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Osamu Hirokado - IR

Ryuji Yamada - President & CEO

Kiyoyuki Tsujimura - Senior EVP

Masatoshi Suzuki - Senior EVP

Kazuto Tsubouchi - EVP & CFO

Kaoru Kato - EVP and Managing Director, Corporate Planning & Strategy Department

Fumio Iwasaki - EVP and Managing Director, Network Division

Mr. Takashi Tanaka - SVP, Consumer and Marketing.


Daisaku Masuno - The Nomura Securities

Atsuo Takahashi - Mizuho Securities

Shinji Moriyuki - SMBC Nikko

NTT DOCOMO, Inc. (DCM) F4Q11 and Full Year 2012 Earnings Call April 27, 2012 4:00 AM ET


Good afternoon, ladies and gentlemen. Thank you very much for sparing your precious time for attending this Analyst Meeting announcing the results for the fiscal year ended March 2012.

I am Hirokado from IR department and I'll be presiding this meeting. Now please be advised that this meeting is broadcast live on our cellular phone service as well as on the Internet. And a recorded video of this meeting will be distributed through the DOCOMO's IR website later on.

Now, we would like to introduce the representatives from NTT DOCOMO. First we have the President and CEO Mr. Ryuji Yamada, good afternoon to you. We also have Senior Executive Vice President, Mr. Kiyoyuki Tsujimura; Senior Executive Vice President, Mr. Masatoshi Suzuki; Executive Vice President and CFO, Mr. Kazuto Tsubouchi; Executive Vice President and Managing Director of Corporate Planning & Strategy Department, Mr. Kaoru Kato; Executive Vice President and Managing Director of Network Division, Mr. Fumio Iwasaki; and also Senior Vice President, Responsible for Consumer and Marketing Mr. Takashi Tanaka.

For today's meeting, we will be using two sets of documents; one is the earnings release and the other one is the presentation slides for the fiscal year ended March 2012.

For today we will begin with the presentation from Mr. Yamada, followed by a Q&A session. We intend to finish this meeting at 6 o'clock sharp. Please also be advised that statements made during this presentation may contain forward-looking statements. For potential risks please look at the slides and also Form 20-F filed with the US SEC.

Now without further ado, we would like to move on to the presentation. Mr. Yamada please.

Ryuji Yamada

I am Yamada of NTT DOCOMO. I will like to take this opportunity to express my gratitude and appreciation to your continued patronage to the company. Thank you also for attending this meeting despite your busy schedule and the bad weather. Now without further ado I would like to start the presentation announcing the results for the fiscal year ended March 2012 and the principal action plan for fiscal year ending March 2013.

We go straight to page number three which is a slide for the results highlights for fiscal 2011 and a forecast for our fiscal 2012. In the fiscal year ended March 2012, we received an increase in both revenues and income for the first time in eight years. So this is the first time achieving an increase in both revenues and income since 2003. Operating revenues increased by 0.4% or ¥15.73 billion year-on-year and reached ¥4,240 billion and operating income increased by 3.5% to ¥874.5 billion.

For the forecast of fiscal 2012 we are expecting a 5% increase in operating revenues to ¥4,450 billion. Operating income is expected to increase 2.9% year-on-year to ¥900 billion. So we are expecting an increase in both revenues and income for two straight years.

Slide number four. This is the highlights for the 2011 results. As I said at the outset, for the first time in eight years we achieved an increase in both revenues and income in fiscal 2011. In the second, as we announced at the end of the first half, we made an upward revision to the full-year forecast of ¥870 billion. But as it turned out we even beat it, beat the forecast at ¥874.5 billion. Packet revenues reached ¥1843.9 billion, up 8.8% year-on-year.

The total number of smartphone sold increased 3.5-fold year-on-year and reached 8.82 million units. Xi devices sales increased by 87-fold year-on-year and reached 2.3 million. And also the total number of net additions reached 2.12 million. As you know although we have terminated 160,000 PDC subscribers as of the end of the fiscal year, still we were able to achieve 2.12 million units. The total number of cell subscriptions exceeded 60 million as of 11th of March.

Slide number five, which is the results highlights. We have worked for the recovery from the damages of Great East Japan Earthquake, and of course we have also steadily implemented a new disaster preparedness measures and completed the implementation by the end of February by spending approximately ¥20 billion.

