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NTT DoCoMo, Inc. (NYSE:DCM)

F4Q 2011 Earnings Call

April 28, 2011 4:00 AM ET

Executives

Osamu Hirokado – IR

Ryuji Yamada – President and CEO

Analysts

Daisaku Masuno – Nomura Securities

Tetsuro Tsusaka – Barclays Capital

Kei Takahashi – Merrill Lynch Japan Securities

Atsuo Takahashi – Mizuho Securities

Shinji Moriyuki – SMBC Nikko Securities

Osamu Hirokado

Ladies and gentlemen, thank you very much for taking your precious time to attend this meeting. We would now like to start the Analyst Meeting presenting the results for the fiscal year ended March 2011. I am Hirokado, Managing Director of the IR Department of NTT DOCOMO. I’ll be presiding this meeting.

Please be advised that this meeting is broadcast live on FOMA and also on the Internet. Also the recorded video will be provided on DOCOMO’s IR site for on-demand distribution. Now we would like to present the participants from NTT DOCOMO. First we have Mr. Ryuji Yamada, President and CEO; next Kiyoyuki Tsujimura, Senior Executive Vice President; we also have Mr. Masatoshi Suzuki, Senior Executive Vice President; next is Executive Vice President for Consumer Marketing, Mr. Bunya Kumagai; we also have the Executive Vice President for Accounts and Finance Department and CFO Mr. Kazuto Tsubouchi; and we also have Executive Vice President and Managing Director of Corporate Strategy & Planning Department, Mr. Kaoru Kato; and finally, we also have the Executive Vice President and Managing Director of Network, Mr. Fumio Iwasaki.

For today’s meeting we will like to use four sets of documents, the earnings release and three sets of presentations, one entitled Great Eastern Japan Earthquake: Damage and Restoration Status, New Disaster Preparedness Measures and the results for the fiscal year ended March 2011 and a principal action plan for the fiscal year ending March 2012.

First we will have a presentation from Mr. Yamada, President and CEO followed by a Q&A session. We would like to finish this meeting at 6:00, but because we are going to have three presentations for this meeting, so we may have to anticipate some extension. Please bear with us till the end. Now there are forward-looking statements included in the presentation as well as a Q&A session. For those potential risks please see the presentation and Form 20F filed with the SEC.

Now without further ado, I would like to call Mr. Yamada.

Ryuji Yamada

I am Yamada, thank you very much for taking your busy schedule to attend this meeting. I would like to also take this opportunity to express my gratitude for your continued support to the company. On March 11, there was the occurrence of a great East Japan Earthquake, an ever since we have inconvenienced our customers, we are very sorry for that.

We would like to restore our facilities at the earliest possible timing, and as of today we have nearly completed all of our service areas restorations. So I would like to explain the details regarding the recovery status as well as the damages incurred by the earthquake, also the new measures, new preparedness measures will also be introduced. Because we have so many documents to cover I will try to speak as quickly as possible.

Now without further ado, I would like to start with the damage and restoration status presentation. Page 3. This is the restoration status of the service areas. As of March 12, we 4,900 base stations were damaged or disrupted but as of 26 of April, as you can see on the right hand side of the page, most of them have been recovered. Page 4. Well many of our base stations were recovered after the power supply came back, but not all of them were done because of submerged base stations and disruption with transmission line. As of March 28, 307 base stations were disrupted and we had a plan to complete those restorations by the end of April. And most of them are on scheduled towards that goal.

Some of them are still remains to be restored because of being in mountainous areas or disruptions of roads making it difficult to access in the first place or inside tunnels. For the network restoration we used optical fiber or replaced the optical fiber and used stopgap optical fiber. We also transmitted signals from large zones using a large zones scheme from mountain top areas, and also we used micro tunnel wave transmission and satellites in some cases.

Page 5, we have some more details. This is how we repaired our transmission lines using optical fiber. Page 6 is about the restoration using large zone scheme. And page 7 is the restoration using microwave transmission. Page 9 is the restoration using satellites. With all these measures, we have nearly completed the restoration of the service areas. The other factor that we had experienced was the restoration effort for the areas close to the Fukushima Daiichi Nuclear power plant. 68 stations within the 38 kilometer radius were disrupted. Out of those 68, we’ve already restored 51 base stations. And the efforts that had been employed for the restoration are explained on page 10.

We were only able to access those base station for inspection on the 31st of March and on April 1st. We’ve been to J-Village which base camp for the task force of the people working on the nuclear power plant accident. We restored that area on April 1st and on the 13th of April we deployed the high-performance antenna to transmit signals towards the direction of the power plant from a spot, 25 kilometers away. Actually on that occasion, there was an aftershock, but amidst that disturbance we still were able to install this high-performance antenna and those on the 13th of April we placed the transmission lines for the areas there.

On page 11, as you see the areas had been restored in the areas close to the nuclear power plant, before and after you’ll see the difference of restoration in the service areas. From the left hand side to the right side. From Onahama to J-Village, most of the people accessed the Daiichi power plant from that route. So restoring coverage in that area was very much appreciated by those task force.

Page 12 shows the restoration of areas, as you see on the left we deployed a satellite base station for J-Village coverage restoration. As you see on the upper right, this is the restoration by the replacement of a transmission line that we did for the exchange office in Tomioka which is about only 10 kilometers away from the plant. Below, at the bottom is the high-performance antenna used for restoration. Just as we were working on the installation of this high-performance antenna, there was level 5 aftershock.

We have national support team comprised by 4,000 people. On page 14, this time around we introduced a new parameter in other words, we created what is called the Restoration Area Map. This provides the status of the area maps, when it will be restored. And also it also provides the information about the availability of satellite or mobile phone services and about our free charging stations and about our DOCOMO shops.

On the right hand side, as you will find – in the first 10 days, we had approximately 200,000 accesses. And the customer comments are as follows. They said it was very convenient because they can check the availability of services in areas where they will be visiting for relief activities. So as far as the restoration area maps are concerned going forward in any given disaster as we would like to compile them as soon as possible.

