NTT Docomo's (DCM) CEO Kaoru Kato on Q1 2015 Results - Earnings Call Transcript

| About: NTT DoCoMo, (DCM)

NTT Docomo, Inc. (NYSE:DCM)

Q1 2015 Earnings Conference Call

July 25, 2014 4:00 AM ET

Executives

Kazuhiro Takagi

Kaoru Kato – President and CEO

Kazuhiro Yoshizawa – Senior EVP

Yoshikiyo Sakai – Senior EVP

Shoji Suto – EVP, Consumer Sales

Hirotaka Sato – EVP, Managing Director of Accounts and Finance Department and CFO

Analysts

Daisaku Masuno – Nomura Securities

Tetsuro Tsusaka – Morgan Stanley

Masashi Nishihara – Goldman Sachs

Atsuo Takahashi – Mizuho Securities

Kinoshita Yoshiyuki – Merrill Lynch

Hitoshi Hayakawa – Credit Suisse

Oshidari – JPMorgan

Kazuhiro Takagi

(Interpreted). Thank you very much for waiting. And we appreciate for coming to this Analyst Meeting despite your busy schedule. We would like to start NTT DOCOMO Analyst Presentation for announcing the results for the First Quarter Fiscal Year ending March, 2015. I am Takagi, Managing Director of the IR Department of NTT DOCOMO. I will be serving as (inaudible) for today’s meeting. Please be advised that this meeting is broadcast live over the internet and over also on the Smartphone broadcasting service. And a recording video of this meeting will be distributed for on-demand distribution or through DOCOMO’s webpage.

Now I would like to introduce the participants from NTT DOCOMO. We have the President and CEO, Mr. Kato.

Kaoru Kato

(Interpreted). Good afternoon, I’m Kato.

Kazuhiro Takagi

(Interpreted). Senior Executive Vice President, Mr. Yoshizawa.

Kazuhiro Yoshizawa

(Interpreted). I am Yoshizawa, good afternoon to you.

Kazuhiro Takagi

(Interpreted). Another Senior Executive Vice President, Mr. Sakai.

Yoshikiyo Sakai

(Interpreted). I am Sakai, nice to meet you.

Kazuhiro Takagi

(Interpreted). Executive Vice President, Managing Director of Accounts and Finance Department and CFO, Mr. Sato, Executive Vice President and Managing Director of Corporate planning and strategy department Mr. Asami, and Executive Vice President responsible for Consumer Sales Mr. Suto.

Shoji Suto

(Interpreted). I am Suto, nice to meet you.

Kazuhiro Takagi

(Interpreted). Now, for today, we will be using two sets of documents, one is the earnings release and the other one is the presentation slides. Please confirm that you have the two sets of documents.

For today’s we will start off with a presentation from the President and CEO, Mr. Kato. And after that we would like to entertain your questions in the Q&A Session. We plan to finish this meeting at 6 o’clock. Please be advised that the statements made during this presentation including the Q&A session may include forward-looking statements. For details please look at the slide explaining the potential risks.

Now, without further ado, I would like to hand the microphone to Mr. Kato.

Kaoru Kato

(Interpreted). Once again, good afternoon to you, I am Kato of NTT DOCOMO. Thank you very much for attending this Analyst Meeting announcing the results for this – the first quarter of the fiscal year end March 2015. Thank you very much for taking your time despite your busy schedule and under this hot weather.

Now I would like to begin the presentation. This is the content. The first section, I would like to introduce to you the results. And the second section I would like to introduce initiative undertaken in the first quarter and the results. And in the last section I would like to talk about the future plans.

Now, this is a summary of the financial results for the first quarter. Operating revenues decreased 3.4% year-on-year and reached ¥1.753 billion. Operating income decreased by 15.3% year-on-year and reached ¥209.6 billion. So, although we recorded a decrease in income, when it comes to the progress to full year forecast, operating revenues achieved 23.4% of the full year forecast and operating income 28%. So, we achieved a steady progress so far.

The new billing fund is also well received. As of the end of June, we had 4.67 million subscriptions. And as of yesterday, on the 24 July, we had more than 6 million subscription, 6.01 million as of yesterday.

And because of the effects of the new billing fund, the net additions increased to 460,000 which is more than fivefold compared to the same period of last year. The smartphone user base topped 25 million of growth. So, we believe we got off to a very good start towards establishing a new growth truck.

Next, this is the other key indicators. The net income for the first quarter decreased by ¥21.6 billion year-on-year and reached ¥136.4 billion. Capital expenditures were almost in line with our plan at ¥148.5 billion. As for free cash flow, free cash flow decreased by ¥40.8 billion and reached negative ¥24.1 billion due to the increase in installment receivables and also the decrease of EBITDA.

Next page, this change, this is about the factors behind the year-on-year changes in operating income I would like to explain by dividing into the revenue side and expense side.

As for the revenue side, voice revenues decreased by ¥26.8 billion, packet revenues on the other hand increased by ¥23.4 billion and the negative impact from the market support discount program increased by ¥45.8 billion. Other operating revenues increased by ¥16.4 billion due to the growth of other non-core businesses. And that could mean, sales revenues decreased by ¥5.5 billion.

On the expenses side, the equipment sales expenses which is the sum of equipment, cost of equipment sold and distributor commissions, increased by ¥11.6 billion and depreciation and amortization increased by ¥2.6 billion and other expenses increased by ¥8.5 billion due to the increase of cost relating to the expansion of new businesses.

As the result of the foregoing operating income, decreased by ¥37.8 billion and weighted ¥209.6 billion. As I said, the net additions was ¥460,000 for the first quarter representing a more than five-fold increase compared to the same period of last fiscal year.