Second item, customer satisfaction improvement, both in the consumer and enterprise sector. We achieved the number one ranking in the consumer sector for two straight years and also in the enterprise sector for the third straight year. Also on 23rd of April this year, we were awarded the number one ranking in Nikkei BP Consulting's Mobile Data Devices User Satisfaction Survey for the fourth straight year.

We are very happy that our customers are continually using our services. I would like to show, express my appreciation. Number three smartphone promotion, we saw it as I said 8.82 million units of smartphones for the full-year. And in the month of March alone we sold more than 1.6 million units of smartphones. Of course this was attributable to the expanded lineup and also the introduction of new billing plans and the new services launched for smartphones. Number four, transformation into an integrated service company. We started our collaboration with Radishbo-ya and introduced NOTTV service. And number five, we are sorry about the service interruptions that we have caused. I would like to once again express my apologies for inconveniencing customers.

The major measures against the problems have been completed by March, but we were continually work on the improvement of network reliability improvement. And number six, this is the major changes behind the increase of operating income. First and foremost, the voice revenues decreased by ¥135.9 billion excluding the impact of monthly support. On the other hand, packet revenues increased by ¥153.4 billion year-on-year excluding the impact of monthly support.

The impact of monthly support discount was ¥38.9 billion for the full year. Other revenues increased by ¥15.7 billion due to the increase of subscribers to the Mobile Phone Protection and Delivery Service and the increase of credit revenues. Equipment sales revenues increased by 21.5 billion yen but then on the expenses side, equipment sales expenses increased in line with increase of the number of handsets sold. The cost of equipment sold increased by 32.2 billion yen and also distributor commissions increased by 26 billion yen.

As a consequence, total equipment sales expenses increased by 58.2 billion yen. Communication network charges decreased by 62.4 billion yen, which was mostly attributable to the decrease in excess charges. Other expenses also decreased by 9.8 billion yen because of the decrease in a number of handsets submitted for repair, thereby decreased the handset repair costs. So altogether, we achieved an increase of 29.7 billion yen in operating income.

Next about the quarter rate changes in operating income. This provides a comparison on a quarterly basis between fiscal ’11 and fiscal ’10. As you see there, effectively in all four quarters of fiscal 2011, we achieved a year-on-year increase in operating income and especially in the fourth quarter. Despite the very fierce competition due to our steadfast business management, we achieved a 51.5% increase in operating income for the fourth quarter.

Slide number eight, cellular services revenues. Traditionally, we use the ARPU to present our performance but in the universe of ARPU, second mobile phone devices and prepaid devices are included so the universe is diversifying so we thought that it is not really proper to make a comparison based on this traditional standard. Of course, here ARPU figures are included in the appendix. The traditional ARPU numbers are presented on page 47 there. And there you can see the comparison of ARPU within between fiscal 2010 and ’11. As you see there voice ARPU decreased by 330 yen. On the other hand packet ARPU increased by 130 yen. So all together there was a 200 yen deduction in aggregate ARPU.

But as I said earlier even that I would like to indicate our performance using the total cellular service ARPU in absolute amount. So that is why we have created a slide on page eight. As you see there, after the reversal in the fourth quarter of fiscal 2010, packet revenues continued to overwhelm voice revenues. And the packet revenues for the fourth quarter of fiscal ‘11 was 472.2 billion yen, up 9% year on year. So we have suddenly expanded our packet revenues.

Slide number nine, total handset sales. The total number of handsets sold in fiscal ‘11 increased by 15.9% year-on-year and reached to 22.09 million units. The initial plan was 19.8 million units. So this was a significant increase compare to the original plan. Now for fiscal 2012, we have a plan to sell 13 million units of smartphone. So including that, we will lay to increase the total handset sales by 7.7% year-on-year so that we can sell altogether 23.8 million units during this fiscal year of devices.

Page number 10, migration of second generation mova subscribers to FOMA and Xi. Now, this explains the migration results and the churn rate here. The total number of mova subscribers remaining on the second generation (inaudible) of 31st of March was limited to 160,000. Of course, we had early anticipated that there will be approximately 200,000 as of the end of a fiscal year. So the actual number was lower than expected. Out of that 160,000, DoPa subscribers accounted for 103,000 and mova was limited to 56,000 as a result of our proactive migration initiatives.