Page 15, support to evacuation shelters. So free rental satellite mobile phones, 900 units. And also provision of 670 tablets. On page 16, we talk about support to various organizations and companies. So various NPOs are now very active in the area. So therefore DOCOMO is providing GALAXY Tabs and data cards as we’d like to support these NPOs and various organizations that are offering relief activities. Page 17 talks about payment related support measures. What we are providing on top, we talk about extension of payment deadline for our customers. So for March, April and May bills, we will be extending payment deadline to June and also refund of charges. And also the fourth one on the top, free of charge data restoring service for phones that were damaged by water exposure and also waiver of commissions, and also second from the bottom, we are now offering special discount for purchase of mobile phones.

So the special discount is about roughly 10,000 yen. And also zero yen mobile units, three such models are being offered. So roughly nine units will be offered for free of charge. And page 18 talks about the launch of charity drive websites. The total donation has now reached 944 million yen which is a very large number. We very much appreciate your support. Now third from the top, for the first time ever, we are now offering donation through DOCOMO points, usage of DOCOMO points for donation purposes.

So as of March 18th, we’ve made this available. And this is the first time ever, ever. Page 19, talks about support by DOCOMO Group Companies. For example, Oak Lawn Marketing is now involved. This is our marketing company, so there they are offering low resilient pillows which was very well received by the disaster stricken area. And also cooperation from manufacturers, Samsung Japan Corporation has provided GALAXY Tab for free 2,400 units and they have been distributed to various shelters.

Page 20 talks about support to DOCOMO shops. We believe that DOCOMO shop is part of one DOCOMO family, a very important member of DOCOMO family. So that is overall fairing support, we’ve offered relief. And also we are carrying out various donation activities. This covers some 470 agents [ph] throughout Japan. And we’ve matched the relief offered to these DOCMO shops. So altogether 1.1 trillion yen of donation we’ve been able to collect.

And we’re also offering support for, rebuilding shops and financing expenses for products. So if you add them altogether, DOCOMO shops, well we restored older DOCOMO shops to its original state. This will require some 60 million yen and half, more than half will probably be supported by these three different donation activities. So as far as the remaining area is concerned, we’ll offer zero interest loans. So upon the request from DOCOMO shop operators. This will be provided by DOCOMO.

So as soon as possible, we hope to restore activities in DOCOMO shops and agents. Page 21 talks about full-scale restoration plan. At the moment, we’ve enabled to restore much of the services, however, in terms of transmission lines they are only temporary in nature in certain cases and some of the base stations are temporary. So that being the case by end of September of this year we hope to realize full-scale restoration.

And the final page, page 21 – page 22 rather. This talks about the expenses required to bring about this restoration. So earthquake related impact in terms of CapEx. This is the amount of CapEx required for full restoration. This will be roughly 10 billion yen. As impact of profit and loss, that’s indicated on the right hand column. Profit and loss 16 billion yen will be impact of the profit and loss. So the profit and loss component as for 2010 is roughly 6 billion yen and 10 billion yen for fiscal year 2011. That’s the breakdown. So as a total, we’re anticipating 16 billion yen impact of profit and loss over the two year period.

New disaster counter measures. With the Great East Japan earthquake, we learned a lot. We knew the recognition that it is very important that we offer and secure communications on behalf of customers. So therefore we decided to introduce these new disaster preparedness measures. If you can open page 2 of this presentation, there are three focus areas. One, securing communication in key areas. Two, swift response to disaster-stricken areas. And three, further improvement of customer convenience especially those suffering from the disaster.

Regarding the first item, securing communication, we will use the larger zone scheme and also reinforce the battery capacity in order to provide coverage in the disaster stricken areas. I’ll go one by one later, but before that I’ll talk about the estimated impact, financial impact. All these items from one to 10, we would like to implement them within this fiscal year as much as possible. The CapEx is estimated to be 20.5 billion yen altogether and expenses 3 billion yen.

Now the details of the measures that we are going to introduce are illustrated on page 4 with the large scale disaster like the past earthquake, we suddenly see a disruption of communication in many area that will raise concerns and anxieties among many people. Therefore we thought that it is very important that we secure communication especially in important locations as much as possible. So as you see there, in the middle, we have the base station of DOCOMO. Usually these base stations cover small areas, but with this new measure we decided to introduce a larger base station which has a 360-degree directivity antenna on top of it.

So in the event of a disaster, this large zone will start transmitting signals. Usually it’s turned off, but in the event of disaster it will be activated to cover a seven kilometer radius. Of course, we’ll try to first locate them in 100 locations. Of course the more the better but because of the costs, we will introduce this large zone scheme in 100 locations nationwide.

Basically we’ll try to introduce in two locations per prefecture but of course Tokyo as a metropolitan area we’ll more locations like five and Osaka, four locations. With that we’ll be able to cover 35% of the populated areas because usually these large zones will cover densely populated areas. The other thing that we’ll be using is the supply of battery 24 hours and the use of uninterruptible power supply, UPS.

Usually on a standard, basically our base stations support sustenance of battery for only three hours but after the three hours, the battery dries out in many of our base stations and that was the major reason for the disruption of communication in many base stations in Tohoku this time around. So in order to take care of this, we decided to reinforce the battery capacity, but even if you say so there is like 60,000 base stations that we have to cover. So we have to prioritize the important areas.

So the occasions, the base stations covering prefecture of governments or local governments, those are the areas that we have to first and foremost secure communications. Therefore, those areas, those base stations covering the municipal governments, we will ensure battery time of 24 hours at minimum for those. The total of those base stations now amount to 1,900. So 1,900 base stations will be ensured of 24 hour battery supply. How we do that? One is that because our base station buildings usually have an engine installed. We will use that.

Basically it is possible for us to start activating these engines in the case of power outage. And that’s what is called the uninterruptible power supply. Currently we have 400 of these UPS systems in place, but we will increase the numbers as you see there by another 400 base stations. The other solution that we’ll be using is as you see on the right hand side of the bottom, we will be extending the battery capacity of our base stations especially the standalone base stations that are located in towers instead of buildings. Those don’t have an engine. So we will extend the battery capacity of those towers for up to 24 hours, but to do that we have to have – we have to prepare four units of 1.5 ton batteries per one location, plus the containment cabinet is also weights like four tones. So altogether this is about 10 tons per one unit.

So but by installing them, we’ll be able to cover 24 hour battery coverage in those areas. And altogether with previous measures we’ll be able to cover 65% of the populated areas in Japan and also cover 50% of the designated disaster base hospitals. Next page talks about the provision of satellite mobile phones to evacuation shelters. We need to focus on the evacuation shelters. The most prompt way to assure the communication is through satellite mobile phones in the case of emergencies. So therefore we envision to secure 3,000 units of satellite mobile phones in preparation for large scale disaster. This will open (inaudible) disaster then we’ll be able to offer these mobile phones to evacuation shelters.

