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NTT DoCoMo, Inc. (NYSE:DCM)

F4Q12 Earnings Call

April 26, 2012 4:00 AM ET

Executives

Kazunori Yamamoto – Managing Director, IR

Kaoru Kato – President and CEO

Analysts

Daisaku Masuno – Nomura Securities

Tetsuro Tsusaka – Morgan Stanley

Hitoshi Hayakawa – Credit Suisse

Yoshiyuki Kinoshita - Merrill Lynch Japan Securities Co., Ltd.

Ikuo Matsuhashi – Goldman Sachs

Kazunori Yamamoto

[Interpreted]

Thank you very much, for waiting and we thank you very much for attending this meeting despite your busy schedule. We would like to start this analyst meeting announcing the results for the fiscal year ended March 2013.

I am Yamamoto, Managing Director of IR Department and I will be presiding this meeting. Please be advised about this meeting is broadcast live via Internet and also on smartphones and a recorded video of this meeting will be distributed to DOCOMO’s web page on an on demand basis.

Now let me introduce the participants from NTT DOCOMO. We have Mr. Kaoru Kato, President and CEO; Senior Executive Vice President, Mr. Tsubouchi; also Senior Executive Vice President, Mr. Fumio Iwasaki; Executive Vice President responsible for Consumer Sales, Mr. Takashi Tanaka; Executive Vice President and Managing Director of Corporate Strategy and Planning Department Mr. Yoshizawa; and finally Senior Vice President and Managing Director of Finance and Accounts Division Mr. Hirotaka Sato.

We are using seven sets of documents for this meeting. One is the earning release, the other one is the presentation slides for the financial results, and a notice concerning difference in individual financial results compared to actual figures for the previous fiscal year results and we are distributing four different sets of press releases.

One concerning the Notice of Stock Split Adoption of Unit Share System and Partial Amendments to the Articles and Incorporation, another press release entitled Docomo Agrees to Invest in OT Mark Inc. and Docomo to Establish New Business Units and one entitled Docomo to Provide Docomo Service Pack.

For today’s meeting we will like to start with a presentation on the results by Mr. Kato, the President and CEO followed by a Q&A session. And we will make to finish this meeting around 6 o'clock Japan Standard Time. And please be advised that the comments made in this presentation may contain forward-looking statements and please refer to the last slide for the details concerning risks of the forward-looking statements.

Now without further ado, I would like to ask Mr. Kato to start the presentation.

Kaoru Kato

[Interpreted]

Good afternoon. I am Kato. I am sorry I just realized that the microphone was off. Thank you very much ladies and gentlemen for attending this meeting despite your busy schedule and for those of you who are watching this session via the internet, I would like to thank you as well for sparing your precious time.

Now, I would like to start the presentation using the slide and also the documents distributed to you. The presentation consists of three parts, one the results highlight for the fiscal year ended March 2013 and the prospects and the principal actions for fiscal 2013 and towards our medium-term growth.

Now slide number two, regarding the highlight of the results for fiscal 2012. Operating revenues increased by 5.4% year-on-year and reached ¥ 4,470.1 billion. Operating income decreased by 4.3% year-on-year and reached ¥837.2 billion,

Net income increased by 6.8% year-on-year and reached ¥495.6 billion. So we recorded an increase in revenues but a decrease in income. When we finished the first half of the fiscal year, we made a downward revision to our full year forecast. But as it turned out, we were able to secure over ¥820 billion, which was the revised operating income target for the full year.

Regarding the highlights, there are four bullet points towards the bottom. We achieved a significant increase in the sales of smartphones and the total number of Xi subscribers increased significantly. So we believe we were able to achieve certain results towards the growth of our business.

Now, page number three, these are the major financial indicators. In addition to the revenues and expenses and income, I would like to comment on the capital expenditures. Capital expenditures increased by ¥26.8 billion. This was due mainly to the Xi network reinforcement in order to respond to the growth of Xi subscribers and also because of the dispersion of key facilities in order to prepare our disaster preparedness this which was the second year of our efforts.

Free cash flow decreased by 277.9 billion, due mainly to the significant increase in the number of users purchasing the new handset in installment payments.

Now, page number four, this explains the year-on-year changes in operating income compared to fiscal 2011. I would like to explain by dividing into the revenue side and also the expenses side which - as far as the revenue side concerned, the mobile services revenues excluding the impact for monthly support discount increased by 40 billion.

However, the negative impact from monthly support discounts increased to approximately 200 billion. Other operating revenues increased by 128.9 billion due to the increase in revenues from new businesses. Equipment sales revenues also increased by 259.2 billion due to the increase in the number of handsets sold.

On the expenses side, the equipment sales expenses which comprises of cost of equipment sold and the commission to agent resellers increased by 95.6 billion year-on-year in line with the increase in equipment sales.

Depreciation and loss on disposal of property increased by 39.4 billion due to the expansion of Xi areas. Other expenses also increased by 132.4 billion due mainly to the revenues increase from the new businesses. As a result of the foregoing the operating income for the fiscal year ended March 2013 increased by 37.3 billion over the previous fiscal year.

Page number five regarding the net additions and new handset sales, as I said, the total handsets sold was 23.55 million, it’s up 6.6% year-on-year and as it turned out, the new handset sales was quite brisk and in all four quarters, we achieved higher level of new handset sales compared to the previous fiscal year.