Now the churn rates on the left, on the right, as you see there, the cumulative churn rate for fiscal 2011 was 0.60% when the impact of PDC termination was excluded, it would have been 0.58%. So there was a slight increase compared to the previous fiscal year.

Now slide number 12, this is the results were cash highlights for fiscal 2012. We are expecting to achieve 900 million yen an operating income for fiscal ‘12. Of course, we’re expecting a decrease in voice revenues, but an increase in packet revenues for this fiscal year ‘12. The decrease in voice revenues are expected to be 130 billion yen. On the other hand, the increase in packet revenues are expected to be $250 billion. Of course, this does not include the impact of monthly-support. So let’s see how much impact will there be from monthly support discounts. In fiscal 2012, we are expecting a higher, larger impact of 200 billion from the monthly support discounts during this fiscal year. Because we would like to leverage an increased amount of multi-support discounts in order to compete for a number of portability customers.

On the other hand, because you are leveraged more, the monthly support discounts rather than a distributor of commissions and because and we’re anticipating an increase in total number of devices to be sold, the equipment sales related profitability is expected to improve by 170 billion and but there would be a constant increase from the NOTTV service and also the cloud service of approximately 20 billion. And on the other hand, the nature of cost is also going to increase by 30 billion yen due to the removal of PDC equipment and in addition we will improve the efficiency of our cost and thereby staying to achieve 900 billion in operating income.

Slide number 13, this shows that trends of cellular services revenues, including both packet and voice revenues. Without the impact of market support, we would have already achieved in 2011. However, because the market support impact was included. We have a slightly deduction in total cellular services revenues.

Now, a fiscal 2012 business management on page 14. We were number one, expand the number of net additions by promoting smartphones and classic devices, provide a cloud-based services, transform into an integrated service company and further improve our customer satisfaction and reinforce our safety and security measures.

Now let me elaborate on these items. First, about the expansion of net additions by promoting smartphones across and classy devices. As you see on slide number 16, in fiscal 2012 we would like to promote competition leverage in Docomo’s unique audition i.e. comprehensive excellence, what comprises this comprehensive excellence would be devices, network, services, price competitiveness as well as safety and security. So leveraging these strengths that we have in all these areas, we would like to compete in the market.

Unfortunately, during the last fiscal year we lost on a net basis 800,000 subscribers with the NMP. But we would like to reduce the net losses from number portability by half during this fiscal year.

So let me explain from the top, product line-up actually we have Galaxy Note, Disney Note, mobile and various other phones and this fiscal year we would like to expand the number of cost enabled devices in our line-up centered on smartphones.

Network, we’ll also try to expand aggressively, because it is only DOCOMO that is providing across the service, LTE service in the market today so we would like to definitely defend early first movers’ advantage.

Services, we would like to offer various innovative services such as Shabette Concier while also enriching our market stores. We also strengthened our price competitiveness in order to turnaround our number portability performance, we would like to offer our products at prices on par with the competition.

What this means, actually the effective price of our smartphones is about like 20,000 yen or 25,000 yen per piece. With that price, we still were able to sell 8.82 million units of smartphones during the last fiscal year. However, we lost 800,000 NMP subscribers on the other hand.

So this year, we will try to reduce the actual market price to somewhere between 10,000 yen to 15,000 yen per unit, meaning that we will increase the discounts offered under the monthly support package. We don’t want to be move out; we would like to avoid being caught in the quagmire of price competition, but it still relates to offer our product set up price that are comparable with the competition.

When we conduct a survey on those customers who ported out from DOCOMO using number portability some 20% of them said that they left DOCOMO because they wanted an iPhone, but the remaining 80% of them said that they wanted to buy the handset cheaper or they were attracted by the cash rebates offer by the competition and that is why they left DOCOMO using number portability system. So we decided to compare favorably against them by increasing our rebates and also reducing by prices.

And lastly for safety and security we would like to offer expanded services using Area Mail and launch the Disaster Voice Messaging service.

Number 17, regarding net additions; for this fiscal year, we plan to acquire 2.8 million net additional subscribers, up 32.1% year-on-year. So this is another focus area for this fiscal year.