By monthly numbers, in every single month, we achieved an increase over the same period of last fiscal year, and in particular the trend has accelerated since May.

The next slide shows to you net new sales, the first quarter new sales was almost on par and even achieved an increase over the same period of last fiscal year. And next is about the churn rate, the first quarter churn rate improved significant.

In the fourth quarter of last fiscal year, we saw an over-heated competition in the number portability market and that distributed that churn rate to 1% level. However, the sales expenses, has been surpassed since April and also with the new billing plan, we have favored the long-term uses. And that was reflected in this improvement of churn rate.

And when you look at the different age group, the improvement is remarkable especially amongst youngsters and that is driving the overall improvement in the overall churn rate.

Next, about the number portability performance, after the introduction of the iPhone in September last year, we have achieved a significant improvement. And we achieved further improvement in the first quarter in fact a total number of net outflows has been reduced to only one fifth of the level of last year. And we will make further efforts going forward.

Now the market performance in terms of number portfolio, in every single month we achieved an improvement year-on-year and the improvement is becoming more significant every month after month.

Next slide is about the handset sales. Total number of handsets sold for the first quarter was 5.16 million of which smartphones accounted for 3.06 million after the announcement of the new product in May, the smartphone sales has accelerated. The percentage of smartphones to total handsets sold is approximately 60%.

Tablet sales, with the new billing plan and also the release of new models such as iPad, we have seen an increase of tablet sales of approximately 30% year-on-year. We believe the ownership of multiple devices is expanding.

Next slide, smartphone users. As of the end of the first quarter, we had 225.34 million subscription, up approximately 1 million compared to the end of March and the percentage availability subscribers increased to 83%.

Now, this is the total LTE subscriptions. As of the end of the first quarter, we had more than 24 million subscribers. This represents 10 million in the last 12 months so we achieved a favorable increase over the last 12 months. And that is about the aggregate ARPU.

The first quarter ARPU excluding the impact of multi-support discount was ¥5,120 down ¥70 year-on-year. We haven’t been able to make up for the decline in voice ARPU with the increase of packet ARPU and smart ARPU.

Going forward, leveraging the new billing plan, we would like to put a hold on the decline in voice ARPU and aim for an increase in packet ARPU and smart ARPU by expanding a de-market usage.

Next slide, this is the second part of the presentation. This is about the new billing plan subscriptions. We announced a new billing plan on 10 April. And after that we have received a lot of feedbacks. We started receiving orders from 15 May and many pre-orders have come in. As of the end of June, we had 4.7 million subscriptions and on the 5 July, the total number of subscriptions exceeded 5 million. And as of yesterday we had more than 6 million subscribers. So, we’ve got off to a very good start.

This slide, shows the effects of the new billing plan. It’s been less than two months since its interaction, so I think we need some more time to make a precise assessment. But as you can see here, as of today, I think we are seeing this result already, especially this due billing plan has been favored by the long-term users. Because customers can enjoy voice communications without having to worry about the phone bill.

And in terms of net additions, we achieved a five-fold increase compared to last fiscal year. And the churn rate has been improving, especially amongst youngsters. And for the first time in two and half years, we have come down to the 0.6 something level.

Because we are offering privilege to long-term users in the new billing arrangement, we have stabilized them in peak competition and that commissions to Asian resellers have come down by 24% year-on-year. So we believe we are making progress in optimizing the handset sales expenses.

Let me change topic to servility. Service which we launched as such in 24, at this moment four models are compatible. And a total 600,000 units have been sold already. And we believe that we are able to offer many customers high quality and also a very well connected services and also very fast services as well, so strong connection and high-speed. And there I believe this is based on (inaudible) program.

Next slide, iPad. As of June 10, we launched iPad, and of course with a sim card that also accommodates new billing plan and are starting with – respond to demand for second mobile devices and tablets to be certainly not respond to those needs.

Next, LTE network. The number of LTE based stations, are increasing in a very strong manner. And at the end of the June, it reached 66,200. And so, that represents 10,000 increase from the end of fiscal year 2013. And with our base stations compatible with download speed of 100 megabit per second or more has reached 10,100 stations which is triple fold the number we saw at the end of fiscal year 2013, and also I think this is clear. We want to offer LTE firms and also realize 20-25 megabit per second speed as well.

Next slide this talks about the network quality valuations, Nike-A BB consulting carried out in issuance survey covering 55,000 people and DOCOMO rack number one in all three categories of coverage, voice, quality and also data quality.

And so, we are triple-crown everywhere. And also, furthermore, with the LTE download speed, based on the initial survey covering through that and looking, just also carried up by the same company, again we were ranked number one in all privileges.

So, we’re very pleased that in terms of actual speed and customer perception we were ranked number one. We should be very proud of that. At the same time, which would not be complacent, and as such, we have constantly mentioned network is state of art creature. And it is important that we recognize this and we work two or further enriching network quality going forward. Next slide please.

With regard to sales channel, DOCOMO shopper won a claim. DOCOMO shoppers continue to gain very high Assessment. But based on Nike research award carried out by Nike Research company, again we were there in terms of hospitality level.

So, DOCOMO are pretty high clean, I believe it’s the source of the company that nests for DOCOMO. And she makes sure that we leverage the strength that we further at greater depth if you will to the strength.

Next slide, I would like to talk about de-market as well as our service delivery. Let me talk about the transactions of de-market. As we have reached new store the key market overall, transactions have continued to expand. The first quarter transactions reached ¥16.8 billion which represents increase year-on-year. And toward the annual target of €90 billion, we would like to continue to focus our efforts in this area.

