you take a look at this at your leisure.

So as far as the second quarter is concerned, in the face of very intense competitive landscape, we have made efforts to improve sales in the -- with -- based on new rate plans and also we have made efforts to expand smartphone-based payment. And as a result, we've been able to reinforce our customer base.

And also we announced the termination of the 3G service today.

Also, we'll promote migration. We'll also make efforts to improve our network. We'll make even further efforts towards this end so that we can realize efficient business operation.

For the second half, we will leverage the expense which we have been able to gain through 5G pre-commercial services. And towards the commercialization and launch of commercial services of 5G come next spring, we will continue to build out network throughout Japan nationwide.

So that's all for myself. Thank you very much.

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Naoto Okubo;Investor Relations, [3]

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Now will entertain questions. We would like to accept as many questions as possible from as many people as possible. Therefore, we would like to limit the number of questions to 2 question per 1 questioner. We appreciate your understanding.

Now if you have a question, please raise your hand. And before you start your question, please let us know your name and affiliation.

Now any questions?

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Questions and Answers

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Naoto Okubo;Investor Relations, [1]

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In the center section, the second row from the front, the gentleman in the white shirt?

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [2]

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SMBC. My name is Kikuchi. I've got 2 questions. The first is your revised plan -- revised forecast. I know that your ARPU is rising, but the expenses are also rising. So I would like to ask a question regarding your expenses. You just mentioned that for -- due to the migration and, of course, the expenses relating to your Smart Life business, you're anticipating some increase of expenses. But I think that is quite large at JPY 48 billion, and there wasn't any increase in the first half. So I expect that you are expecting a large increase in the second half? So can you provide us with a breakdown of these additional expenses?

And also the loss on disposal of property and equipment is going to increase by JPY 15 billion? So what are the content of such equipment to be disposed of? Can you comment on these things?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [3]

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I am Hirokado, CFO. I would like to answer this question. Regarding the expenses, the major items include the cost of equipment sold. This time around, as far as the revenues is concerned, the equipment sales revenues was revised upwards by JPY 25 billion. And because we are going to promote the migrations with various measures, this will be subtracted from the equipment sales revenues. So the numbers -- the net number after reduction is JPY 25 billion. So therefore, the cost will have to be applied with the measures or expenses. Therefore, the actual cost is larger than that.

The specific amount cannot be commented because of the competitive reasons, but I think you'll be able to get an imagination from these numbers.

Now regarding the write-off, the disposals of -- from -- in order to alleviate the impact on future years, we have decided to terminate the 3G and 3G service. So those are related to the termination of the services, that some of the disposal -- loss of disposal will be coming from the termination of 3G, and some equipment will no longer be usable. So -- and because the revenue generation is quite favorable, we have decided to accelerate the disposal of such equipment.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [4]

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All right. Now I would like to ask my second question. Right now, your company is now promoting aggressively d Payment and d CARD and iD as your -- in order to strengthen your payment offers and financial services. This term, you are launching various campaigns and starting November, you're going to launch another campaign. And -- but I don't think that is going to have a significant impact on your results.

In the first half, a Smart Life-related profit did not show such significant impact from those measures, but what about the results for next fiscal year and beyond? Your efforts for the financial payment services? In what way will that be reflected in your profit going forward? And of course, maybe you're going to give us a qualitative comment that this is going to grow in the future? But I think when we look at these performances in the next fiscal year and beyond, I guess this is going to be the driver for the Smart Life profits going forward. So can you give us some concrete ideas as to the amount of profit increase that you're expecting from these measures in the future, let's say next year and the year beyond?

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Kenichi Mori, NTT DOCOMO, INC. - Executive VP, Executive GM of Smart-life Business Division and Director [5]

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Okay. This is Mori. But I think you would like to know the details about the profits, but this is something we cannot disclose at this point of time. But as you know, the amount of transactions that we handle is disclosed at the -- every quarter. And that was JPY 3.9 trillion for the annual number, for the total of d Payment and the d CARD service. And this fiscal year, this is likely to increase larger than expectations. That is the pace of growth that we are seeing at this moment.

So because this is an amount of transactions that could be processed and the few percentage point fee is the income that we can generate, and therefore, you'll be able to reverse calculate the amount of profit. Now that's 2020. And we would like to increase this to JPY 6 trillion -- the amount of transaction to JPY 6 trillion by 2022.