On the other hand, number portability port outs were not as well as what we had expected. Although there was an improvement in porting so therefore we struggled in the acquisition of net additions.

However, after the release of the spring collection handsets in February, with the introduction of the recommended models and also due to the effects of the various promotion methods, if you look at the fourth quarter, we were able to achieve a performance better than the previous fiscal year. So we believe we are seeing signs of recovery in our competitiveness.

Now page number six. Let me talk about the number of smartphone users and smartphone sales. The total number of smartphones sold increased by 51% year-on-year and reached 13.29 million units and the number of smartphone users almost doubled to 18.7 million.

For our medium term strategy, the expansion of smartphone user base continues to have significant importance. So toward the growth of our packet revenues and income, we will continue to step up our smartphone sales going forward.

Now page number seven. About the Xi subscribers and packet revenues, Xi subscriptions increased to 11.57 million, which is 5.2 times higher compared to the level as of the end of fiscal 2011 and the total number of Xi subscribers exceeded 12 million on the 20th of April accounting for more than 60% of our total smartphone users.

And as you can see due to the growth of Xi and smartphone users, packet revenues increased 6% year-on-year and reached 1,893.9 billion.

Page eight; we’ve been focusing on the expansion of Docomo cloud services, in particular the market revenues increased by 11 fold to 23 billion, a very strong increase. In particular, dvideo service acquired 4.13 million subscribers or even today more than 4.2 million subscribers and generated 18.5 billion in revenues accounting for 80% of the total dmarket revenues.

In line with this, our smart ARPU increased and for the first quarter, smart ARPU increased by ¥ 100 year-on-year and reached ¥ 460. Now to summarize the performance for fiscal 2012, as I said, due to the various promotions such as family set discount and Xi smartphone discount, we were able to achieve certain results for the establishment of the smartphone user base towards the future.

For dmarket, we launched dgame and dshopping to improve our lineup and as a consequence, we steadily expanded the new business revenues. On the other hand, total handset sales and new hand set sales and new handset sales were quite brisk but we were not able to achieve sufficient results with respect to the prevention of NMP portals and therefore we struggled in the acquisition of net additions in this very tough environment.

We appropriated 80 billion for the additional budget to counter the competition, but as it turned out, the actual spend was limited to 70 billion because of the efficient utilization of this budget. And some of the measures were frozen as part of our cost control efforts.

So as a consequence, the revised operating income target of ¥820 billion which was announced at the end of the second quarter was beat and we were – the actual operating income was ¥837.2 billion.

Now jumping to page 11 regarding the forecast for fiscal 2013, operating revenues is expected to increase 3.8% to ¥4.6 trillion and operating income is estimated to be almost on flat at ¥840 billion.

Other major indicators, our free cash flow is expected to recover significantly to ¥400 billion. This is due to the progress in the collection of the installment claims and also because by the end of last fiscal year, we completed the additional measures for enhanced disaster preparedness.

Now slide number 12 regarding the outlook and the highlights of the operating income outlook for fiscal 2013, we are expecting an increase in mobile service revenues due to the expansion of smartphone users but the negative impact from the monthly support is expected to continue and expand.

In addition, although there will be some increased expenditures for the rollout of Xi network, but we will continue to work on the structural reform to improve our cost efficiency and the equipment sales business profitability will be improved. So in a total, we would like to achieve ¥840 billion through these measures in operating income.

Capital expenditures, the total capital expenditures will be slashed to ¥700 billion for fiscal 2013, but we would take proper measures to improve the network to cater to the increase of traffic. So in particular, we will shift the resources from former to Xi while working on the improvement efficiency on all fronts.

Last fiscal year, because there was the extraordinary investment for the enhanced disaster preparedness and therefore our total CapEx reached over ¥750 billion. But other than that, other than the actual network itself, we will improve the efficiency of information system related investments and R&D in order to achieve this target of ¥700 billion for this fiscal year.

Now the operational indicators on page 14 as you can see, we would like to achieve a level higher than last fiscal year in terms of net additions and total handset sales and we will continue to expand the smartphone user base leveraging Xi primarily. So that we can further boos our packet revenues and smart ARPU.

Now page 15, this is the business management policies for fiscal 2013. This fiscal year, we will aim to become a smart life partner for each and every customer. This will be the main theme that we will tackle this year in the area of mobile services; we will solely brush up the basic elements of our services, so that we can further expand smartphone users.

In the new businesses we will expand the cloud based services in an effort to raise new revenues. Towards this end, we would like to work on each area of devices, network and services reflecting the voice of customers in order to boost our competitiveness and at the same time, we will work on structure reform to reinforce our management foundation.

Now let me go into the details on page 16 regarding the devices, let me talk about the recent sales performance. In November, we launched AQUOS PHONE Zeta and in February, we launched XPERIA Z as our most recommended models and for eight straight weeks and six straight weeks respectively, these models reported number one popularity in terms of sales outperforming the models of other companies.

So we believe, we are taking a steadfast progress in improving our competitiveness of our devices. And towards the launch of the summer collection model, we are currently working to further improve the appeal of our products.