Next slide, de-market subscriptions. The – at the end of June, we have preached ¥7.45 million monthly subscribers. Here in the first quarter, now here was a slight decline because at the end of the fourth of the previous year, there was a very large spike into subscription. And so therefore that may be the case Impel, there is some backlash titles at month.

However, on the other hand, in the month of May and June, as the month passed, the increased trend has maybe covered. And we went to further extent with this subscription in the future month.

Next, service enrichment. We have settled, expanded the markets towards de-hits and development-magazine. With regard to de-hits, on top of the monthly authority dance service as a favor first w launched the monthly privilege and service. And after the first three months, we have gained ¥460,000 it’s not ¥100,000 to ¥30,000. Net add on June 20, we also merged the magazine in one – only material to be achieved 610,000 subscriptions, so that’s not to enter 30,000. So, therefore relatively a strong start.

In particular with the Go to teen magazine, you don’t first, eliminate Axe as to any popular magazine titles the month of ¥400 per month. It’s in most of the use of this, so read articles that end the same thing from multiple magazines. So it’s a very convenient and very good the rest of the restaurant that is well received. And there In particular with the growth to development experience is to magazine. So therefore we believe that they will grow assets, make your services so far DMI get higher.

Next slide, and we’d like to talk about the de-market usage per subscriber. The usage per subscriber for the month of June was ¥150 per customer but that represents 3% growth year-on-year, 10% increase over the past three months so very strong growth.

So, therefore the usage per customers is a continuous upward trend. There is a very positive trend and we want to continue that, increase that.

Next slide please. Part or section 3, part 3, I’ll let you talk about the business structure, reform and reconstruction. On July 1, we established a company called DOCOMO CS in various regions of Japan to improve customer satisfaction in order to realize to up to almost group permission and to create organization closed tied with community. We have launched this company.

And also to strengthen competitiveness, we have shifted resources to focus areas such as new business areas and corporate marketing. We want to enhance competitiveness in these areas and so we have shifted to personal resources to these areas.

Our original objective which I have mentioned already, in order to achieve these two main targets we’ll continue to take measures in this arena, next slide please.

Change of reportable segments. As the scale of new business areas expanded, we need to clarify the performance of the new business areas. So from this first quarter onwards, we have decided to change reportable segments. So, we have divided into mobile communication business which represents core business and as well as smart life business which represents new business and also other businesses that we have decided to offer earnings and expenses based on these three categorizations. Next slide.

And based on this categorization, in the first quarter the numbers are as follows, it’s in the middle column, in the middle column. And also this performance against the same quarter of the previous year, you’d be able to check the trend if you make the comparison.

In the case of smart life business operating income, it reached ¥6.6 billion, there was a lump with re-bidding and increase year-on-year. As for other represents, negative ¥100 billion, slight deficit. However, it’s an increase of ¥40 billion year-on-year. So, both of these segments and in both of these segments we want to equate for the revenue as well as profitability. Next slide please.

So, let me now talk about new business revenues and the progress thereof. For this fiscal year, we’re anticipating ¥770 million which represents ¥20 million increase on a year-on-year basis. Smart life business will account for ¥15 billion, out of that growth.

So, for the annual guidance of ¥770 billion, we believe that we’re making a steady progress towards this annual target. Next slide please.

Reinforcement of management foundation and cost efficiency improvement, head toward the jacket of ¥55 billion in the first quarter, we have already received improvement of ¥32 billion. And the progress to forecast is 58%. And to realize the annual target we want to exist on our cost control. Next slide please.

So, I have talked about the actions to date for the first quarter. To summarize I think we’re off to a very strong start in the first quarter, that is our understanding.

Now as far as the results of the first quarter are concerned, we traditionally bidding plan and we’ve been able to gain a very large new subscription. Number portability and churn rates have all been improved and I think we are seeing improvements in our operation.

Elton work enhancement has also progressed and they’re very well received. And also we received the first voice availability service here in Japan, and also we are further enriched in marketing magazine that we carried out reorganization with the structure. And we’re off to a new start. Next slide please.

Planned actions for the future. As I mentioned at the start, we have characterized this year as the year-to-date foundations for new growth. And we would like to make focus on areas which are listed on this page. First of all, we want to further proactively sprint of these source of new billing plan and we want to promote the usage of the second mobile device, single server tablets, as well as smartphone usage.

And we also want to expand packet usage through a packet share plan and also we want to further expand new business areas and we’ll make efforts to make sure that the project contribution can be strengthened and assembled, continuously controlled our promotion costs and sales costs.

Also furthermore, now that the entity is twice the heretical operation fiber wholesome model, conditions are announced. Based on those conditions we will consider the new business model. So, with this we really want to establish a growth track, that is our thinking.

So, that’s all from my presentation. Thank you very much for your attention.

Question-and-Answer Session

Kazuhiro Takagi

(Interpreted). Okay. Now we will like to entertain your questions. Please let us know your name and affiliation before you start your questions. Are there any questions, please raise your hand if you have any questions. The gentlemen sitting in the front row please?

Daisaku Masuno – Nomura Securities

(Interpreted). Hello, I am Masuno from Nomura securities. When you announced the results in April, you said that you are going to planning our many reforms towards improvement. And you said that this is going to be the liaison year if you will towards next year but now three months into the year, I think you have seen good results in terms of net additions and number portfolio and churn rate? So I believe this trend will go – continue going forward.

And on top of this, further, I hope there are many elements that I hope to see some improvement. One is about the ARPU, and before April to June quarter, when you look at the aggregate ARPU, seems that inclusive of smart ARPU, that the total number is ¥5,120 excluding the impact of mostly support impact.