And the next page, page 7 talks about early restoration of disaster-stricken areas. So therefore we have affordable type new units of car-mounted type battery switch which are very easy to use. So we are going to double the number of availability of such satellite entrance mobile based stations. And we’ll also be deploying rather emergency microwave entrance facilities.

Let me talk about improved convenience. When the earthquake struck, we’ve had to introduce traffic control, traffic administration because traffic increased by anywhere from 50 to 60 fold after the earthquake. So therefore unfortunately we’ve had to bear this 80% traffic restriction or control at that juncture. At the same time in the case of packet communication, we had restriction by 30%. This was only until 8 P.M of March 11th but beyond that there was no packet control. So in the case email, mobile mail, customers were able to realize to achieve communication very easily.

However, mail were used by people with high literacy. So that being the case, we wanted to consider a different measure. In other words, we have developed disaster voice message service. This is a service whereby customers make a phone call and if there is congestion, then the voice message will be converted into a file. This will be done by the handset. This is converted digitally.

And then the converted file will be sent to the server and the receiver will be able to retrieve that message. And he’ll be able to confirm or to convey it to the person that you’re safe and he’ll be able to convey your whereabouts. The congestion in the voice communication is such that people continue to call and call until their communication – until their call is put through, but with this type of disaster voice messaging service, we’ll be able to prevent such a cycle.

And page nine talks about improved convenience, improvement of restoration area, development of voice guidance application for disaster message board service, further utilization of area mail and also further utilization of ICT through convergence with social network service. So some will require technological innovation which we would like to pursue. So this was time consuming, but let me go on to the main topic of the day.

Now I’d like to move onto the main topic for this meeting, i.e., the results for the year ended March 2011. If we can do directly to page or slide number three. These are the results highlights for fiscal 2010. For the year-ended operating revenues decreased 1.3% and reached 4.224 billion yen. Operating income increased 1.3% and reached 844.7 billion yen. So we posted a decrease in revenues but an increase in income. For the prospects for fiscal ‘011, operating revenues expected to increase 0.1% to 4.230 billion and operating income expected to increase 0.6% to 850 billion yen.

But without the disaster I think we would have been able to achieve 870 billion yen instead of 850 billion yen. Slide number four, this is about the highlights of fiscal 2010 results. For if I try to give a broad big picture, I would say that we were able to achieve most of the targets that we have set for the year. Customer satisfaction, we were determined to achieve the number one ranking and we did. For smartphones, we sold 2.5 million units, 2.52 million to be more precise. We increased the packet ARPU. Achieved an increase of – we fell short of the 110 yen full-year target but achieved 90 yen increase.

If you look at the progress between the first quarter, second and third and fourth quarter, from 80 yen to 90 yen to 100 yen, in the last two quarters. So on an average for the full-year basis, we achieved an increase of 90 yen. We launched LTE without delay. We also expanded new businesses. And finally the last thing was that we needed to recover from the disaster.

Now let me talk about the results highlights using the staircase chart on page five. The biggest thing for the results – that affected the results was the decrease in voice revenues and the increase of packet revenues. Voice revenues declined by 198 billion yen, Value Plan accounted for 100 billion yen out of this. Of course the impact is becoming smaller but for the fiscal 2010, this had negative impact to 100 billion yen.

When it comes to revenue related factors, other revenues increased by 62 billion yen. And the equipment sales revenues declined by 30 billion yen. Of course the total number of devices sold increased, but the unit price of handsets have come down because of the increase of global smartphones and also because of the popularity of style series among the featured phones.

On the expense side, equipment sales expenses decreased and network related costs also decreased. In addition, there was an additional expense of 7 billion yen relating to disaster. You may recall that the previous slides, previous presentation sets 6 billion yen instead but this one 7.1 billion yen is inclusive of the donations that we made for disaster relief efforts. So that’s how we came to 7.1 billion yen.

Slide number six, about the 50% discount services and the MAX Discount services. These services are now already subscribed by more than 80% of our subscribers. So the negative revenue impact is becoming insignificant. Value Plan is also increasing, and therefore its negative income – impact is becoming smaller year by year. Next about the ARPU on slide number seven. This is important so I’ll try to give you some details. The full-year ARPU for fiscal 2010 decreased 280 yen year-on-year.

Voice ARPU decreased by 370 yen year-on-year. Packet ARPU increased by 90 yen. Now when we look into this 370 yen decline of voice ARPU, the expanded uptick of Value Plan accounted for 150 yen. The reduction of billable MOU accounted for 100 yen. On the other hand, packet ARPU posted an increase of 90 yen, 80 yen in the first quarter, 90 yen in the second quarter and 100 yen in the third and fourth quarter.

So you’ll see that the growth has been accelerating. Now, what is the expectation for fiscal ‘011? For fiscal year 2011, we are expecting that the voice ARPU will decline by 270 yen, a smaller rate of decline compared to the previous fiscal. Packet ARPU, we’ll try to achieve an increase of 140 yen so that packet ARPU will reach 2,680 yen, aggregate ARPU is expected to decline 130 yen to 4,940 yen, down 130 yen year-on-year. That means the reduction will be more than 50% smaller compared to the reduction achieved in the previous fiscal year.

Slide number eight is about the total handset sales. Total handset sales for fiscal 2010 increased by 5.6% year-on-year and reached 19.06 million, due mainly to the increase of variety of smartphones. For fiscal 2011, we will aim to achieve sales of 19.8 million units. Slide nine shows the churn rate. Our full-year churn rate for last fiscal year was 0.47% maintaining a very low level. We believe churn rate is a very important indicator for our business and therefore we would like to continue to maintain our low churn rate.

Slide number 10, net additions. The fiscal 2010 net additions that we achieved increased by 30% year-on-year and reached 1.93 million. Our target for fiscal ‘011 is 1.95 million yen. You may think that this is small, but you have to consider that to move our service, second generation service will be terminated as at the end of this fiscal year. So of course before the fiscal year ends, we will like to have the customers all switched but there is a risk that some people will remain and those customers will have to be accounted for as churn. Therefore that is what our net additions forecast for this fiscal year is limited to 1.95 million. But of course we will try to increase it as much as possible by expanding our sales of smartphones and tablets.