Going forward, we will focus on the innovativeness and sense of security and ease of use and brush up our products by concentrating our resources on the key models and shortly in mid-May, we are going to announce the new collection for the summer.

Please look forward to it and page 17, let me talk about Xi services our LTE service. This fiscal year we will solely work to improve the connectivity and enhance the speed of our Xi network. As you can see on the left, we brought forward the base station rollout plan, so by the end of this fiscal year we will double the number to 50,000 base stations.

And regarding the core continuity rate, maybe this is a new jargon for you, but this is the rate of connection continued on the Yamanote line for example. So you can see on the Yamanote line, 97% of the sections maintain continuity of LTE connections and as you see on the right, we will accelerate the deployment of fast-speed-areas such as 75 megabits per second and 112.5 megabits per second,

And further down the line, within this fiscal year, we will raise the transmission speed to 150 megabits per second in some areas ahead of the competition. So this fiscal year, we will focus on usability and connectivity and at the same time, in order to boost the quality and reliability of our network, we will continue to make efforts.

And page 11. Just one more point concerning LTE network. There was a survey conducted by a third-party, Nikkei BP Consulting and the results became available recently. According to which, Docomo was ranked number one in terms of both network area and speed.

Of course, we believe a certain degree of appraisal was made to our network quality, but of course network is actual a living creature. So the actual performance changes by time, by location, by the amount of human traffic. So we shall not stay content with these results and we should try to focus to further make efforts to achieve stable quality in our network construction.

Page 19, here we talk about Docomo service pack for affordable and worry free use. So we offered a press release on this point yesterday. So it is along those packet services under the title Docomo Service Pack, you want to offer two services which are very affordable for convenience and worry free usage from mid-May.

For Osusume Pack, for a month of budget ¥50, probably ¥525 rather we are offering simple Doco contents and also i-concier and also Optional Cloud Capacity of additional 50 gigabytes are offered. Also income in terms of (inaudible) a 100 very popular content in each given service will be offered unlimited access at a monthly very affordable charge of ¥525 per month.

On the right hand side, for customers who want to ensure peace of mind at all times, we are offering a service called Anshin Pack. So, Anshin network security and also services in the case of emergency and also being able to offer support in our remote devices. We are offering these three different services in a pack charged at ¥630 per month.

Page 20. I am sure this needs no explanation, but we want accelerated expansion of the market. So we have expanded our lineup. So the many customers who are able to utilize this line up going forward, we will continue to expand the number of stores and items, so that we will be able to offer services and products that meet the demand of diverse customer base.

We want to further enhance the attractiveness as the market, page 21. One of these services which Docomo is prioritizing right now is the health service. So let me talk about this. As a matter of fact, back in March, together with OMRON, we established a joint venture firm called Docomo Healthcare and this was already announced and this purpose used upon the junctures of the very brief as far this page is concerned. Withheld at the core, we will be offering a wellness from totality to various customers.

So therefore, we have organically incorporated our subsidiary firms. Now, today, we announced that as part of this effort, we are going to carrying out capital alliance with a company called (inaudible) that this is a company indicated toward the bottom left of this page involved in insurance and medical care.

So, we are going to work to create an information platform for medical industry using mobile and we will generate new medical healthcare services collecting medicine and our users.

So, one core of our smart life initiative is health. So therefore for us first health is concerned in a more delighted fashion and in diverse areas we want to be able to offer services.

Then we now go on to page 22. Now, some of the core services that would be carried out by Docomo Healthcare in the center from June this year, we will do offering for this goal to karada no kimochi. This is already explained by – and to further evolve this service to target it toward all gender and all age breakups we are going to be offering body care agents.

On a daily basis, we will be able to offer various advice and information from different perspectives and at the same time we want to be able to accommodate the requirements and offer services to men as well as women in a very broad fashion. So we want to offer healthcare services tailored to your personal needs.

So from winter, this is clear, we will be offering this service in a full-fledged fashion. So at the risk of repeating myself core of our smart life initiative is indeed healthcare. And for fiscal year 2015, we hope to have a membership of 10 million for our services.

So the third part page 24, as I mentioned earlier, we want to become a smart life partner. Up until now, we have mentioned that we want to be an integrated service company. But this is primarily perhaps more skewed toward the provider logic.

So in reflection, in order to communicate the value that we offer to our customers in a more straightforward fashion, we will be using this logo or slogan rather become a smart life partner and we will be pursuing this.

Page 25. So if we are to become a smart life partner, as it is indicated, you will find the concept in the center. We have been promoting integrated service company concept and eight major sectors that are outlined in the center of this page.

However, we want to deliver the right message at the right time making selection from massive amount of information and for that purpose, and to offer very convenient safe and secure enjoyable left to our customers, it’s important that Docomo offer advise monitoring, matching as well as planning functions and offer very beneficial services to the customers.

So in one sense, summarize the massively available amount of information and compound the information in a manner which is more effective to the customers. So, evolution of convocations are brought up by mobile. Based on this, we want to offer various values in serving customers.

So going on to page 26. Evolution that allows users to enjoy maximum value in various usage scenarios and service providers Docomo would like to deliver various services and one form of that has manifested itself in the form of dmarket.