So, the total target for this fiscal year is ¥5,240. So you have to achieve increase quarter-by-quarter otherwise you won’t be able to achieve your full-year target. So, including the churn rate, I think you are already making favorable results for the net additions. So what kind of measures are you planning in order to achieve your aggregate ARPU target, can you comment on this point first?

Kaoru Kato

(Interpreted). Yes, as already pointed out, the new billing plan, subscribers has been growing faster than expected. So we are, we believe that many customers are enjoying this new service and that has resulted in an improvement and number portability performance and net additions and churn rate.

Actually I’m not really sure if it’s adequate to make this comment but even in the middle of July, I think this improvement trend is even gaining further momentum and but on the other hand, because this subscription of new billing plan is growing faster than expected. And in fact this new billing plan is first joined by heavy users as a general trend.

Because these heavy users can achieve better savings by migrating to this new billing plan, so this impact is now what my friends are saying that. They have joined the package at least for the time being because what savings that can be achieved in the packet services.

So, how will they actually use the serve and how will that modify the actual outcome is something that we have to wait and see. And we’ll try to take measures to book that usage, so we have established a project team in order to achieve that. So, and we will try to reflect those results in the actual initiatives in the call-centers and also in the DOCOMO shop operations going forward.

So, this is the authentic target that we would like to pursue so that customers can utilize our services without having to worry about their phone bill. And also, we would like to boost the package usage so that can reflect – increase in packet usage. This is the goal that we would like to pursue going forward.

Daisaku Masuno – Nomura Securities

(Interpreted). That means I believe retention of customers, you have already succeeded in acquiring customers so that will have a negative impact at the outset but I think you will be able to implement additional measures going forward to offset that declines. So you’re saying that you’re not worried at the moment?

Kaoru Kato

(Interpreted). Right in that regard, maybe this maybe somewhat exaggerated but I would say that things are unfolding as what we had planned in the beginning.

Daisaku Masuno – Nomura Securities

(Interpreted). So then, and my second question would be that when it comes to cost reduction, you said in the first three months, you’ve already achieved nearly 60% of your full-year budget target, budget forecast for cost reduction.

So, then when you look into, of course there are many elements comprising the ARPU, but as far as cost reduction is concerned, you are achieving results faster than planned?

Kaoru Kato

(Interpreted). Yes. Over the last several years, we’ve been implementing many creative ideas in order to reduce our cost and that is becoming cumulated as I know house – people like to achieve steeper the cost reduction going forward.

Daisaku Masuno – Nomura Securities

(Interpreted). The next question is about shareholder return. This fiscal year you have set out a plan to use ¥500 billion for share buyback as part of your shareholder return program that’s what you explained in April. But over the last several years, you haven’t increased your dividends and your dividends has maintained – you have maintained a status cool for the last several years.

Of course you are standing ¥500 billion for our share buyback that’s okay. But for next fiscal year, because you have maintained your dividends unchanged for the last several years, I think it is natural for us to expect the dividend hike next fiscal year onward. What do you think about that?

Kaoru Kato

(Interpreted). As we have stated for many, on many repeated occasions, shareholder return is one of the most important item in our corporate management. So the biggest element comprising shareholder return I think is dividend increase and of course share buyback and because this is the conclusion.

Kazuhiro Takagi

(Interpreted). Next question please.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). Tsusaka from Morgan Stanley, thank you very much. If I could start asking about the new billing plan, three questions about the new billing plan, first about the new billing plan. You mentioned that the subscription exceeded your expectations.

It seems that it was really totally out of your expectation. So you had more than expected subscription which maybe even trying even initially planned. But if that is the case, then in terms of the structure of the billing, it should actually allow you to increase your ARPU going forward, that’s how it should be structured. So therefore, it could be that the increase in ARPU could actually be much earlier than you had initially expected. I suppose that is the impression that you have.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). So at this juncture maybe very difficult for you to say precisely when your ARPU will begin to increase, but when do you believe that trend in ARPU will bottom out and will actually reach an inflexion point. Do you say that point on the horizon if you could please share that with us, that’s my first question?

Kaoru Kato

(Interpreted). As you pointed out, 6 million is a very large number. And that impact is there. But in terms of the financial impact of this obstruction of the new billing plan, this was actually in-line with our initial expectations and our productions. So that being the case, I think it is – more in line with the scenario that we have outlined.

Now, on the other hand, the subscriptions to this new billing plan how they use our packet and services going forward, we have to scrutinize that. But we cannot do this in the next month or in the next two month. Well, so maybe towards the end of the year we can actually scrutinize what’s going on but we’ll continue to make efforts.

But we want to reward customers who are willing to stay on with DOCOMO over a long period, customers who are willing to utilize DOCOMO’s services. I think maybe the customers have this type of characteristics. And so we believe that the new bidding plan has been very well and very strongly received.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). If I could actually ask another question, so ARPU and if you multiply ARPU and the number of subscriptions you come up with communication revenue. So, the subscription is very strong but then ARPU is in a downward trend. So, at what time do you believe that these two elements will actually balance out and actually will increase?

Hirotaka Sato

(Interpreted). The timing for increase in revenue, I have a feeling that maybe towards the end, towards the second half of this year, maybe that timing will arrive. Or maybe sometime during the next fiscal year or maybe it could be further down the road.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). So, do you have this type of plan or do you have any idea as to when the timing will be?

Kazuhiro Yoshizawa

(Interpreted). Yes, allow me to respond to that question. Yes, the impact of the new billing plan, we have to of course closely observe that. But at the same time, another impact is the impact from the monthly support program. I think that also has a very substantial impact.

For this fiscal year as we mentioned earlier, we anticipate an impact of ¥120 billion increase actually on the year-on-year basis. Net fiscal year I think the impact for the monthly support could also increase. So that trend has observed and also the impact of the new bidding plan.