Page number 11, the migration to FOMA and Xi. Well the question is how many customers do we still have on the second generation network? Mova subscribers as at the end of March was 880,000 and DoPa packet series subscribers was 360,000. By the end of the fiscal year we would like to reduce them to zero. So those were the major operational results for fiscal 2010. And now I would like to move on to the prospects for fiscal ‘011. Slide 13. 13 is the forecast for fiscal ‘011. We believe our operating income will increase to 850 billion yen for fiscal ‘011.

Now if you look at the right hand side of the chart, there is a 20 billion yen negative impact from the restoration from the disaster. So without that, we should have been able to achieve 870 billion yen in operating income but because of the new disaster preparedness measures, depreciation and capital expenditures, altogether we will have to anticipate a 20 billion yen impact from the disaster recovery efforts.

Now before that if you look into details considering the changes from fiscal ‘010 to ‘011, Value Plan impact is expected to be 60 billion yen and therefore voice revenues altogether is expected to be reduced by 170 billion yen. On the other hand packet revenues are expected to increase by 140 billion yen and altogether after adding and subtracting all these, we are going to achieve 850 billion yen in operating income for fiscal ‘011.

Page 14 is basic operating policies for this fiscal year. There are many challenge items as we have been reminding you from before. And the new item is the restoration from the disaster. Now our major challenge is to receive the number one rating in customer satisfaction even amid the rapid expansion of smartphones. Page 15 shows the customer satisfaction efforts. We would like to maintain this number one ranking this fiscal year as well and we share this goal with all the people in the customer front.

We were able to achieve the number one rating last fiscal year but that was primarily because of the evaluation among the feature phone users. Of course JD Power’s survey does not divide between smartphones and featured phones, but because there is about a growing base of smartphone usage, we need to increase our performance or services for smartphone users. But in reality we are not sufficient yet because even if customers, smartphone users contact our call centers, they are complaining that it is difficult for them to get a connection. And of course the responses at the shop counters is not sufficient mainly of the respondents of the call centers are not able to immediately answer to their question, also our development team for smartphones was not sufficiently good.

So we will have to reinforce altogether our smartphone related offerings. And that’s the ambition for this fiscal year. Page 16 shows how we intent to increase packet ARPU and packet revenues. We are set a target to achieve 140 yen increase in packet ARPU. Of course therefore after that you have to consider the impact of the Monthly Support discounts which will have a 10 yen impact. So therefore the final number would look like 130 yen but we would like to achieve an increase of 140 yen. And the packet total annual revenues, packet revenues, we would like to achieve an increase of 140 billion yen year-on-year so that total packet revenues will reach, 1.830 billion yen.

Now when we look at the analysis of this packet revenue growth, as you see there from the red portion of the chart, i-mode accounted for the bulk of 110 billion yen increase from fiscal ‘09 to fiscal ‘010. So the i-mode users contributed to this growth largely that we achieved in fiscal 2010. Now in fiscal ‘011 because of the expansion of smartphone users, we are expecting a total increase of 114 billion yen in packet revenues, but i-mode is expected to account 20 billion yen, 90 billion yen will come from smartphone users and 30 billion yen will come from data devices.

So we will also try to sell smartphones as much as possible, but in the meantime we will try to expand the usage of medium and light i-mode users so that they can also make a contribution of approximately 30 billion yen. Slide 18, I think this is a familiar chart for you because we have been stating this since the announcement of our medium term business plan. Last fiscal year we achieved a reversal of voice and packet ARPU. Packet ARPU grew to 2,540 yen compared to 2,530 yen for voice ARPU. So we’ll try to hit our bottom and navigate ARPU within this year, so that it can start rising again from fiscal 2012. In order to achieve that we will have to sell 6 million units of smartphones this year. And smartphones – we’ll try to increase the percentage of smartphones over 50% of our total sales by fiscal ‘012.

Page 19 talks about the substance of smartphone related services. Services that were very popular with i-mode featured phones. We would like to also migrate to smartphones. And also we want offer services that are unique to smartphones. Now on the bottom of this page, we talk about the structural reorganization optimization to realize service integration. So we want to reinforce product planning. We also want to integrate content development. To do this, we’ll be establishing a Smart Communication Service Department. This was already established as of April 1st. In this case of content development in the past, i-mode featured phones were the core. So therefore we would try to go after contents for geared toward i-mode phones but with the emergence of smartphones, again there is a team that would go after our smartphone related contents. So there was a duplication of teams and also capacity of content development, we had more people working for the i-mode team.

So as of April 1st of this year, be it i-mode phones or be it just smartphones, we decided to establish the same team. And the emphasis will now be on smartphones going forward. So therefore the same can be said about the development structure. So we will be making a very rapid transition to smartphone centric structure. Well then that we’re successful in this, we’ll dictate to what extent we will be able to achieve differential piece of your competitors.

On the next page, we will talk about the ways in which we’ll be strengthening our smartphone related lineup. First, with regard to call centers. In the case of call centers, we have more people handing i-mode phone related enquiries and we have smaller team handling our smartphone related calls. However in the case of smartphone related enquiries this was much more time consuming, and we did not enough operators to respond to enquiries (inaudible). So therefore we’ll be reversing the structure during this fiscal year.

And also personnel who handled i-mode related enquiries will be shifting to smartphone related enquiry, because people who are working for – who handle rather i-mode enquiries are veterans. So if they do a little bit study then they will be able to handle various smartphone related enquiries at call centers. So we will be making this transition. And also the total number of operators will also be increasing. On the working side, we talk about the so called smartphone lounges to enable touch and try. So we will have at least one location per regional office.

Next page 22, correction page 21. We’ll be trying to sell 6 million smartphone units this year. Now on the right hand side, we talk about the market share, our market share of smartphone sold at mass retailers. This is not publicized; we can only make an estimate. But this is based on survey by GfK Japan. DOCOMO from December through January through March has shown a very strong market share in terms of smartphones that are sold to mass retailers.

Page 22, here again we talk about smartphones. Smartphones were primarily being purchased by people with high IT literacy. So be it designs or be it convenience, we’ve not increased the variance and we also want to provide easy to use interface. So people who are not as literate we want to go after this customer base as well. So people with their 40s and so forth, we want to go after this segment as well. People who are interested in smartphones will increase – we find increasing number of female customers who are interested. In last year it was only 19%, however in the fourth quarter this increased to 36%. So the component of women purchasers are increasing. In the case of Xperia, we are offering colors for instance like pink, cherry blossom pink which are very popular with women.