Now, in delivering these services, what happens is that, we want to offer an environment whereby customers don’t have to be cognizant of whether or not it’s a mobile network or a Wi-Fi. So we want to have network type agnostic seamless environment and also we want to make sure that we can offer free and convenient access from any device. So network independent as well as device independent. This is something which we have repeatedly mentioned.

Page 27. So, if we are going to prepare an environment that allows greater number of customers to use our services and then we have to review the authentication platform. Right now it’s based on phone number. So,. It’s based on the assumption that the certification is offered to Docomo customers.

However, we introduced Docomo ID, then we will have a number, now phone number type of ID. We can certify customers based on this so-called Docomo ID meaning that customers who are not connected to Docomo’s network who are not subscribers of Docomo network and even global customers will be able to enjoy convenient services based on this Docomo platform.

And I don’t believe that’s an exaggeration. As far as Docomo certification or authentication platform is concerned, we would like to compile this and finalize this by winter.

Now page 28. This is our summarization of our global strategy. You’ll find network basic performance services and service platform. Now at the same time, one city is one through three based on the business development – correction – based on the state of development in each market. So one is voice centric, mobile internet is stage two and we want to offer, we want to be a smart life partner through this evolution.

And so that is the direction that we are headed to we believe. Now, we want to pursue smart life on a global scale and then it’s our medium term goal. So we want to promote business deployment suited to the state of development in each market and we have been working together based on the relationship which we have built with other carriers.

We really want to be smart life partner on a global scale. We have mapped up the companies with which we have already established partnership. So therefore in line with the state of development in each market we want to deploy, relevant businesses.

Page 29. Here we talk about organizational change. We established what is called the smart-life business division. Five years ago, we became a one integrated company and we eliminated division at that time. However we established smart life business division. So first time since then we have established or introduced a new this concept of division.

And we have mapped up various relevant divisions, media content all the way from M2M. You’ll find that in eight different areas we have been wanting to become an independent service company. So we have rephrased this as an effort to become a smart life partner.

We have made clearly more occasion and we have also device responsibility in a clear-cut fashion. We want to transfer authority to business divisions to shorten time to market and we want to more strongly promote service creation expansion, also promote business in each new field to strengthen alliances. This will be in effect from July 1 and this year.

Page 31. This is an account optimization of what we have already talked about. I mentioned that the voice revenue is in a downward trend. However, as far as packet revenues and new business revenues are concerned, we want to focus on this in order to make up for the far end of voice service revenue.

And the impact of the monthly support program, we will continue to expand into this 2013, there may be some lingering effect in fiscal year 2014. However, the level of impact is lumpy to come to a closure in fiscal year 2014. So from that point onwards, we want to further expand total revenue that rebounded back in fiscal year 2010.

Page 32. Here we talk about the expansion of new business revenues. Our target is ¥1 trillion in fiscal year 2015. In fiscal year 2012, we were able to exceed the target of ¥520 billion reaching ¥535 billion at the end of the fiscal year 2012.

So we will carry out to transfer organizational change by introducing this smart life business division and based on that we will continue to make efforts to expand this. We want to double this March ARPU and also achieve ¥1 trillion in revenue in new business in fiscal 2015.

Also we will continue to see improvements in the margin of each service together with expansion of business scope. So therefore, we want to aim for margin to sales of about 10%.

Page 33. Here let me talk about reinforcement of management foundation. On top of expanding our revenue, we also will very strongly pursue fundamental reform in the cost structure. As far as fiscal year 2013 is concerned and this is in the center of the page. On top of the ¥50 billion of cost reduction which was carried out in fiscal year 2012, we want to further carry out ¥110 billion worth of cost reduction.

So that’s a ¥160 billion in comparison with fiscal year 2011. Reduction of distribution commission and other revenues and expenses will account for ¥25 billion. Out of that, so ¥ 25 billion reduction in revenue-linked expenses, ¥40 billion reduction in network communication charges, to more amortization and loss on disposable property and also other expenses which include test operation as well as maintenance costs, we will reduce ¥45 billion in other expenses for a total of ¥160 billion cost reduction.

We have formed a very strong project team for this. It’s a company-wide effort. Going forward, we will continue to narrow down on the main devices. We will also carry out concentration by shifting resources to LTE and in fiscal year 2015, we would like to achieve ¥ 250 billion worth of cost reduction.

Page 34, return to shareholders. Let me talk on this point. It goes with a saying that return to shareholders is one of the most critical issues for the management. So enhancing financial position and retain earnings we will continue endeavor and at the same time, we will continue stable dividend payment and maintain one of the top payout ratios among the Japanese companies.

Bearing in mind this policy, we are planning dividend per share of ¥6000 per share for this fiscal year. We are expecting difficult business environment over the medium term, but bearing in mind this basic policy we will have to continue on with our stable dividend payment. We would like to continue to respond to the expectations of our shareholders.

Page 35. Before concluding, I have talked about the results of fiscal year 2012 and the principal actions for fiscal 2013. For fiscal 2012 we were able to achieve operating income which was revised at the end of the second quarter.

We may take a look at the medium term business management, we believe that the competition in the service area will become even more harsh. Docomo is in the midst of a major transformation that we need to prioritize and we must concentrate our management resources into priority areas.