Now slide number 18, regarding the sales of smartphones. This fiscal year we were aimed to sale 13 million units of smartphones for the full year. Initially, we contemplated 11 million units, but after watching the record for March in which we sold 1.67 million units of smartphones and also according to our survey, many customers said that they are willing to buy a smartphone if they can find a good one.

So we decided to reduce the actual sales price of smartphones. So with that in mind, we decided to set the target at 13 million for this fiscal year. Of course, we later achieved this number by increasing the Xi proportion to 60% of the total annual sales.

On slide number 19, the market share of smartphones sold, we think this compares the performers with the iPhone effectively. Actually, this is the data of the sales or smartphones at mass retailers. If you look at the pie chart on the left, Android accounted for 70% of the total devices sold at the mass retailers and other OSS accounted for the rest.

But then if you look at the chart on the right, the market share comparison by carrier, DOCOMO’s market share was 46% for the full year off the total smartphones sold at mass retailers during the last fiscal year. In fourth quarter, we had a 50% market sharing in fact. So this means that Android is steadily increasing its market share.

Now page 20 regarding the smartphone line-up. Under the next series, we launched the Galaxy Note recently this fiscal year. And this is to earn popularity. We also launched Disney mobile phones and this is also selling well. For the summer of this year in mid-May, we plan to announce and unveil our new products and Xi enabled devices are expected to account for 70% of the summer collection.

Page 21, dmenu and dmarket; dmarket is actually a content store directly operated by DOCOMO, so this is the source of our differentiation. dmenu, we now expanded the number of CPs to 900 as at the end of March and we’re trying to increase this to 1,000 by the end of March next year.

With respect to dmarket, I would like to stress that the total subscriptions to the video store topped 1 million in April, over 1 million. After the launch in November, already exceeding 1 million today, means that the uptake is progressing much faster than the BeeTV service, I think the content of the video store was very appealing to customers, so we would like to further accelerate these efforts going forward.

For dmarket, during this fiscal year we plan to add new stores in other categories where we are still in the process of making a final study, but we currently are planning to introduce an animation store in the summer of this year. Of course, we will make an official announcement once it is final.

Now on page 22 the expansion of Xi subscriptions. This fiscal year we plan to increase the total subscriber base of Xi to over 10 million. Page 23, Xi product line-up, as you see during this summer collection, with the summer collection I think we will like to increase the proportion of our Xi to over 70% most of the summer collections will be smartphones and only kids phones, the only feature phones would be special models like the kids phones and Xi-enabled devices are expected to account for 70%.

Page 24 is the new Xi, Plus Xi-wari discount campaign. Under this campaign we will offer discounts to those subscribers using Xi for a second mobile device. This is a campaign that offers, that expands the eligibility for this service. Initially, we offered the discounts to those customers who already had a Xi device as their second phone, but with this expansion this time around we will allow even feature phone customers to enjoy the discount if they subscribed to a Xi router or a tablet as a second device. This will be effective May 1.

Slide 25, the Xi-wari expansion. In the fiscal 2012, population coverage of 70% is aimed at. The estimated amount will be ¥170 billion. This is a very challenging role and as you see there, the population coverage rate of 100% in all ordinance-designated cities, so this is another target.

Next going on slide 26, provision of cloud-based services. This is something I referred to when I presented the mid-term version. And this is personnel business and network clouds in all these, are three clouds and we have many ideas especially I would like to take about the network cloud. Network cloud, we are giving intelligence to the network. This is something we would like to achieve.

Slide 27 describes what vision it embraces in the network using many communication processing functions. With that from the smartphones, smart phone can access or have access to the network for processing and then it can be send back to the smartphones. So maybe the users, they fuel that everything was completed via smartphones or devices. But the beauty of this that you can use any smartphones as long as he or she have access to the DOCOMO network. All the services are available to them because the network has intelligence as such as a Shabette Concier and the translator phone multi-translation.

The Shabette Concier was launched at the 1st of March. The installation is I heard is 1.5 million installations. I think you are familiar with this function through the TV commercial. So it is very well appreciated, accepted by the users.