We have to take into consideration both of these factors. I think consider whether or not our revenue will actually vary to an upward trend. As far as the monthly support program is concerned, naturally we will make efforts to control and also to decrease that. And of course the impact of the new billing plan, both of these have to be considered. And I think we need more data before we can actually analyze the impact from these two elements.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). So, you have no response at this juncture?

Kazuhiro Yoshizawa

(Interpreted). Well, one milestone perhaps is end of the year, maybe through the end of the year, we’ll be able to scrutinize and see big progress in terms of acquisition of customers and also the increase in packet ARPU. We hope that we’ll be able to build on these efforts.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). My second question, you talked about impressed material operations and once the revenue begins on an upward trend, then your over corporate performance will begin to improve. So I personally have very strong accusations that this scenario will play out. You have your meeting, you think you’re going to come out with a new medium term plan towards the fall of this year?

Now, in the previous one presentation, you talked about L or V shaped recovery but now that the first quarter of the year is over and you mentioned that the progress has been strong to date. Then as far as we’re concerned, we’re looking forward to a V-letter shaped recovery in your medium term plan? Is that the case?

Kaoru Kato

(Interpreted). Well, as we mentioned, we want to of course scrutinize the progress toward the year end. Our intention is that we’re able to realize an L-letter shape or V-letter shape recovery as soon as possible. But your question is more technical, it’s about the telecom industry overall.

The new iPhone model will come out in the fall of this year. The people who replaced iPhones they are those – they are likely customers from our other carriers who have iPhone 4S and iPhone 5, iPhone 4S and iPhone 5 and I think they will be the ones to migrate to iPhone 6.

If that is the case, there will be no outflow from your customer base. So your competition could have anywhere 10 million to 15 million iPhone 4S and iPhone 5, customers are good actually, potentially outflow. So, if you proactively go after those customers then you’ll be able to increase your net ads.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). So, I know that there is uncertainty as to timing of the launch of the new iPhone 6. Do you see this as an opportunity for DOCOMO?

Kaoru Kato

(Interpreted). Yes, the so called iPhone 6, when will this come out, in what quantity and what will that be. It’s still in the dark. But customarily, iPhone products have been very well received on a global basis. And for the first time, for DOCOMO, we’re able to launch, potentially launch a new model, one year after we began to handle iPhone products. So naturally we want to capture that opportunity.

Now there is likely to be a lot of replacement demands. On the other hand, the current marketing method is based on turning your time constraint. So yes, I don’t agree with you, that’s just about the trends. So yes, we want to very actively go after the potential demand.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). Now having said that, is there going to be a competition based on cash back?

Kaoru Kato

(Interpreted). Excessive unsound type of competition, that’s something that we want to avoid.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). So, what will the circumstance be?

Kaoru Kato

(Interpreted). It will depend on the product and as it will depend on the prevailing comparative landscape at the given time but that is the basic position we have in relation to this product.

Tetsuro Tsusaka – Morgan Stanley

(Interpreted). Thank you.

Kazuhiro Takagi

(Interpreted). Now, we’d like to entertain the next question. The gentleman sitting in the third row please.

Masashi Nishihara – Goldman Sachs

(Interpreted). Goldman Sachs. My name is Masashi. I’ve also got a question which maybe overlapping with the two previous questions, I have actually two questions. One is about the new billing plan, it’s subscribers.

When you said that you recently had 6 million subscribers already, when you look at the breakdown of these 6 million subscribers, we think many of them are migration from your existing subscriber base. So when they purchase the new handset, I think they subscribe to the new billing plan.

So if you could give us some accurate information regarding those 6 million new billing plan subscribers so long as you can disclose them to us. Can you elaborate on those attributes of those 6 million subscribers?

Kaoru Kato

(Interpreted). Actually, it is very difficult for us to disclose such information because of the competitive – for competitive reasons. Of course when customers come to renew their models to a new model, and also change to a new pricing menu, those customers account for the large bulk of those 6 million subscribers. As I said, we focused on long-term customers. So those long-term customers account for also another major bulk.

When I say major bulk I think you won’t be able to understand but please forgive us that that’s only the information that we can give to you. And we look at customers on a family chunk. So those customers of age 40 and higher, they account for large bulk of those subscribers as well.

Masashi Nishihara – Goldman Sachs

(Interpreted). Then, put it the other way, when we look at – is it possible for you to choose only the voice unlimited package only?

Kaoru Kato

(Interpreted). Yes, that’s feasible.

Masashi Nishihara – Goldman Sachs

(Interpreted). So, are there so many customers out of those 6 million who subscribe only to the unlimited voice package, would that be half of those customers or one third, can you elaborate on those numbers?

Kaoru Kato

(Interpreted). Well, as you rightly pointed out, the plan is designed in such a way that you only subscribe to the cut a whole, limited voice package. So I can say only, as certainly subscribers have subscribed to only one package of those new billings and components. So not all of them, so it means, yes that’s correct. Not all of them have subscribed to only the voice package.

Masashi Nishihara – Goldman Sachs

(Interpreted). My second question is about the overall performance that you said that your performance is almost in line with your earlier assumptions. So is the cost also in line with your expectations that you said ¥32.4 billion, is that number in line with assumptions? And when you look at total or cost for the full year, are you anticipating free fall of that number or only double that number in terms of costs?

Because NTT I think is expecting higher amount of cost reduction, let’s say three times as much as what you had achieved in the first quarter. But what is your plan with respect to the cost reduction target for the full year?