Also by propelling business expansion and structural reform we will aim to generate ¥900 billion in operating income as early as possible which was the target back in fiscal year 2010. So, with first strong results we will continue to offer services so that we can indeed be smart life partner by telling our services to each individual customer.

So that is all from my side. Thank you for your kind attention. Now I would like to entertain your questions. Please identify name and affiliation before you start your questions. If you have any questions, please raise your hand. Okay the gentlemen sitting in the front please?

Question-and-Answer-Session

Daisaku Masuno – Nomura Securities

[Interpreted]

My name is Masuno from Nomura Securities. I’ve got three questions. First, regarding the competitiveness recovering with respect to your handsets. So you said you are expecting 440,000 increase in net additions according to your current plan over the last fiscal year.

So, for the full year what is your plans or view with regarding your product performance going forward? How do you think your products competitiveness will improve? You’ve already mentioned that you will be narrowing down the variety of devices.

But going forward, if you look at that the current products such Aquos Zeta and Galaxy and Xperia, how do you believe these products will be competitive against the competition?

The second question is about your income level. The profitability from the equipment sales is expected to come down, that’s what I see from the projections and of course the monthly support impact is going to increase, but not that significant, meaning that the discount that you grant and the monthly discount service, it’s going to be coming down.

That’s how I interpret it, but how are you going to reorganize that if that’s your intention? That’s my second question. And number three, you mentioned that other than mobile services revenues, ultimately you are expecting to increase your revenues from non-businesses to ¥1 trillion and with an operating profit margin of 10% or so.

Do you think this can be done organically, or do you think you have to have some additional boost such as incorporate new businesses and acquiring some other businesses. Is that your plan? And, are these businesses profitable at this current point of time and how far is that to achieve that 110% operating profit margin from those business segments. Those are the three questions that I have.

Unidentified Company Representative

[Interpreted]

Regarding the competitiveness of our products, actually Zeta and Xperia Z, these have been identified with us that makes us feel that we are recovering in our competitiveness. Actually when you look at the fourth quarter, the net additions for the fourth quarter was higher than the previous fiscal year.

So, I think this proves that product competitiveness are becoming better. And the number of smartphone users are increasing on the other hand. So, if you look at those migrators coming to the smartphone market next will be follower segment not the leading customer. So in that regard, those are the customers that may not necessarily require the state of the art devices, rather I think they focus on sense of security and ease of use when they choose their products.

So in the summer collection, we will likely recommend those products that features those ease of use and sense of security in order to have customers find it easier to select the product from our portfolio. So, in the mean time, we will also be narrowing down the variety of the products.

Needless to as we – because we haven’t mentioned this before and regarding the monthly support discount impact for fiscal 2013, actually in the last two years, - I am sorry, the monthly support discounts will be pulled back over 24 month period. So this fiscal year we are expecting the impact of ¥200 billion from the monthly support service.

And I think the negative impact will expand into 2014. But after that I think things will begin to stabilize. So I think we will have to anticipate the certain degree of impact for sometime and therefore this will put a straight on us for the next two years, meaning 2013 and 2014.

But of course, this is another source of our competitiveness on the other hand according to what I understand. And regarding the new business areas, whether we are looking into revenue growth or are we looking into acquisitions? Actually, the foundation more or less is beginning to compete.

So, I think the organic growth is going to account for a larger portion going forward and of course if there is a good opportunity, of course as some projects are still underway, so I cannot disclose the details. But we may look into acquisition of some companies or some capital alliances. But basically, I think the basic foundation is already more or less created.

So, through our value growth we are seeing that tangible signs that we might be able to achieve ¥1 trillion of operating revenues from these new services. And on top of that, we would like to look into additional possibilities of acquisitions and capital alliances.

Daisaku Masuno – Nomura Securities

[Interpreted]

A follow-up question regarding the monthly support. Can you elaborate, if I can simplify the question, last year we think it was more than ¥200 billion per month. But are you – it seems that you are expecting to slash the amount of monthly discount per month? Is that correct?

And regarding the equipment business profitability, well, regarding profitability, because we have to anticipate some degree of costs. We have to increase the number of subscribers in order to improve the profitability and some things are still in progress. So, but overall, these new businesses are not loss making overall and some are in the beginning to deliver profits. Regarding the businesses…

Unidentified Company Representative

[Interpreted]

I am sorry, I would like to talk about the monthly support discount impact first. For the fiscal 2012, we are anticipating an additional incremental – we reported an incremental ¥200 billion impact and for fiscal 2013, we are anticipating a ¥260 billion incremental impact over the previous fiscal year.

So the impact is larger this fiscal year compared to next fiscal year. So this year will be the bottom. And in fiscal 2014, the impact will become – will increase but the rate of growth will slow down and therefore with that in fiscal 2014, after that I think things will stabilize.

So, regarding how to implement that discount services, monthly discount services going forward for fiscal 2013, I think, what we are going to do is that, we will vary the amount depending on the model, each model. That’s the basic approach. So, some models will enjoy the same level of discount as fiscal 2012, some models smaller amount.

If I give you some data, our anticipation is that we are going to reduce the amount of discounts by ¥10,000 per one unit overall and if you look at the average amount. So, ¥10,000 lower compared to the actual number for fiscal 2012. That’s the plan for fiscal 2013.