The frequency of usage, the number of access, in other words exceeded 40 million in just one month of this month. So this is highly popular among the users. The Shabette Concier at the very bottom is the, in April we have already added the noise tolerance quality. And furthermore, we are planning to support knowledge inquiries in the future. If you ask questions what is the highest mountain in Japan, the answer will come back Mount Fuji.

So this is just an example, so we would like to have an upgrade of this service versions. Now slide 30, network clouds, the values I described here. DOCOMO's network could as you see there inside the network, all these functions are embedded. So it’s independent regardless of the nature, type of devices, anybody can enjoy the function on the network of DOCOMO. So this is some added value we offer.

On the right hand side you see the reduction of the network to the dumping pipe. The similar Shabette services is offered by iPhone called Siri. So in terms of the content is almost the same. They are almost the same but that, how are they provided as you see on the right hand side. Devices iPhone and the service cloud is owned by Apple.

The network in between therefore is a simple dump pipe. So everything just goes through the network. So iPhone must be the device it went to this service. So if that is the case, our telecommunication carriers network becomes a dump pipe in that network. So that’s why we decided to add intelligence to our network. So that is how the Shabette Concier functions. And we also have a translator phone, a mail translation function and emergency area services.

So slide 31, translator phone mail translator function. Translator phone in a nutshell means as follows. The foreign language to be supported in June or from the end of additional seven languages will be provided. And mail translation function. Suppose that you send a mail in Japanese.

Then if you designate the Chinese and then that translation to the Chinese that can be made and even if you received a mail in Chinese from your Chinese friend and then the translation is done from Chinese to Japanese by using this service.

And this service would be launched in May and this will be very user friendly service and slide 32 now going on to personal cloud. Yes we are very keen on creating good quality personal cloud. At this point in time from the 22nd of March, for the smartphone users data storage services and at the same time, we will be starting photo video storage services and the market contents and multi-device. The common use of service across multiple device.

So all of these are aimed at going on to page third of slide 34, the planned actions in new business areas that we shall be specifically targeting at eight areas. In this institutive this is something we already announced to you when we announced our vision. From these eight and new business areas that we already achieved. We shall be targeting at ¥500 billion yen in the fiscal 2012 and as at the end of last year we already acquired ¥400 billion yen so it will be the increase of ¥100 million yen, in 2015 to ¥1 trillion yen will be our target. Now the next slide I will like to skip to slide 35.

And now 36, NOTTV we launched this service in April and I think we have many more things to do in order to promote the service by spreading the terminals or devices. Slide 38 customer satisfaction improvement with smartphone users. With increase in the smartphone users, we would like to win the smartphone users customer sufficient number one position particular and smartphones Anshin Remote Support is partially started. The person who is not very much knowledgeable at smartphones can make a phone call at the call center. Then the operator can work together with the user to make the set-up on behalf of the users sitting at their call center. And we would like to repeat the number of the devices subject to this service.

And the next slide 39 actually the improvement of network infrastructure. First and foremost, I have to apologize to the users who have series of service interruptions. By the end of March, we have completed almost all the major operative measures, but that will still continue.

Slide 40, the Disaster Voice Messaging Service which is very much well accepted and this was started as at March 1st and we already are total download number of 2.48 million. I would like to encourage you to have an experience of this service, so that in the case of emergency you can easily use this service immediately and this is of course a free service.

Slide 41, this is Area Mail Emergency Alert. In conclusion, 1,360 municipalities are taking part in this service. Well, the total number of municipalities in Japan is a little less than 1,800. Out of that 1,800, 1,360 local governments have already participated in this system. And because of the free services available as at July last year its gained momentum.

And next slide, additional disaster preparedness measures. With a two year plan we are trying to disperse the major facilities between East and West.

Slide 43, capital expenditure. Fiscal 2011 actual investment amount was 726.8 billion yen, but in this year 735 billion yen, this is the planned budget.

Now what is the increase? For one thing, the dispersion of the critical facilities and the increase that drives from the measures to be taken in year two and at the same time the sophistication of network infrastructure in order to prevent further interruptions. 40 billion plus a 30 billion, total 70 billion really the amount.

So this is the increase and on the right hand side you will see the new disaster recovery prevention measures. This was already completed so a 24 billion yen reduction and of course we are with additional efficiency improvement measures 15 billion yen gain.