Kaoru Kato

(Interpreted). Yes, as I said, we achieved the 58% of the full year cost reduction target so we don’t think that the ¥55 billion is sufficient. I think we have to deliver higher numbers but we are currently scrutinizing what more we can do. So, we will make achieve as much as possible, let’s say 1.54 of that number maybe double that number might be difficult but we will try to achieve the higher levels of the double-digit billion.

Masashi Nishihara – Goldman Sachs

(Interpreted). Thank you.

Kazuhiro Takagi

(Interpreted). Next question please will go to the gentleman in the fifth row.

Atsuo Takahashi – Mizuho Securities

(Interpreted). Takahashi from Mizuho Securities. I would like to ask about your operational performance, you talked about the positive signs in terms of impairments and operations. So we are actually looking forward to what transpire individual. But having said that with regard to your recent performance, I do have several questions?

First, ARPU seems to be on a weak trend. So, my first question, with in fact was ARPU. Can you give us an analysis of the fact to the improvement and the decline if you will of voice ARPU? Can you give us a breakdown of the elements that I’d like to increase and decline in the voice ARPU?

Hirotaka Sato

(Interpreted). Yes, thank you very much. With regard to voice ARPU and the contributing factors the voice ARPU. Can I give you some absolute numbers or would you like this one ARPU based?

Atsuo Takahashi – Mizuho Securities

(Interpreted). If I could have ARPU based numbers that would be lovely, if not some numbers will be fine?

Hirotaka Sato

(Interpreted). I’ll give you the absolute numbers first. Voice ARPU, voice revenue for ¥45 billion decline at a fact, nothing support has had a impact of ¥18 billion thereabouts. And also visible MOU decline that represents ¥6 billion, and also revising to a lower plan that’s had an impact of about ¥12 billion thereabout, so that’s a breakdown.

And of course, impact from the new billing plan is probably included in that. But I’m afraid I’m not able to share that number.

Now with regard to packet revenue, negative ¥3.6 billion, in fact that’s from support, that had – that was ¥2.7 billion. And my questions are in my phone plus or positive ¥38 billion. And also flat rate was planned a ¥6.6 billion. And also negative ¥2.4 billion with regard to the iMode. And ARPU figures, we’ll provide them later on.

Now with regard to ARPU trend before or excluding monthly support for comparing for the fourth quarter, it seems like the ARPU is in the downward trend in this first quarter.

Atsuo Takahashi – Mizuho Securities

(Interpreted). Now, of course subscription to smartphones are increasing. So what’s the backdrop behind this decline, for example, I can estimate that maybe impact of NVNO might be there, is that the impact, is that the reason or also as people migrate to new billing plans, optimization is the progressing, so the step D did have an impact? So therefore packet ARPU excluding the monthly support plan, is that the packet ARPU declined in the first quarter? That’s my question. Thank you.

Kaoru Kato

(Interpreted). Can you repeat your question?

Atsuo Takahashi – Mizuho Securities

(Interpreted). Yes. Before the monthly support the packet ARPU declined in the first quarter compared to the fourth quarter that we have this year. So, what’s the driver behind that? Is it the impact from NVNO or is it the impact from new billing plan migration and because of the optimization taking place? That was my question, thank you.

Kaoru Kato

(Interpreted). Well, first the factors – of course optimization of the billing plan might be there. But the other impact is that my question for feature phones to smartphones are not taking place. In other words we do not see the benefits from increase when people migrating from feature phones to smartphones. That’s probably the biggest factor. Thank you.

Atsuo Takahashi – Mizuho Securities

(Interpreted).Well, the smartphone subscription is increasing isn’t it? So therefore trend wise back at our push it would be on upper trend prior to the monthly support impact. So if migration from feature phones to smartphones are not progressing then, is it that – is it the case that the data ARPU for feature phone customers are declining, is that the case?

Kaoru Kato

(Interpreted). Can we get back to you on this question?

Atsuo Takahashi – Mizuho Securities

(Interpreted). Thank you very much. My last question, with regard to the new billing plan, if you focused only on the new subscriptions, at this moment, I think it’s probably possible for you to choose between the existing cross LD plan, but what about the new subscriptions for the June, for the month of June. What’s the percentage of people who opt for the new billing plan out of the new subscriptions? If you have such data, I would appreciate it. Thank you.

Kaoru Kato

(Interpreted). Yes, there is a certain number. But I’m afraid we’re not able to share with you that percentage.

Atsuo Takahashi – Mizuho Securities

(Interpreted). As we mentioned earlier, as far as the new billing plan is concerned, majority of the people who subscribed are people who changed from existing plans. For the new subscriptions, its port in and pure new subscription are included. Maybe they’re gone for free 50%?

Kaoru Kato

(Interpreted). We don’t have the absolute numbers per say, we don’t know the figure on hand. But I would say maybe a little over 50%, I think that is the number. Thank you very much.

Hirotaka Sato

(Interpreted). Yes, a little over 50%, I think that’s the number. And also, if I could go back to the ARPU numbers of course – yes, there is the impact of new billing plan on the ARPU and maybe several dozens of yen, I think that’s the impact from the new billing plan as far as the back of the plan is concerned. Thank you.

Kazuhiro Takagi

(Interpreted). Did we answer to your question? Okay. Now we would like to take the next question. Hands in the sixth row from the front?

Kinoshita Yoshiyuki – Merrill Lynch

(Interpreted). My name is Kinoshita Yoshiyuki from Merrill Lynch. I have two questions as well. One is about the new billing plan. Again, I would like to ask another question relating to the billing plan? Well, maybe this is something that you may not be able to disclose, but out of those people who select this new billing plan, how many of them are new feature phone users. So feature phone users selecting new billing plan, if you can disclose that information to us?

Kaoru Kato

(Interpreted). New billing plan subscribers who continue to stay on feature phones, yes. They don’t mind going through a smartphone they continue to use feature phones. But migrate to the new billing plan, the ¥2,200 plan, right.