Daisaku Masuno – Nomura Securities

[Interpreted]

So at a glance it seems as though that the profitability or the gross margin of the product business is coming down. So I think that things are becoming healthier. So what is the background that allows you to give that kind of projection? Is that that are you seeing that your competitiveness is improving and that’s why you are confident of achieving that? Can you elaborate?

Unidentified Company Representative

[Interpreted]

Well, as I said earlier, we do not intend to offer a blanket and universal amount of discount to all of the models. This fiscal year we will vary the amount. And starting from the summer collection models, we will apply a varied amount of discounts. And of course the numbers and the proportion cannot be disclosed to you. But that’s our basic process to vary the amount. Next question. Guess, we will go to the gentlemen in the second row.

Tetsuro Tsusaka – Morgan Stanley

[Interpreted]

Tsusaka from Morgan Stanley. Well, your position about the performance for this fiscal year. At the end of the day, mobile service revenue is expected to experience significant down reduction. I suppose we are talking about a reduction of ¥180 billion perhaps for this fiscal year in terms of mobile service revenue.

Against that backdrop, you want to probably improve your handset cost by 10% and also in terms of gross margin you will try to offset for the fall by as much as ¥170 billion. So what you are doing is, is simply a replication of what you did in fiscal year 2012.

Nothing has changed in fiscal year 2013 compared against fiscal year 2012 you are just simply raising handset prices and improve your gross margin per handset so that you will be able to offset the fall in this sort of revenue.

As far as the monthly support is concerned, maybe you are trying to be more conservatoire, but, you are raising handset prices you are containing monthly support and you want to go after even greater net adds compared against the fiscal year. Is this really feasible?

That’s my first question. And on a related note, well your service revenue is on a downward trend, and for the purpose you are pursuing cost reduction, significant cost reductions. It really is attrition isn’t it? Everything is an attrition trend. So it’s like NTT DOCOMO has simply ended up like an ordinary company.

You’ve raised revenue or you are trying to raise revenue, but this is very difficult to imagine from your position. So, when are you going to be like an ordinary company? Will you be like any of the ordinary company going forward? I guess that’s my second question.

And my third question about becoming a smart life partner, I understand that you have carried out extensive survey, from what I heard. And only one out of four Japanese university students are using DOCOMO handsets and the remaining are either subscribers of AU or Softbank.

And so these young people are leaving you. You have very little young customers in your universe. But then you are telling this concept of becoming a smart life partner, maybe this is suitable because you are not looking for this type of particular user.

You are actually shifting your gravity if you look toward more senior aged citizens, people who probably have lower literacy, that’s why you need to introduce these type of smartphone services maybe I am being somewhat cynical here.

So in terms of the user makeup, the fact that you are losing young people, how do you see that? Are you going to say that this is not part of your customer segment? Or are you going to ignore that? Or are you going to after this young people who are leaving you? I think in the next couple of years, maybe we are talking about anywhere from 2 million to 3 million DOCOMO young former DOCOMO customers turning out.

Unidentified Company Representative

[Interpreted]

Well, in terms of monthly support and the gross margin, and also our cost reduction, so I think your first question and the second question actually overlap in some ways. In other words, I suppose we are trying to be like an ordinary company. In other words, cost reduction must be a continuous effort and inclusive of changing the mentality and the awareness of our employees who are very strongly pursuing cost reduction.

And as far as monthly support is concerned, we naturally want to alleviate it further. However, in terms of the competitive landscape for fiscal year 2013, we want to accept these are variances from model to model. So the average numbers have been shared with you.

But we will start certain variances. So I think we are at a juncture where we really need to push these two wheels. Then are we going to expect exponential growth in terms of revenue and profit as you asked us it’s probably not the case. However, we want to make a new challenge once again towards fiscal year 2014.

And so there are areas whereby we will challenge on you. This relates to cost reduction and also the reason which we have to pursue our business. The methodology for operation, we want to improve the operation and the ways in which we carry out the business, I think we are doing a very good job of that right now.

We want to further promote this and one way to do this is by establishing the smart life business division which we talked about earlier and starting from this fiscal year, in terms of diverse branch offices and in terms of the head office, we really want to revisit and scrutinize the ways in which we actually operate business. So we hope that you will expect a great deal from this. And also become a smart life partner.

Turning to your third question, we are certainly negating or abandoning the young customer base. Please observe very closely, the campaign that we carried out in the fourth quarter one is targeted towards the students,

And also in terms of introduction of the device, we have introduced devices for the juniors and kids. And also we are trying to actually approach the future young adults. You mentioned that maybe 2.5 million young customers may have gone out from the DOCOMO customer base and that number is not right. If that is the case, in terms of function, in terms of standard I think the new summer collection will indeed exceed all of the expectations.

Now at the same time, we want to offer more easier to use products and so that we can again worry free – make sure that the customers feel is worry free. So therefore we are considering models that will suit those requirements. So we have by no means abandoned the young customer base. We will continue to work toward gaining young customers.

So becoming a smart life partner, and also pursuing healthcare, this is a reflection of our willingness to deliver services that are geared to all corners of the society. And so for each given segment, we would like to offer relevant services that is our intention.