And the slide 44 shareholder returns. For this fiscal year, we will be increasing the dividend by 400 yen per share, so that dividend per share would be 6,000 yen. The reasons are, in the midterm region change in talent. We set the target of 900 million in operating income; I think we are almost on track in achieving this amount.

And secondly, we hear many voices from the shareholders asking for the increase of the dividend. So I would like to continue to make effort to make good shareholder return. Now in conclusion, have a few more things to tell you.

Fiscal 2011 was the year which generated many accomplishments. The future growth drivers, such as the customer satisfaction improvement and then expansion of the smartphone customer base and reinforcement of the services unit to DOCOMO and fulfillment across these services. 6 million region target was the sales target of smartphone. It was increased to 8 million. It wasn’t at all a smooth way, but in the end we could exceed 8.5 million.

So because of these contributions, I think we could achieve this increase in both revenues and income at the same time, but there are some lessons we have to reflect on. Service interruptions; we are very much sorry about that. Our facilities unfortunately would not accommodate the explosion of the smartphone traffic. So the going forward, we would like to emphasize our efforts in sophistication of network, infrastructure. We will not repeat the same mistake again.

Now the fiscal 2012, this will be positioned as the year to accelerate the existing ongoing initiatives. We would like to enhance the services that only DOCOMO can offer such as network cloud and at the same time we would reinforce our sales and marketing. And we would like to increase the number of smartphone users from 10 million to 20 million compared to the previous year.

So 20 million out of 60 million, hopefully will be the smartphone users. This is our ambition. So based on such customer base, we would like to become an integrated service company and as a result, continues to the previous year just ended, we would like to enjoy the increase in both the revenues and income for two consequent years so that we can place our company on the growth path towards the goals of our midterm Vision 2015.

Sorry for the lengthy presentation, but I would like to end here. Thank you for your attention.

Kazuto Tsubouchi

Thank you very much Mr. Yamada. Now we will like to entertain your questions. I am sorry I would like to add one comment, this is Tsubouchi, just one point.

Our supplemented comment for slide number three was in regards for fiscal 2011 and if you look at the income level, actually all the way down to income before income taxes, we achieved year-on-year gains, but if you look at the net income on hand attributable to NTT DOCOMO Inc. you see there was a year-on-year decrease there. This was related to the corporate tax revision that took effect around December last year. There was an increase of tax and decrease in tax in order to spare the budget for the reconstruction of earthquake.

So we decided to derecognize our deferred tax assets and we I think reported when we reported the results for the third quarter that there would be an temporary increase in corporate tax. Actually, if you look at the earnings release 36.6 billion yen was increase that we have anticipated before.

But in the fourth quarter, other items were reported that will have an impact. So all-in-all, for the full year, the corporate tax increase was 41 billion yen as it became clear. So after that it was reflected in the result, the net income attributable to NTT DOCOMO posted a year-on-year decline. Now we would like to entertain your questions. So if you have a question please raise your hand. Just see a hand in the third row there.

Question-and-Answer Session

Unidentified Analyst

Thank you very much for your presentation. My name is [Susaka] from (inaudible). I have three questions. First, well, I thank you very much for the presentation. At was a very detailed and it was good to hear that you are going to reduce the prices on par with the competition level, but this is the third time, so I can really understand that you are now trying to bring forward the profit generation so and that could be the driver for your performance I guess.

It's very clear, but this will have I think a boosting effect of income of approximately ¥80 billion to ¥90 billion yen and that will be perhaps the funding sources for you to achieve an increase of smartphones to ¥30 million as you said and of course that will I think be reflected in the ARPU reduction later on I think.

I am not sure if this is good news or bad news but in any event if this is going to turn to the better I think you have to have a very good strong product and you have to have a good subscriber acquisition performance, so that the subscriber acquisition will have to be larger than the profit decrease that you have to anticipate in the future. So otherwise I think you have confidence in that. I think it will be difficult for you to increase your income and revenues.