The next page talks about telecommunications. Telecommunications can boost packet ARPU. In 2010, we were able to achieve device sales of 100,000 units as scheduled. And in fiscal 2011 we went to launch Xi-enabled devices such mobile Wi-Fi routers, drivers and we hope to achieve 1.3 million units in fiscal year 2011. And in the case of DOCOMO, we’re able to offer very strong quality that’s been the reputation among our customers. So we will use these sorts of tools so that we can further sale such devices.

Page 24 talks about i-concier. This has indeed a very robust growth. On the right hand side at the bottom, we talk about introduction in smartphones. We will be migrating i-concier to smartphones as well. And then page 25, measures against growing packet traffic. From 2009 towards 2010, traffic increased substantially (inaudible) 1.6 folds to two fold in the past. This was based on estimate. But the actual packet traffic increased by 1.7 fold. Now on a year-on-year basis this is based on actual numbers from 2010 to 2011, we anticipate about two fold increase in packet traffic.

So we need to accommodate this. So we are expanding Xi coverage and realized dynamic network control and introduce data offloading. Page 26 talks about LTE service. In fiscal year 2010, we plan to sell 50,000, we only sold 25,000. However in fiscal year 2011, we want to go after one million subs. So we will be launching our Xi-enabled mobile Wi-Fi routers in summer of this year and also the tablet machines. LTE enabled tablets will also be sold and will be launched. And also in winter we want to introduce our Xi-enabled smartphones in winter.

So we want to further expand Xi-enabled line up. Page 27 talks about the time schedule for the launch of LTE. And page 28 talks about global expansion. Not much has changed as far as global expansion plan is concerned. For fiscal year 2011, we’ll continue with initiatives to address growth markets mainly in the Asia-Pacific region. This remains intact. Expansion of platform business and enhanced added value of network business. This is something that we would like to focus on. We have a company called net mobile. So in both Europe and Asia in various areas we hope to further increase packet communication and data communication, because the percentage of data communication is increasing. So that is why we want to expand platform businesses in different regional markets.

And we’ll be seeking global level collaboration with various partners. Page 29, global expansion in India. We are enjoying very robust growth here and we have launched 3G in the Indian market. So we will offer backup services with the TTSL, (inaudible) expand. Page 30 talks about business alliance with DeNA. As of 26th we made an announcement, in relation with DeNA we are going to have alliances outside Japan, for example we’ll also be utilizing the capacity of net mobile.

Page 31 just talks about E-Book service. We are enjoying very strong growth here as well. Turning to the page 32 talks about multimedia broadcasting from mobile devices through mmbi. We changed corporate name April 1st this year. So the services that we’re going to launch, we have made preparations. As far as three prefectures (inaudible) is concerned, the satellite and analog [ph] broadcast might be delayed. So we need to practice very flexible response to that situation. Page 33, corporate marketing. So smartphones and tablets, we want to further expand these units and devices. Also for tablets, we hope to offer a total system solution if you will to the customers. So be it Groupware and Cloud computing. They would be very important part of this package that we’ll be providing to the corporate customers.

Page 34 talks about capital expenditure. The actual number was 668.5 billion yen for fiscal year 2010, that was the plan. However, we had the disaster. And some of the CapEx had to be diverted to restoration into local area. So there was some delay in the CapEx schedule. So we had 10 billion yen impact from the restoration disaster stricken area. And also impact from the implementation of new disaster preparedness measure, this was about 20 billion yen.

So 10 billion yen for full restoration of disaster-stricken area and 20 billion yen for a new disaster preparedness measure. So total of 30 billion yen. So for fiscal year 2011, we are anticipating 75 billion yen in CapEx. But then this is much of temporary in nature. So we want to make sure that the CapEx is kept below 700 billion yen per annum as much as possible. Fiscal year 2011, this is the exception. It will be exceeding 700 billion yen by a small amount this fiscal year but we’ll maintain a CapEx which is below 700 billion yen as much as possible going forward.

Page 35, here we talk about cost efficiency improvement. We are continuing on with our efforts towards cost efficient improvement. Page 36, income target. Fiscal year 2012, we are aiming for 900 billion yen, that was before disaster and we have not changed this income target despite the earthquake. Fiscal year 2011, well prior to March 11, we were aiming for 870 billion yen. Unfortunately because of this earthquake, we have decided to lower the target to 150 billion yen but we are aiming for 900 billion yen operating income in fiscal year 2012.

Last but not least let me talk about providing return to our shareholders. We intent to increase our dividend by 400 yen per share up to 5,600 yen per share for fiscal year 2011. This will bring the payout ratio to 46%. As for fiscal year 2011, we do ambition some fiscal burden as a result of the disaster. However we believe that we’ll be able to secure certain level operating income. And secondly we want to continue to offer return to our shareholders, who continued to support DOCOMO. And thirdly, we felt that increase in dividend could serve to vitalize and invigorate to the economy. So that’s why decided to go ahead with increase in dividend.

Going forward, we’ll continue to play surfaces on shareholder return because this is very important pillar of our management objectives and we’ll continue to work on this. This was very lengthy presentation. So that is it. But let me summarize. As far as fiscal year 2010 is concerned, we acquired number one share in customer satisfaction in terms of smartphones and Xi, so we’ve been able to achieve most of the target which we have introduced. Fiscal year 2011 we’ll continue to aim for our number in customer satisfaction. This will be the year for a great leap in smartphones and we’ll increase packet revenues.

Furthermore we want to offer safe and security to our customers. We will realize our disaster preparedness measures. So we’ll continue to make efforts. We look forward to your continued support. Thank you very much.

Osamu Hirokado

Sorry, because the presentation was so long, we cannot find so much time for the Q&A session. So we will try to extend the time set for this meeting to entertain your questions. Now if you have any questions please raise your hand and wait for the microphone. And before you start your question please identify your affiliation and your name. Now are there any questions? Yes, I see a hand in the front row, central section.