Tetsuro Tsusaka – Morgan Stanley

[Interpreted]

If I may ask a follow-up question and also seek a clarification. For fiscal year 2013, handset revenues will hope to offset the fall in service revenue as opposed to the structure you have in mind for this fiscal 2013, then what about fiscal year 2014?

Because, in fiscal year 2014, monthly support will continue to have a negative impact on your service revenue and that your service revenue is not going to be in the positive territory. So for fiscal 2014, in terms of handset revenues, or profits from handset revenues, is this going to use to offset the negative impact? So to what extent do you believe that higher handset prices will enable for the potential shortfall in your profits?

Unidentified Company Representative

[Interpreted]

Well, gross profit and monthly support, this of course is a very difficult issue. We have to consider whether or not this is the most ideal situation. We need to resolve this situation. But at the same time, we are in the midst of competition. So, that being the case, we can’t just abandon this on our own.

So this is something that we continue to seek if thought two. So what extent of support will be acceptable to the customers, also smartphone is in the initial phase. So we have to see how see this market evolves going forward and what customers will be purchasing smartphones going forward.

So what will be the appropriate price and what will be the appropriate price for the handset and what will be appropriate level of monthly support? So services that are easy to use for customers and also the present mechanism, I think we need to give that to all of these elements in totality.

If I may offer an additional comment, in your first question, you mentioned that nothing has changed from fiscal year 2012 to fiscal year 2013. It’s like you mentioned that we are seeking a natural balance on it, equilibrium on attrition and the 2014 will be on a downward trend. That seems to be our assumption.

However that is not the case. Mr. Tsusaka, you are very knowledgeable about the parameters. And so the profit per handset, we expect that to make up for the shortfall in profit. That structure will not change in fiscal 2013.

However, for this year, we are not going to add-on to the monthly support that is because we believe that our handsets are competitive. By adding on services, we think we can compete. We have that outlook now. So therefore we are going to narrow down on the handsets and then add resources to that. And with that we believe that we will be able to compete. So for this fiscal year and the next fiscal year, we want to lessen the subsequent burden of the monthly support and maintain balance and today we believe that this will lead to the inflection point for our profit. So we do hope that you’ll understand that.

Okay, the person sitting in the front, because he raised his hands earlier.

Hitoshi Hayakawa – Credit Suisse

[Interpreted]

My name is Hayakawa from Credit Suisse. On page 4 and page 12, if you look at these staircase charts, when I compare these two pictures, the structures are quite different. So it’s very difficult to understand, but the point that I would like to ask is as follows, just one point.

I think you came up with this flat performance plan with a strong result maybe, but compared against the downward revision, you ended up like over ¥10 billion higher compared to the revised forecast. When we look at page 12, the ups and downs in the staircase, towards ¥840 billion forecast for this fiscal year, which item is the most difficult thing?

The cost reduction of ¥160 billion could be achieved I guess. But if you look at the impact of monthly support discounts and if you add the ¥80 billion with the mobile service revenues increase, I think the actual impact is like ¥180 billion.

So if there is any risk factor with respect to the attainability of these items, which is the biggest factor compared against the ¥80 billion downward revision of your operating income in the middle of last fiscal year, what went wrong compared to your original forecast or your original plans?

So what would be the yellow signal here if you will? So what would be the biggest risk factor among these different items on this chart? And what would be the items that you wish to achieve with your efforts? So what would be the most difficult point?

Unidentified Company Representative

[Interpreted]

It seems as though we are making a very strong reserve and determined to achieve this ¥840 billion, that’s not really the case. Actually, we made a lot of creative efforts to trim down the additional ¥80 billion budget to actual spend of ¥70 billion to counter the competition.

And actually we are seeing some different signs as we look at the performance for the fourth quarter and third quarter. Actually, we excreted a lot of wisdom and came up with this picture on page 12, of course with respect to cost reductions, we have a good prospect and we got – so if I dare to try to single out one factor, the monthly support discounts may include some variables and of course the equipment sales is subject to the amount of shipment of handsets based on the actual sales.

So those are the basic variables that we have to continue to keep in mind in our operations. So we will have to track them on a monthly basis and if necessary we may have to make some modifications. When you look at this fourth quarter of fiscal 2012 as Mr. Tsusaka mentioned, we are not abandoning the youngsters.

We focused on the combination of gakuwari, our student discount and the family discount in order to curb the replacement and the port outs upon the timing of replacement of handsets. So, of course I would like to avoid the minute details, but these are the wisdom that we have poured in, in devoting this plan.

Hitoshi Hayakawa – Credit Suisse

[Interpreted]

Regarding the profitability of the equipment sales business, ¥120 billion excluding the effects of structure reform and if you look – divide this by the number of total handset sales, the improvement is like ¥5000 per one unit of handset. And it’s mainly related to the previous question, but I think this might be the biggest risk factor for you like you have to set a price and for the handset and secure gross margin, are you really going to keep on going this way? That’s my question.

Unidentified Company Representative

[Interpreted]

Is that right, yes, we will have to strike a good balance with the monthly support. So in that balance, I think you are right and we will have to keep a very close eye on the balance with the monthly support discount.

Hitoshi Hayakawa – Credit Suisse

[Interpreted]

Okay, I understand the point. Yes, thank you.

Unidentified Company Representative

[Interpreted]

Next question please.