Well, this is something that we don’t disclose so much. But because they are subscribers who joined the new billing plan by the whole family. And those subscribers who just switched to the packet hold plan only. So, I would say not really sure how to answer this question.

Well, because of the repercussions on the corporate market, I think it is quite influenced by the corporate customers it’s very difficult to arrive at the right number and in a simple calculation. So I’ll come back to this topic afterwards.

Kinoshita Yoshiyuki – Merrill Lynch

(Interpreted). I have two more questions. Well, regarding the monthly support discount, you said that this will have another incremental ¥120 billion impact from this area. And the first quarter impact has increased by ¥45.8 billion in the first quarter. So do you think that the impact will come down in the following, in the subsequent quarters, because if you just make a simple calculation, ¥120 billion will not do?

Kaoru Kato

(Interpreted). Yes, in the first initial business plan, we anticipated ¥120 billion impact for the full year. But when we look at the first quarter numbers, it doesn’t mean that we have to change or revise this first assumption at this moment and we’re not really sure if we can manage at the ¥120 billion level. Because the only thing I can say is that we’ll make efforts to control and minimize the monthly support discount going forward, at least that is our intention going forward.

Kinoshita Yoshiyuki – Merrill Lynch

(Interpreted). Thank you. My next question, so your company and Soft Bank, as of the end of August, both top receiving applications for the existing billing plans, so you start receiving applications only for the new billing plan. But on the other hand, AU says that they will continue to receive applications for the existing billing plan.

Well, to be honest with you, for many of the existing users, I think because the new billing plan is so well designed so that means the traditional billing plan maybe more beneficial to them.

Kinoshita Yoshiyuki – Merrill Lynch

(Interpreted). So, won’t that have an impact to you?

Kaoru Kato

(Interpreted). Well, there are many elements here. So depending on the usage, the traditional usage, we can say that that kind of pattern may apply. But we will use our contact points, our customer contact points like our contact – DOCOMO shops or through the call centers. We would like to propose new ways of usage.

And for those new usages, I think because of the new billing plan is so more flexible, we would like to more aggressively promote a new billing plan going forward. And now that we have 6 million subscribers already, I think this new billing plan is so well received by such a huge customer already.

So, stopping the application, receiving application for the new billing plan by the end of August, it’s something that we don’t plan to change at this kind of – at this point of time. AU has a different dilemma I think because they don’t share packets. It’s just about gifting this package depending on the increased usage.

So in that environment, the foundation is the same, the existing traditional – the foundation is the same as the traditional package. And they have something extra. So that allows for them to have the traditional billing co-exist with the new billing plan.

Kinoshita Yoshiyuki – Merrill Lynch

(Interpreted). Thank you very much.

Kazuhiro Takagi

(Interpreted). I’m afraid our time is running out. So, we’ll accept two more questions. The gentleman in the second row please.

Hitoshi Hayakawa – Credit Suisse

(Interpreted). Hayakawa from Credit Suisse. Thank you. With regard to your outlook for your performance, as far as data ARPU is concerned, as people migrate to smartphones. It is now on a downward trend. Maybe is it worsening of the customer mix or is it acquisition but net backs ¥460,000 that you talked about but what about the mix at this level?

So, with the impact of the new billing plan, how much impact did data ARPU experience, do you have that number? Well, out of the ¥460,000 net ads, can you give us a customer mix type of information? In other words, when you take a look at the overall aggregate ARPU it’s not increasing. And in terms of corporate performance year-on-year, it’s actually 16% down or decrease in your revenue.

So the situation is improving, subscription for the new billing plans are improving. And of course the new churn rate is improving. So we just see the changes. But having said that as you go towards the second half of the year, and also towards the next fiscal year, maybe we still do not have sufficient data to allow us to be more positive. So, what are your thoughts about the first quarter results, can you give us some guide or clue?

So, with the new billing plan, what is the most popular plan, what gigabyte and what about the average profile of the customers and also in the first quarter, what’s the impact from NVNO. Can you give us some hint or clue so that we can actually analyze further because it’s a very ambiguous set of data that you have given us today?

Kaoru Kato

(Interpreted). So, we get the sense that yes, there is improvement. So we get a very ambiguous picture but it’s very difficult to paint a picture with great confidence as you head towards the second half of the year.

Hitoshi Hayakawa – Credit Suisse

(Interpreted).s So, if you could give us some concrete set of data we’d appreciate it.

Kaoru Kato

(Interpreted). With regard to data, I suppose that we analyze further we can come up with a great concrete analysis but whether or not we can show you those concrete data, we have enough people to do that. The net adjust ¥460,000 I think that number is still small. And also we’ll take a look at the number for July, I believe there is further improvements taking place.

Hitoshi Hayakawa – Credit Suisse

(Interpreted). So therefore, will this continue for the rest of the year, would this be a continuous trend for the full year?

Kaoru Kato

(Interpreted). Our base would become more solid as we go down the year. And I think this would be reflected at the end of the day in a financial indicator. Now 6 million number that we talked about, that might be a very large number then it’s just the first month since the new billing plan.

So therefore I think we need to scrutinize the situation further before we can make any remarks. So, therefore, I’m afraid we can limit maybe we have to limit the items and the data that we’re able to disclose to you at this juncture.

Now last year, with regard to the profit, I think our progress to plan was higher. And at the same time, the level of the drop in your revenue was actually in the single-digit. Of course I think your initial guidance was 10% decline, so again the basis for the previous was clear, this was clear so different.