Question-and-Answer Session

Daisaku Masuno – Nomura Securities

My name is Masuno from Nomura. I have two questions. First, from the management perspective, what you think about the outlook? Well to be honest after the disaster I wasn’t really wondering whether you are able to achieve an increase for a dividend hike, but as a result you are taking proper measures to prepare for disasters and also to restore your services and still increasing your dividend. It seems that these are all based on the environment that you are now changing your mindset now that the operating revenue reduction is minimized from previously 90 billion yen to 30 billion yen for one year. So what is your view on the profitability of your business that lies in the background of all the things that I mentioned? The second question is about the smartphones. You said in terms of the models released, smartphones will account for 50% of the planned releases but in terms of total handsets sold, smartphones are going to expect – going to account for 30%. So there is a still a gap between these two numbers. You didn’t really mentioned about the tablets, but you said that tablet devices are compatible with LTE is going to come. So what’s your view on the prospects of the tablet market?

Ryuji Yamada

I would like to take the first question first. Well, we believe that the first and foremost it is most important for us to secure a communication environment even in the event of a disaster and that’s very important for a customer satisfaction. So therefore we would like to firmly employ various measures to restore our facilities and prepare for future disasters. And we had a very sound financial position to achieve that. Well we are very grateful of this environment but after all telecommunication service is very resilient against these kind of economic conditions. That was the case for Lehman after the Lehman Shock as well.

Manufacturers are suffering heavier blow. But telecommunications operator’s impact is not as that compared to them. So therefore we decided to flow back a certain amount of our profits to our valued shareholders. And of course we believe that will in turn – I believe that will in turn stimulate the economy in the end. For example, we have more than 5,000 shareholders in the Tohoku region. So I thought that this will be useful for them if we increase the dividends. The second question regarding the proportion of smartphones in terms of the number of models released and I thought in terms of the proportion of the total handsets sold.

They are not the same. Yes, but I believe our basic approach is that we would like to sell a larger number of smartphones in terms of quality by one model. So for example, Xperia, we’ve already sold 700,000 units of Xperia as of today. But when it comes to featured phones, it’s very difficult for us to sell 700,000 units with just one model. So we would like to address very popular models that can sell to customers in large quantities. Of course when it comes to smartphones, it is easy for customers to upgrade the capability by adding applications and therefore it is easier to sell larger quantities with a single model.

Next question, about the tablet. We would like to sell 800,000 units of tablets within this fiscal year or slightly higher than that. The main target is the enterprise customer. So in the enterprise market combining tablets with solutions. We will try to sell them to our enterprise accounts.

Daisaku Masuno – Nomura Securities

You said that smartphones account for 50% of the total number of models, and if you are selling a larger quantities that means that perhaps I think could, it will be easier for you to sell larger portion of smartphones to total number of handsets sold.

Ryuji Yamada

But there is no guarantee that all smartphones model will turn out to be popular model that sells well in quantity. So we have to see that.

Osamu Hirokado

Next question. We’ll go to the gentlemen on the right hand side.

Tetsuro Tsusaka – Barclays Capital

Tsusaka from Barclays. Thank you very much for this opportunity. I have three questions if I may. First, with regard to smartphones and the other for data ARPU. Data ARPUs and packet revenues is expected to go up, I know you talked about 90 billion yen increment in smartphones. So if you backtrack by migrating to smartphones, customers average ARPU is certainly to expand on the 1,200 yen to 1,300 yen per customer, that is probably your estimation. So is that all, that’s my question. Is that the only increment we can expect from customers migrating to smartphones. KDDI provided its financial results. They said that by average they anticipate 1,600 yen increase in low-end customers for switching to smartphones can also boost to their ARPU. Now in their calculation for ARPU, they are probably anticipating more than 1,600 yen increase in data ARPU per customer. But in your case, you are very conservative giving outlook in terms of expected increase in ARPU based on migration to smartphones. So among the DOCOMO users, are you saying that customers migrate to smartphones, you don’t expect too much increase in data ARPU because this doesn’t seem to be consistent. Can you elaborate? Are you being very conservative in your outlook or are there any unique factors, please elaborate. That’s my first question. My second question relates to LTE. Verizon announced their financial results, they sold 500,000 and they introduced LTE at the same time. So 500,000 but in your case its 25,000. I am sure that there are various factors behind the gap in sales but then there is such a large gap in the amount of sales between yourself and Verizon. And also you have several models of smartphones, actually in the case of Verizon they have several LTE models, LTE enabled smartphones. In your case, it’s not until winter. Is there a difference in strategy among yourselves, or are you going to be very slow if you will, or going so uneasy. My third question, when I look at your results for 2010 and the outlook for 2011, the outlook for ARPU and the increase in active units, the downside and the upside are roughly equal, meaning that on a telecommunication revenue basis, there is no downside anymore, it balances out. That’s how I can interpret your numbers. But then having heard your overall presentation, you are very conservative in your outlook. You’ll say you do your best, you’ll do your best. So is it a time for you to switch gears. You have bottomed up, could you now declare that you have bottomed out in terms of revenue. And can you now say you increased your dividend because you are now confident about the outlook. Isn’t it time for you to send this message. You should not be casual about increasing dividend. Can you talk about the improved climate? Shouldn’t you deliver that message throughout the presentation as a whole, this is my personal view. But could you not send a more confident message?

Ryuji Yamada

Thank you for your questions. First, with regard to smartphones, the increase and the increment. Roughly speaking, when customers switch to smartphones the packet ARPU when they were i-mode, there was 3,500 yen but then when they switched to smartphones, their ARPU increases to 5,000 yen. So the increment is high as 1,500 yen per customer when they switched to smartphones. Now previously we talked about 2,100 yen increase in ARPU. Why is this difference? The ceiling for double tier is 5,700 and however the planed building structure the top tier is 5,200 yen. Now the flat rate structure has proven to be very popular especially in March, 90% of the customers joined the full flat rate scheme, why? Because when they use smartphones, they use a very lot, they use a lot of the ARPU or packet. So that’s why – it is we made a discount from 5,700 yen down to 5,200 yen. So that’s where the impact of full flat rate billing has had an impact.

And the difference with AU is this. In our case, we sold smartphones at an earlier phase. So 5,700 yen double tiered scheme was in place much earlier. We had a large customer base for this, but then these customers are now changing to full flat rate structure of 5,200 yen, so that’s de fact of 500 yen discount if you will. So that’s the impact. So for example among my family, they joined double tiered flat rate 5,200 yen but then they switch to full flat billing scheme of 5,200 yen. So beforehand it was 5,700 yen but now we have the impact of full flat rate of 5,200 yen.