And with that goal, we would like to boost the usage, and of course, expand the number of locations where the service is provided. We are pouring efforts towards these targets. And on -- from 26th of September, we added a new function -- the wallet function to d Payment service. This is a functional upgrade to d Payment. And as you can see here, the d wallet service will encompass all these functionalities as you see here on this slide.

So in the finance and payment service, I think this is going to be a mainstream medium. And I think this will offer various usages. And therefore, leveraging this wallet capability, we would like to expand the transactions of various business partners of ours. And of course, advertisements can also be carried. So I think we'll be able to build new businesses in a different way from the consumer-type of business. And therefore, we are now currently working to expand the user base as well as the locations where the service is provided. And by inducing our members to use these channels, we would like to develop a new pillar of our revenues going forward.

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Naoto Okubo;Investor Relations, [6]

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Next question. We'd like to go to the next person. So to the right-hand side, from the second row from the top toward the left. We'd like to go to the next person. Yes, please.

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Unidentified Analyst, [7]

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It's about the penetration of the new rate plans. So the penetration of the new rate plans. So as of September, 7.17 million. You mentioned second quarter, I think, if I'm not wrong, you'd increase by 3.4 million, I would imagine. So if the base holds, then you're not going to reach 17 million anytime soon. So how do you intend to increase the penetration during the third and the fourth quarter? How do you intend to increase the penetration of the new rate plans into the third and the fourth quarter? That will be my question.

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [8]

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Thank you very much. Well, the -- recently, we have topped 8 million in the recent. So 8.5 million, if we double 8.5 million, that would reach 17 million. So it's been 5 months. So we have 5 months remaining. So on average, it means that we have to achieve 1.6 million per month.

So right now, as of September and October, it's been increasing by 1.5 million to 1.6 million. So if we maintain this pace and momentum, we believe that this is achievable and feasible. As I mentioned earlier, as far as we're concerned, we want people to migrate from feature phones to 4G. And at that juncture, naturally, we hope that they will incorporate the new rate plans.

And the benefits delivered by new rate plans, I think, have become, well, much more recognized. So one to one -- on a one-to-one basis and also in our rate plan fairs, we hope that we'll be able to drive the penetration and hope that we'll be able to achieve the target of 17 million subscriptions for the new rate plans. And we believe that this is deliverable.

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Unidentified Analyst, [9]

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My second question is about the CapEx. Of course, we had the typhoon, and of course, we have to have disaster preparedness. I do understand. And also, during your presentation, you talked about 5G investment being brought forward so that -- your explanation.

So the slight change in the CapEx for this fiscal year. So how do you intend to achieve that or address CapEx? And also, as you bring forward the 5G investment, how should we see the investment for CapEx next fiscal year? I would appreciate your thoughts.

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [10]

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Thank you. Well, as far as the investment is concerned, well, in this first half, actually we were behind the plan in first half. One reason is, for example, G20 . We've had to carry various constructions and also to DOCOMO [G20]. And also premium 4G plans, achievement of that, and also bringing forward the 5G, that's also in the play. So throughout the second half, all these ingredients will come into play. And we very much want to achieve all these initiatives as planned.

As far as the investment level is concerned, it will remain at JPY 570 billion. It will remain unchanged. We want to make sure that we are able to deliver the investment.

And also next fiscal year, as far as 5G is concerned, naturally, the movement and the percentage of 5G will have to expand. But at the same time though, 4G is the basis of the 5G. So LTE, we have to continue to build out the 4G network -- LTE network, which will be the basis of 5G. So bearing that in mind, we think we will be able to maintain flat. We're still in the planning process, but that is the overall situation which we envision. I hope that answers your question.

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Naoto Okubo;Investor Relations, [11]

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Thank you. Now the third question comes from the front row from the far left section, the gentleman with the right -- the purple necktie.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [12]

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This is Masuno from Nomura Securities. I've got a question relating to your expenses. According to your plan in the second half of the year, due to cost reduction, you're expecting JPY 90 billion. After JPY 40 billion in the first half, I think you have to work on [JPY 90 billion] in cost reduction in the second half of the year. So compared against your annual plan and compared against the second half of last fiscal year, I think this is going to be smaller than last fiscal year.

But when we think about that, there is a plan to further reduce your cost-efficiency by JPY 90 billion . So if you cut -- take this into consideration, your actual expenses is actually increasing, I think so, as we said at the outset.