Hitoshi Hayakawa – Credit Suisse

(Interpreted). But it seems that you’re off to a strong start as far as this fiscal year is concerned. But what is business of your recognition, what is the basis of this assessment? In other words, compared against the previous year, did you do well in terms of your spring season or and b, was ARPU or data ARPU, do you have confidence that performance will accelerate as you go towards the second quarter, so it’s not the recently a positive assessment? Or is it the cost versus revenue, what’s the current situation, what is your assessment of the current situation?

Kaoru Kato

(Interpreted). As far as the cost is concerned, as far as the revenue is concerned, well, it’s not so much a dissection between the two. When you take a look at the profit overall, again, we characterize to see as the year to lay the foundation for the growth in the future.

As far as our plan is concerned, and we have set the plan based on this intention and this result. And against that plan I think we have better strong start, that’s what we mean.

Now the 6 million subscription was larger than our initial activation and the impact is much more substantial. However, it is still within our initial expectation. Now the growth, the potential growth in ARPU going forward as we mentioned earlier, we’ll make maximum efforts to further grow our ARPU. That’s one of the intentions behind the introduction of the new billing plan. So that is the biggest focus as far as we’re concerned.

Kazuhiro Yoshizawa

(Interpreted). Yes, if I may add. Yes, I think our busy policy was already up by Mr. Kato. On a more practical level, as far as the business plan is concerned, I’m responsible for the business plan. As far as the preference level is concerned, we have the plan for ¥750 million. And against the plan, I think we have exactly exceeded other progress.

Now, as far as the revenue is concerned, yes there is impact from the new billing plan. And actually that impact was brought forward. But this again is in line with our initial expectation. And cost reduction efforts allowed us to offset that impact. So that’s why as far as profit is concerned, this is in line with our initial business plan.

Hitoshi Hayakawa – Credit Suisse

(Interpreted). Now, what about the future as we go towards the second half, but this is clear. On a year-on-year basis, the decline in the operating income should be much smaller? Why?

Kaoru Kato

(Interpreted). Because the operational improvement will actually begin to be more tangible towards the second half of the year. And this will help us to expand our revenue base. And this will then contribute toward improved profitability. So that is our expectation. And that’s why we’ve maintained the guidance of ¥750 billion operating income that is our expectation.

Hitoshi Hayakawa – Credit Suisse

(Interpreted). So what you’re saying is as far as telecom business is concerned, the decline is ¥50 billion but the drop in that revenue will improve after each quarter. Is that your assumption, is that your response?

Kaoru Kato

(Interpreted). Yes, that is the case.

Hitoshi Hayakawa – Credit Suisse

(Interpreted). Thank you.

Kazuhiro Takagi

(Interpreted). Okay, thank you. So this will be the last question for today’s meeting. The gentleman sitting in the right corner.

Oshidari – JPMorgan

(Interpreted). My name is Oshidari from JPMorgan. On a related note, I just want to recap, reconfirmation on one point. Regarding cost efficiency improvement, after all, compared against your initial plan for – according to what you said in your last meeting.

Is that you can only reduce so much for cost reduction this fiscal year and on the other hand you said you will be focusing on the new businesses? And the cost will increase because in line with the revenue increase. So still you are doing better than expected means that the cost of equipment sold and the depreciation and amortization and other expenses. I think what is doing better than your expectation in terms of cost reduction in those cost items? That’s my first question.

And the other question is about the D-market subscribers. You D-market subscribers are beginning to decrease already. And the factors behind that is the reduction in D-video and D-music distribution service. So, is this only a temporary phenomena or is there any other reason behind this decline?

And then, because D-market is one of the biggest driver for you to grow your smart ARPU and that may have a negative impact from your smart ARPU, growth going forward. Can you comment on that?

Kaoru Kato

(Interpreted). Yes, with respect to cost reduction plan of ¥55 billion we’ve already achieved ¥32 billion so we’ve achieved quite a big portion of that. When you look at the details I think sales related expenses have made significant progress compared against the full year plan. So we are achieving our results faster than planned in terms of the sales expenses.

But when it comes to the metric expenses, I think the effects will become much more significant in the second half of the year. So this is an area that we can expect further reduction going forward. And in totality we will work to achieve somewhere to the north of ¥55 billion for the full year in terms of cost reduction target. Of course this has some implications on the income. So we would like to skillfully manage our cost going forward. And we would like to continue making efforts to that end.

And regarding the D-market such quarters, as you can see from the presentation document, in the fourth quarter of fiscal ‘13, we achieved a strong number. And that has a setback – that has had a setback in the first quarter, that’s one thing that we have to take note. And the second element is because we have strongly promoted the new billing plan we will not able to strongly promote the D-services on the shock front.

And maybe some customers are continued to use this service, so some customers are became tired of the D-Video service and they might have migrated to the magazine service. So such kind of customer migration may have happened. So because of this we are seeing some trends of recovery in the D-market subscription. So we will continue to focus on to strengthen our marketing activities going forward. So, at the moment, that has not been so sluggish. So we would like to continue making efforts.

Oshidari – JPMorgan

(Interpreted). Now, regarding your sales, regarding, is this an impact coming from the change of incentive amount or is this just user driven reason?

Kaoru Kato

(Interpreted). Of course we are improving efficiency of the amount of incentive to be more straight forward. We have reduced incentives. So that could have an impact. And overall, the total handset sales has increased in the beginning of the year. So, in March, we had a significant increase, so that had resulted in a setback in April and we recovered in May. So, I think this is a temporary factor for March, April and May.

Oshidari – JPMorgan

(Interpreted). Thank you very much. I understood.

Kazuhiro Takagi

(Interpreted). Now thank you very much for your questions. Now we would like to finish this meeting. We thank you very much for your attendance despite your busy schedule.

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