Now with regard to LTE, the difference in terms of handsets sold vis-à-vis Verizon, I don’t think there is a much gap or difference with the number of units sold at Verizon. It’s just that we want to offer light-weight handsets with very strong quality. Now of course I am not trying to send negative message about Verizon’s handsets but we’re just aiming for very high quality in our smartphones. Now Wi-Fi routers and tablets, they will be available from summer as from autumn. We want to introduce this as soon as possible. At the moment we only have data card. So that’s why we’ll have 26,000 units sold. But we want to further expand sales of such devices.

Thirdly, you talked about us being overly conservative. As far as we’re concerned, we want to achieve very strong growth in 2012. 2011, this is the year for bottoming out. So from fiscal year 2012, we want to further focus on upside, because that the reversal between – reversal in the aggregate ARPU. So yes fiscal year 2011 will be the year for bottoming out. And fiscal year 2012, this will be the year in which we will be able to achieve a very strong target.

If I could offer some comments about your second question with regard to LTE. Our philosophy is this. We want to further promote LTE in earnest, naturally we have to have strong handset lineup but at the same time we also have to focus on content and area coverage. There has to be synchronization between these three important elements. For the moment, we’re only focused on Tokyo, Osaka, and Nagoya but then we want to expand this. And we also want to offer LTE unique contents. On this we have such content lineup, customers will not be using LTE handsets. So we need to synchronize between these three major elements.

So that being the case, I think we have a very strong time schedule in place. I’d like to add some comments about your first question and your third question. With regard to growth in packet ARPU, 140 yen is the growth. In the case of smartphones I think the increase in ARPU could be as much as 1,500 yen. It’s not inferior to that offered at AU. So packet ARPU will increase when customer switch to smartphones, but when customers switch from featured phone to smartphones there is also an increase but aside from that, we have new subscribers which we acquired are new. This will also have us very strong positive impact.

So if you add all of these elements together, it will represent very strong growth. As far as tablets are concerned, these second tablets or second devices rather, we are very focused on that as well. So in the case of AU, they are focused primarily on switched from featured phones then we would question whether or not they are enjoying such a strong increase in ARPU. So we are not very negative in our outlook. We are not bearish in our outlook.

And your third question, although it might be slight. We have a business plan for growth in both revenue and profit, you might not be (inaudible) for this business planning. Because the first time in a very long time they were expecting increase in both revenue and growth – and profit. For your reference, well I didn’t want to focus on this but yes, we do anticipate increase in growth – anticipate growth in both revenue and profit for the first time since 2003. My apologies, sir. Thank you very much.

Osamu Hirokado

Now we’d like to move to the next question. Its towards the right, left hand side. Fifth row from the front.

Kei Takahashi – Merrill Lynch Japan Securities

My name is Takahashi from Merrill Lynch. I have two questions. First question is about the operating income growth for this fiscal year. You said that there are – you are expecting to spend 50 billion yen for new growth measures. Can you elaborate on the details of that? And is this is one-time expense for this fiscal year on the yen, or are you going to spend similar amounts in the following years. And how will this contribute to the profit growth in the subsequent years by taking these measures?

Unidentified Company Representative

Okay, I would like to answer that question. 50 billion yen is the net increase. Of course there are many items comprising these measures. We are considering the strategies for our future growth. So roughly speaking, just to give you the large items, first is that we are now considering to embark on a huge project to migrate from i-mode to smartphones. A lot of our research and development costs is what we entailed for this transition to smartphones.

The second cost that I meant is mobile multimedia broadcasting business. We have to spend some R&D expenses in order to develop content and services. So that’s part of it. The other one is about the three major focus areas for the future development, service personalization, social support services and converge services. From each of these service sections we aim to achieve 100 billion yen in revenues going forward. So for that we have to spend some expenses in order to promote the services, develop the services and prepare the structure.

So roughly, altogether we are planning to spend 50 billion yen altogether for those measures. Of course how the multimedia business will take off in the future and how the revenues will be generated from each of the items that I mentioned will determine the return rate.

Kei Takahashi – Merrill Lynch Japan Securities

So without those measures, I think that your operating income for this fiscal year would have been much higher. But is that the reason why that you are trying to generate or incur this expenses because your profit level is now fixated?

Unidentified Company Representative

Well for social service personalization and social support services and the converge services which are the focus areas that we’ve been telling you since the announcement of the medium term plan. We have to make steadfast efforts year after year in order to achieve a full bloom result in fiscal 2012. So at some costs are necessary for that. Ryuji Yamada mentioned that we should stay excited for the fiscal year income for next fiscal year. Yes, we’ll strive to achieve 900 billion yen. Well 900 billion yen is not going to be surprising, so you have to achieve something higher than that. Well that’s too close for us to achieve to declare at this point.

Kei Takahashi – Merrill Lynch Japan Securities

The second that I have is about detailed question about the communication service charges. You are in your plan expecting a steep decline. I think this relates to the access charges of other companies. So that you are foreseeing a reduction this year, means that are you expecting a steep reduction of access charges from other companies or is this from other reasons?

Unidentified Company Representative

Well I cannot comment on the details of the service, our access charges of individual companies, but you are right. We are expecting a huge decline in interconnection charges from other companies, because we’ve already discounted our interconnection charges by 35% last fiscal year. So we are expecting some reciprocity from other companies.

Kei Takahashi – Merrill Lynch Japan Securities

Well then that applies to the last fiscal year but is this going to be expected for this fiscal year as well.

Unidentified Company Representative

Yes, because we will have to continue to reduce our expenses and that will appear in our financials. So that would be the cost based for the interconnection charges, and of course you’ll be able to understand the traffic level by looking at these numbers and therefore we have to anticipate a decline, a continued decline in interconnection charges.

Osamu Hirokado

Next question. We’ll go to the gentlemen in the fourth row on the right hand side.

Atsuo Takahashi – Mizuho Securities

Takahashi from Mizuho Securities. I have two questions. First relates to CapEx and second relates to your activities in India. So let me start with the question of count backs. You talked about this earlier. Now for this fiscal year because of the impact of disaster, CapEx will increase but then next fiscal year I suppose you’ll be reducing this by several 100 billions of yen. Can you give us the guidance for CapEx on a long-term basis? On a long-term basis disaster related expenses, is this temporary or is going to be long-term basis? Is it a one-off expense? With this earthquake, will your philosophy about CapEx over the long hold change at all? That’s my first question.