We do understand that this is the landing number. But before the cost-efficiency program kicks in, what is the reason behind the expenses -- the rise in expenses? Even though you speak about migration, I think they are migrating to very low-cost Android phones. And the SKU -- well, depending on the SKU, it's going to be JPY 50,000 per piece. And then if you can include the subsidies and so forth, it's only about JPY 70,000. So it's only about -- in totality, it's only about JPY 7 billion because of 100,000 units being sold. So what are the factors that are contemplated behind this expense increase?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [13]

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The cost-efficiency improvement program for this fiscal year, first and foremost, the major items include the reduction of commissions coming from the reduction of discounts. So this will be reflected in a decrease in the expenses, and so it doesn't appear so much on the P&L. So although there was a JPY 40 billion reduction and cost-efficiency improvement achieved in the first half, but the actual expenses was less than half of that amount.

And the increases come mainly from the consolidation of Plala, and that has an impact of JPY 20 billion -- or slightly -- or north -- to the north of JPY 19 billion; and the docomo Hikari-linked expenses that rises -- this is the communication network charges that increases in line with the number of subscribers of about JPY 20 billion; and the Point-related expenses also increased by JPY 10-some billion. And so those are reasons behind the increase.

And in the second half as well, we have to work on remaining [JPY 90 billion] cost-efficiency improvement. And sales-related expenses will be reduced, meaning that these are the subtracted from the selling-related revenues. So therefore, that accounts for as a major bulk. So the docomo Hikari-related and POINT-related expenses and the consolidation of NTT Plala will continue to be the impact that we have to foresee in the second half.

So despite the cost-efficiency improvement of JPY 130 billion, on the surface, it may look as though the expenses is increasing at a larger pace. But compared to the plan, the JPY 60 billion revenues upward revision was made, and the service revenues are also increasing than planned. So this seems that there might be a temporary increase in the expenses, then that is justifiable because of the increase in revenues.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [14]

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But these expenses that are building up this fiscal year, they are going to come down next fiscal year. Can you comment on that possibility? Or because of the revenue increase this fiscal year, the service revenues are increasing this fiscal year. And do you anticipate this trend to continue going next fiscal year? So are you going to expect an uplift next fiscal year? Or is this just a temporary plus and minuses for this fiscal year alone? So if that is the case, what is the policy for next fiscal year?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [15]

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Next fiscal year as well, we will continue to work on cost-efficiency improvement. We'll strive for that. And the size of that may not be as sizable as JPY 130 billion as this fiscal year. That may be difficult to achieve next fiscal year. Having said that, however, the discount on handsets will be reduced. That will have a full year impact next fiscal year. So that's somewhere -- an area that we have expectations for, for a cost reduction next fiscal year. And other than that, we will work on other cost-efficiency improvement.

This fiscal year, we relied so much on the reduction of handset costs, but next fiscal year and over the medium term, we will look into the -- working on a structural reform of the company by addressing marketing and network-related expenses and by leveraging digital transformation we would like to -- and also by employing AI, we have a company-wide project that is currently executed. So we believe these will generate tens of billions of yen of cost-efficiency improvement.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [16]

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And this is my last question. Regarding your new rate plans. When the same user migrates to the new rate plan, what happens? I think -- and I do understand that flat rate will have a savings. But if users migrate to usage-based billing, I think their usage and the bill will actually rise after the migration to the new rate plans. So what happens if the same user migrates from a new -- old rate plan to a new rate plan on average?

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [17]

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After -- so you're asking -- I think we have high expectations for the upsell effect after the new customer migrates to a new rate plan. But that's too early to expect at this point of time. We haven't seen that effect yet. So up until now, we are seeing an upsell between -- among the subscribers of the old basic plan -- our old plan. Because of the basic plan, of the conventional plan, they're different tiers, so customers are switching to the larger buckets and that is already becoming visible.

And this time around, the mobile communication service revenues was revised upwards, primarily because of the slower-than-expected impact of the Gigaho and Gigalight subscription that accounted for half of that impact and also the successful upgrade among the old rate plan users. And those were the major reasons. So other than the new rate plans, I think those factors contributed to the upward revision of the mobile communication service revenues.