Yoshiyuki Kinoshita - Merrill Lynch Japan Securities Co., Ltd.

Kinoshita from Merrill Lynch. I would like to ask two questions, if I may. First question, it’s actually related to the previous question. Your plans for this fiscal year, are you going to prioritize securing income or are you going to prioritize securing net adds? I suppose it would be best or ideal if we can achieve both, but any priorities between the two.

But if you have to choose between the two, then which you would prioritize and emphasize. You talked about striking a balance with monthly support, but if you increase monthly support for the sake of profit, then this will actually have a negative impact for the next fiscal year.

So reflection point over the medium term and also in terms of net adds and your profit. What type of balance we should like to seek for this fiscal year? That’s my first question. My second question, this is a question for which I may not be able to receive direct answer, but, in this plan, is this is a plan based on assumptions that a final decision has been reached in relation to the iPhone? Or is iPhone still a variable in your fiscal year 2013 plan? Any comments.

Unidentified Company Representative

[Interpreted]

Well your first question, this I believe is an ongoing ever present challenge. Of course, gaining growth and also maintaining profit that’s always something that a company must pursue. Now with the medium term, the source of that, will actually be net adds and also gaining that adds and also gaining strong smartphone customer base, for example young people.

So where they have to strike a balance? So if you ask us to choose, well as we go forward, I suppose there might be cases whereby we might be prioritizing one over the other, but I am afraid this is not something that I am able to speak at this juncture.

And also in terms of the iPhone, this is our plan for this fiscal year 2013 reflects our plans about the iPhone. This is not reflected in the plan for fiscal year 2013, as we have consistently mentioned up until now and nothing has changed compared against what we have consistently mentioned. So that is what we cannot add anything new.

Yoshiyuki Kinoshita - Merrill Lynch Japan Securities Co., Ltd.

[Interpreted]

Thank you very much.

Unidentified Company Representative

[Interpreted]

Since we are running out of time, we would like to limit this question to this last question.

Ikuo Matsuhashi – Goldman Sachs

[Interpreted]

My name is Matsuhashi from Goldman Sachs. I have two questions. First about the billing plans. You have the right package, the right plan, and you are the only company which is offering this life package at the reasonable rate. Do you have any plans to review this and terminate the provision of this service? Actually, you mentioned that you are looking into affordable billing price. So, it might be difficult to abandon this, but if you are going to seek some up sight in data ARPU when we consider that this could provide a downward pressure to your revenue.

So, can you comment on the possibility of terminating the right option? So, is that a possible option that you may look into, so although you may have not made any decision at this point. And the second question is about your cost reduction efforts. According to what you have mentioned, I am concerned that those are the items that may not have any strong strain on your internal operations.

It’s just about trying to postponing the generation of expenses to subsequent years. So when you cut the personnel expenses or R&D expenses, it doesn’t seem that you are curbing those expenses. And so does it mean that you will still have some room to work on these items if need to be?

Unidentified Company Representative

[Interpreted]

Yes, okay, the first question regarding the possibility of abandoning the life plan. At this point we have no plans to terminate this service. We have a set a threshold at 7 gigabytes at 3 gigabytes per month and we would like to promote these two packages to customers and we do not have plans whatsoever to terminate this plan at this point of time.

Secondly, regarding the cost reduction, I had a meeting, a press conference with the press, with the media and this was one question raised during the press conference that people or employees are under very strong strength. So I think that the impression that you have is quite different from the press.

Of course this is not an easy exercise. We’ve already established a structure reform project team which is led by Mr. Tsubouchi our SEVP and he is working very hard to squeeze costs. With respect to investment and regarding operation and maintenance and network costs, and also the office expenditures are also targeted under this exercise. So, all the employee base we’ll have to share some pain.

And that is why I talked about mentality and mindset. I think, at DOCOMO we have to be strongly, more strongly aware of about cost reduction and utilizing our cost more efficiently. So, we will work on this and if there is no secret areas here so, this cost reduction of ¥250 billion towards fiscal 2015 is going to be a very tough exercise. But, on the other hand we should not only shrink.

So this, again is a matter of balance. So, on one hand we will have to pursue cost reduction, while changing the mentality of our workforce and at the same time we will have to work on the review of our work procedures. We just cannot follow the same practice, because and of course on the other hand, we are always facing a shortage of personnel all the time.

So, we might have to make some drastic decision to terminate some business if need be. And also, because I was asked, because I am responsible for cost reduction, cost reduction, I think there is always source of reducing costs everywhere anytime and this time around we encouraged our customers to – employees towards the goal of ¥820 billion and I don’t think many people have shrunk their mindset as a result of this.

All the employees are contributed by squeezing some cost out of the operations, I didn’t ordered to cut something altogether, but as it turned out, we work together and we were able to secure the operating profit as we planned and delivered the results. And for cost reduction, this fiscal year, we have not changed the plans or the budget for network-related expenses.

Of course, R&D, those that can wait will have to wait. We dropped the expenditures for those and appropriate those as cost savings for network expenditures. So it’s just about changing the resource allocation. So overall, I think there is still plenty of opportunities to address to reduce that cost and of course as an overall company, I think we can still seek some efficiency improvement.

Thank you very much for the many questions. At this point, we would like to finish this session. Thank you very much for your attendance.

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