Unidentified Company Representative

Thank you. As far as our CapEx is concerned, will there be any long-term impact? There is no long-term impact whatsoever from the disaster. For the impact from the earthquake is primarily in base stations. It was case of notes where our switching systems are located then this would have a long-term impact, but in our case, fortunately we had no impact as far as those are concerned. It was primarily in antennas.

So therefore we could restore these facilities, and we’ll take new preparedness measures and that is all that is required. Now as far as counter metrics for disasters are concerned, we didn’t our increase our spending. We hope to complete this throughout this fiscal year. But there may be some delay may be by 10%, 20%. For example in the case of batteries, even with the (inaudible) efforts for preparation, we might have people to complete this by this fiscal year. But in principal there is no long-term impact from the disaster as far as our CapEx plan is concerned.

Atsuo Takahashi – Mizuho Securities

As a follow-up question, you talked about this in your presentation but power supply, you might not able to discuss this but I think you’re paying a lot of expenses pertaining to power. This might have been directly related to CapEx but on a long-term basis, do you envisage energy related costs, power related costs. Do you have any plans or are there any elements pertaining to power that is not reflected in your business plan at this juncture?

Unidentified Company Representative

Well, you’re talking about electricity bill, right? 360-degree antenna. This is only in the case of disaster. Ordinarily, high performance antennas would not be activated. So that’s the only time power costs will be entailed. We have a standby basis but that does not require much power, only in the case of disasters. So it’s only in the case of disasters. In the case of storage batteries, when they are charged then there is no electricity bill involved. So we didn’t anticipate increase of electricity related costs going forward.

Atsuo Takahashi – Mizuho Securities

Thank you. My second question is about India. I suppose TATA is still not generating profits and the deficit is growing for this fiscal year. What about the next fiscal year. What about the financial performance of TATA going forward? And one topic of late with regard to India is this. Former minister has made some remarks, I think there was a scandal involving a foreign minister. So will this have an impact on the performance of or the status of TATA? So can you talk about whether or not these scandal – are there any truth behind the scandal. Will this have any impact on your performance going forward?

Unidentified Company Representative

Thank you. I’d like to respond to your first question. What about the financial performance of TATA. Well TTSL, it’s unlisted so I cannot give you figures. But yes, it is true, it is still generating a loss. But to the growth is about 2 million yen per month. And the penetration rate is still 60%. So it’s going to grow. There is room for growth. But at the same time India is a very competitive marketplace. So ARPU for Indian market as a whole is slightly less than what we have initially expected. So the balancing out of our financial performance, it might be delayed somewhat. We do have some ideas.

But we’re not negative at all about the financial performance of TATA going forward. So that’s what I wanted to say initially. And also there are lot of rumors, speculations in the media but in principal it’s not something that we are in a position to offer any comments. But I think there is investigation under the parliament of India and also CBI, the Indian counterpart of FBI, the Central Bureau of Investigation is carrying out its examination. So results will come out eventually.

But when we take a look at the status in the parliament in India, it seems that TATA is innocent of these charges. So the minister in India, there is a scandal according to this press reports. But I think eventually some results – some conclusion can be envisioned but we cannot make any judgments. Things will improve probably, but will this have an impact on the regulatory situation, we are not sure. We cannot offer any comments about this.

Atsuo Takahashi – Mizuho Securities

Thank you.

Osamu Hirokado

Now are there any other questions. Okay, I see a one hand. So this will be the last question. So please begin your question.

Shinji Moriyuki – SMBC Nikko Securities

SMBC Nikko. My name is Moriyuki. In relation to the previous question regarding if you don’t have to spend this 50 billion yen for the additional measures and also the 20 billion yen for the disaster related, you should have been able to achieve 920 billion yen in operating income just by simple calculation, but the reason why you are now spending 50 billion yen is because you are saying that this will be a fruit in fiscal 2012 or beyond. Does it mean that we don’t have to anticipate that 50 billion yen from fiscal 2012 or beyond and you’ll be able to achieve 900 billion yen in fiscal 2012? So but your target is still 900 billion yen. What is already something that you are already foreseeable to achieve, what are the expectation level operating income growth that you have in your mind right now, 50 billion yen, I believe, I hope that will come to zero next fiscal year.

Unidentified Company Representative

Well we have to secure new revenue sources. Of course we’re not sure of what will happen to this 50 billion yen budget next fiscal year or beyond, but of course we will have to spend some money for new development, for new projects. So we have to finalize on how much growth that we can anticipate in the absolute number going forward, but we would like to make proper efforts to achieve growth for the future.

One of the big elements for our fiscal 2012 is that as a result of various measures, we would like to raise the growth of packet ARPU to a level higher than the decline of voice ARPU. And one big measure to achieve that is the promotion of smartphones so that smartphones will account for more than 50% of the total handsets sold. But of course in order to sell that number we have to offer attractive services and content over smartphones and for that we need some development activities to make our smartphones more attractive.

So with these in mind, we would like to make efforts and spend some money towards our goal for fiscal 2012. Anything else?

Shinji Moriyuki – SMBC Nikko Securities

The answer was not really straight forward. I thought my impression was that you’ll be introducing this 50 billion yen budget for the sake of fiscal 2012 results.

Unidentified Company Representative

Yes, but I think still we still have to make some expenses in fiscal 2012 for various reasons as well.

Shinji Moriyuki – SMBC Nikko Securities

Regarding ARPU, you said that ARPU will start to grow again from fiscal 12. But if you exclude the irregular factors, on a quarterly basis, how soon do you think you can achieve an increase in aggregate ARPU. Can we expect that this will happen in towards the second half of this year? The reversal of downtrend in aggregate ARPU, you said that it will happen next fiscal year, but if you look at it on a quarterly basis, on a quarter basis, when do you think it will happen.

Unidentified Company Representative

Well I cannot give you a straight forward or precise answer right now. On a fiscal year basis definitely and our current assumption, we believe that will happen from fiscal 2012, but we don’t develop business plan based on quarters. So we cannot comment on that answer. Thank you very much.

Osamu Hirokado

Well with that I would like to finish this presentation. Thank you very much for bearing us for such a long time.

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