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Naoto Okubo;Investor Relations, [18]

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Thank you. Next question, please. We'd like to go to the person in the front row toward the right-hand side.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [19]

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Ando from Daiwa. If I may ask for confirmation and clarification. You talked about migration measures. I would imagine that for the third quarter onwards, you're going to be reinforcing migration measures. So if I'm right, that is going to contribute to achieving 1.7 million penetration of the new rate plans. Am I right?

So if that is the case, I would like to come to my question. So in line with this migration process, with regard to ARPU, how do you see potential impact on the ARPU through the migration process? If you could share that with us, I would appreciate it.

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [20]

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Thank you. Yes. About the ARPU. Well, through migration and promotion measures, what impact will there be on ARPU? We have not been able to identify that per se. But based on the track record so far, and I would imagine that it will be in the range of several tens of yen, dozens of yen, probably less than JPY 50, but the potential positive impact on ARPU is going to be within that range on a year-on-year basis. So we believe that this trend can continue down the road.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [21]

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My second question is about payment. The credit card issues -- the number of credit cards issued, not just Gold but the other credit cards issued, what impact -- what increase did you see in the second quarter? And also what is the pace of the increase? I would appreciate you sharing that, if that's possible.

And also with regards to d Payment, you don't show the total volume of d Payment. But there are a lot of questions about profitability, but how do you see the profitability of this service? I would appreciate your thoughts on that as well.

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Kenichi Mori, NTT DOCOMO, INC. - Executive VP, Executive GM of Smart-life Business Division and Director [22]

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Thank you. With regard to the number of credit cards issued, as far as the subscriptions are concerned, it's in the data subset which we have distributed.. So you should see in the supplementary data. It should be at the very back. So please take a look at the chart on -- in the data book which has been distributed to you. As far as the rate of increase is concerned, it's very positive, very much in line with the initial expectations.

And also with regard to the d Payment, in terms of d Payment, let me see. Well, it's very difficult to talk about which perspective we can share with you. But the number of active users, we have identified that: so with more than 10 million downloads and also someone who has to the use application at least once per month. That's the type of customers we want to increase.

For September and also with regard to -- in October, where the credit card -- cashback has -- cashless service has increased, has been implemented, we received a strong note -- a very strong increase. So we have seen very strong increase in these 2 months. So as far as [the image] is considered, September and October active users, the percentage between the two, well, let's see. I would say maybe, it's not as much as 1.5-fold but close to 1.2-fold or 1.3-fold. That's the comparison between September and October in terms of the number of active users.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [23]

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Sorry. If I could come up with additional questions then. So d CARD credit card, plastic cards issued, what about that number? That's the number I wanted to have. And also with regard to profitability of d Payment, your thoughts about the profitability of d Payment service per se?

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Kenichi Mori, NTT DOCOMO, INC. - Executive VP, Executive GM of Smart-life Business Division and Director [24]

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Okay. With regard to the plastic cards, sorry, we don't have the number of cards issued outstanding at this -- on hand. But among the subscriptions, for example, there are some holders who are not using these cards as main cards. So when they renew the contract, we don't send plastic cards. This is for cost-saving purposes. So this is a measure which we are taking. So -- and on the subscriptions, they might have the credit card number per se, but there may be cardholders who don't actually have physical plastic cards.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [25]

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As with regard -- so well, sorry, plastic cards. I used the wrong term. I'm talking about the credit cards, so not mini but full-fledged credit cards. So the...

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Kenichi Mori, NTT DOCOMO, INC. - Executive VP, Executive GM of Smart-life Business Division and Director [26]

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Sorry, excluding mini card? Okay, mini. Okay. So what is the number, let me check. So 12 million as of the second quarter. 12 million of the second quarter -- sorry, so we have to exclude that. Yes, 12 million excluding mini. Yes, so 12 million as of second quarter.

And also, with regard to the profitability pertaining to d Payment, well, during the small meeting, we've mentioned that it is a profitable business. I mentioned it's a profit-driving business. But this is internal accounting.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [27]

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So cost for d Payment, what is that?

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Kenichi Mori, NTT DOCOMO, INC. - Executive VP, Executive GM of Smart-life Business Division and Director [28]

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So with regard to the digital billing, it's not so much d Payment. It's kind of a cost for the actual telecom service. And also, that cost will be allocated to the d CARD. So when it comes to d Payment, commission-related revenues are directly -- directly translate into profits. It's a matter of internal accounting. That's how we see -- that's how we account this.

So if you take first half, d POINT, d Payment promotion, they carried a promotion -- they carried a campaign for the promotion of the d Payment. So we have not seen much impact on d Payment on a stand-alone basis.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [29]

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Sorry. I talked about the migration measures. I talked about the impact of migration measures on ARPU.

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Osamu Hirokado, NTT DOCOMO, INC. - Executive VP, CFO, GM of Accounts & Finance Department and Director [30]

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I've mentioned it's close to JPY 50 on a year-on-year basis. But if you take a look year-on-year, it's actually more than JPY 50 impact. But if you compare first quarter to the second quarter, the positive impact is less than JPY 50. We're talking about several tens of yen. It's available on data and we believe [the agreement] look for more going forward.

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Naoto Okubo;Investor Relations, [31]

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Now our next question. Towards the front or the left-hand side of the room, the fifth row from the front, the gentleman in the white shirt raising his hand.

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Kei Takahashi, UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst [32]

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UBS. My name is Takahashi. I've got 2 questions. This fiscal year's full year guidance, in that guidance, mobile communication service revenues was revised upwards by JPY 39 billion. And according to your explanation, because the number of the active users were more favorable than planned, then the upsell of the conventional plan users was quite also favorable. But on the other hand the -- when you look at the discounts from the new rate plans, this JPY 39 billion, compared to this upward revision, what kind of impact has there been with the new rate plans? Can you explain on that point?

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

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So the limited revenue impact from the new rate plan was -- is expected to be smaller than expected. And that accounts for less than half of that JPY 39 billion upward revision.

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Kei Takahashi, UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst [34]

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So 17 million users is the full year -- year-end expected number for new rate plan users? And so the impact of discounts from the new rate plans coming thus -- coming in smaller than expected is because the reduction per 1 user is smaller than expected? Or is it because the progress towards the reach -- the arrival of that 17 million as of the year-end because the beginning -- in the beginning, the uptick was slow?

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

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Yes. This is the impact from the slower-than-expected start of the migration.

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Kei Takahashi, UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst [36]

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Now regarding the -- you made an upward revision for the new -- medium-term plan, but when we look at the details, when you look at the second quarter, the communication modules is quite selling in brisk numbers. So I think the contribution from the communication modules had a significant contribution. So when you divide between communication modules and nonmodules, can you give us a breakdown of the net additions performance of the contribution?

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Naoto Okubo;Investor Relations, [37]

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So that would be explained by Mr. Tsujigami.

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Hiroshi Tsujigami, NTT DOCOMO, INC. - Senior EVP, Executive GM of Sales & Marketing Division of Global Business and Corporate and Director [38]

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As you already pointed out, this time around, when you look at the first half performance, communication modules grew at a very favorable pace, and that is likely to continue going forward. For DOCOMO brand subscriptions' mobile circuits, the data plan users decreased significantly due to the new rate plans. And that -- so that posted a net loss. But when it comes to the handsets, due to the impact and the benefits of the new rate plans, the handset net additions performed better than expected according -- compared to our internal forecast.

So going forward, when we think -- I think this is going to have a significant competitive advantage going forward. So I think because of this, we believe this trend of improvement is likely to continue, and that's the reason why we have made this upward revision for the net additions.

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Kei Takahashi, UBS Investment Bank, Research Division - Executive Director and Telecom & Software Analyst [39]

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So the 500,000 upward revision comes mainly from the communication modules? 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 [40]

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I cannot comment on the breakdown, but the contribution from the communication module is quite significant.

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [41]

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Modules are slightly larger than nonmodule devices. That's my comment.

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Naoto Okubo;Investor Relations, [42]

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Okay. Thank you very much. Are there any other questions? We are arriving the end of the session. So are there still questions? Can you raise your hand? Thank you. We'd like to go to the gentleman in the center row.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [43]

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Moriyuki from SBI Securities. About migration, well, the telecom business has been changed and marketing promotion costs can no longer be introduced that much. So how do you intend to maintain this pace? Right now, you talk about the suspension or termination. You talked about 3G termination. But how do you intend to maintain these -- how do you maintain these services?

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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 talking about what will come from now. Well, in the first half, we've been able to exceed the level in the previous first half. And although the overall population is larger, we've been able to promote migration. And I think new rate plans, especially Gigalight, had a very positive impact. So we've been able to introduce these measures.

And also, as far as the handsets are concerned, from September, we've been able to enrich the standard model. And also the -- and we went -- that continues to be valid for the new winter and spring models, which we announced. And we will continue to provide affordable handsets within the range of less than JPY 20,000 per handset. So even in the -- so in the framework of the telecom business, as far as 3G to 4G migration is concerned, we believe that we will be able to implement a certain level of discount.

So within that range, we want to continue to accelerate those migration process. So why are we in such a haste to migrate? That is because our competition is also focused on this particular segment at this area. So that being the case, to the extent possible, we would like to encourage our customers to migrate as soon as possible so that they will be willing to stick with DOCOMO over a long term. That, I believe, is a very important strategy for us.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [45]

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So I see. So that being the case, you changed the rate plans. So may I take it that you have taken the measures that are already possible, [putting them in the] next fiscal year? That's the gist of my question. So how do you intend to bring about change?

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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, I believe those in the most major volume majorities -- late majority customer segments, they are now beginning to migrate. So it's not just about the handsets. It's not just about the rate plans. We have to have consultations where you also have to have smartphone classrooms. You need very careful planning so that we'll be able to pave the way for the customers to migrate. That type of initiative would be required. So we want to thoroughly implement those migration plans.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [47]

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My second question is about the ESG. It might not be directly related, but on Page 25, you have carried out a very large number of smartphone classes. So what's the impact on ARPU and also the impact on migration through those classes? Because you're carrying out such a large number of classes. I wondered what the advantage or the benefit from those classes could be. Is there a causal relationship between holding these classes and on your performance?

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [48]

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Well, so mobile phones and smartphones, there's some negative dark sides, if you will, to those handsets. So you have to bear that in mind. So for students at elementary schools, in junior high schools, targeting those students, you know that we want to resolve these issues. So we've been actively promoting these classes against that backdrop.

So having said that, we do not intend to link this with promotion of marketing -- of sales and marketing and sales promotion. But the fact that DOCOMO is carrying out such initiatives, we believe that we'll be able to improve the literacy towards mobile phones and smartphones, and also potential risks, making sure that our customers don't come close to that and also promoting filtering. We need to rigorously promote that. And it's important that we gain the understanding of the customers. So be it smartphones or be it mobile phones, it's important that the image of the industry per se be maintained in a very positive manner. And I think it has some benefits in terms of maintaining positive image for the industry, so it might not be directly linked to the performance of DOCOMO.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [49]

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Sorry. I was talking about smartphone class here. I was talking of smartphone classes.

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [50]

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Oh, I see, you're talking about smartphone classes.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [51]

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So you're talking about lifetime value. So what impact on ARPU.

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [52]

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I see. You're asking about smartphone classes. Sorry. My apologies. So you were talking about smartphone classes. Yes. It's about -- I think the number of participants reached 4 million already, and I would say that in all shops, maybe at least they've carried 3 classes per day. And for each class, we have 5 to 6 participants.

One thing, this will encourage migration to smartphones because these classes help to improve the literacy of the customers toward smartphones. So it's a matter of, how can I put it, a comparison of the convenience between the feature phones and smartphones. So in the face of natural disasters, it's easier to search through smartphones, easier to get the information through smartphones. So especially towards the seniors -- older citizens -- senior-aged citizens, it's important that we promote this. And that's had an impact.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [53]

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No. I fully understand the value of the concept. I was just talking about the actual benefit vis-à-vis the 4 million participants of the smartphone classes. That's what I wanted to draw out.

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [54]

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I see. So 4 million participants.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [55]

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Yes. So they gain interest, but if they don't move -- migrate to smartphones, it doesn't have any meaning.

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Kazuhiro Yoshizawa, NTT DOCOMO, INC. - President, CEO & Representative Director [56]

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They have moved as a matter of fact. I simply cannot share the number with you. But yes, in principle, the people have indeed migrated from 3G feature phones to smartphones. And also they have also migrated from competition to DOCOMO. We cannot give you that absolute number. Our apologies.

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Naoto Okubo;Investor Relations, [57]

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So we are running out of time. We are approaching the allotted time. But are there any other questions? Okay. Seems to be none.

So thank you very much. We would now like to finish the results presentation session at this juncture. We thank you very much for attending this session despite your busy schedule. Once again, thank you very much. This is the end of the session. Thank you.

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