So what is your recognition or your perception on your product quality today, that's my question here. So you maybe able to capture one time profit this time around, expand your subscribers and if you succeed in that ultimately you although there might be some ARPU reduction, but the subscriber increase might be able to offset that decrease. I am quite skeptical about your product and that will allow you to do that because you have Fujitsu ARROWS, you have Medias from NEC. I purchased them, but compared to global handsets, still the performance of this devices are much inferior. You have a big line of products that are just inferior. Galaxy could be ok, but compared against the competition your products today are significantly inferior.

Under that circumstance even if you try to capture one time profits, do you really think you'll be able to acquire subscribers that’s my first question. The second question on a related note after when you look at the turn rate for the fourth quarter. I do understand that you lost of number of portability customer and there was a termination of PDC, but if you review it and inverse calculate that, it would only be 0.73% which is significantly high compared to your track record in the past for the fourth quarter. Evidently this means that your competitive advantage is diminishing. Do you think, do you share my same view that’s my second question. And the third question is about the shareholders return. We thank you very much for your dividend increase, your decision to increase your dividends?

But on the other hand, I don’t think you’ve done any share buyback during this fiscal year perhaps. The reason for that I think is half evident. If you wanted to buyback your shares for the sake of some limited shareholders. If you have to do that for the sake of some limited of shareholders,. I think there will be some other measures for you to return profits to other shareholders. So do you think that ¥50,000 of dividend is enough when you are not doing any share buyback. That’s my third question.

Unidentified Company Representative

Okay, then first, I understand your questions. So I will like to answer one by one. First, about our approach to competition. I think you are trying to ask me what we are planning to do with the increase of monthly support. Actually the answer is that of course we are willing to increase the monthly support discounts, but more importantly we would like to leverage our comprehensive excellence to compete in the market and also you mentioned that our competitiveness may have diminished, but I don’t think so because unfortunately the biggest reason for the outflows of number portability customers was the handset prices and also the cash rebate provided by the rivals.

This is, I think, almost true and I think the survey results proves that. Of course according to the survey that we have conducted, only 20% of those responded said that they wanted to migrate to the carrier to other carriers because they had iPhone. So the inferior product line up is not the reason. This is true. So as I said we will like to take advantage of our comprehensive strength to compete in the market because , we would like to avoid a straightforward, an outright price competition. So we do understand the standard of price, handset prices are more expensive. So we will like to increase the monthly support discounts to somewhere around ¥40000 yen per unit.

So is that because once our customer migrates from a feature phone to a smartphone, we see an increase is from ¥3500 before to approximately ¥5000 after migration. So if you multiply that for two years and we can generate approximately ¥40,000 yen. So the incremental ARPU was two years worth of incremental ARPU will be the final, will be the funding for this monthly support. Of course we don’t have to anticipate any more discounts after the third year. So this relates to the net additions. We haven’t been able to acquire so much, so many net additional subscribers of handsets. So through these measures we will like to acquire more handset subscribers that will translate into net additions.

So if it is a net addition you will have a 100% impact on the results. So as I said we don’t think that our products are inferior compared to the competition. Now I think you are now trying to compare our products versus the iPhone but if you look at the latest Galaxy, it is not inferior to iPhone or other products are not that inferior either.

That’s my statement for your first two questions. Now regarding the third question regarding share buyback we will like to take a flexible approach there because if we see a plunge in DOCOMO share prices, we would like to rely on share buyback. It is not that we are rolling out the possibility of share buyback. W take a flexible approach there, but the general shareholders prefer dividends rather share buyback, it is true. And then a follow-up question. Then if that being the case, maybe I was misunderstanding that you are saying that if your products are not inferior. Having said that, however when we had still when I look at the performance for April, you are very short, significantly short of your monthly target. And so it means that it’s not working as of April. So how do you explain that?

Unidentified Company Representative

I was anticipating that question. Actually in the month of April, the performance quite varies in the first week, second week and third week. In the first week, there was the carryover for March. So when you look at the number portability outflows in the third quarter, it dropped by half compared to the first week. In the third week, the number of outflow was limited to only a half of the first week level. So there is a time lag after implementing measures. So please look forward to our performance in May and June.

Unidentified Analyst

So you will become number two in net additions in May or June?

Unidentified Company Representative


Kiyoyuki Tsujimura

Oh you talked about the products. So I would like to comment, I would like to add some more comments, this is Tsujimura. Actually compared to iPhone, Galaxy is comparable but we have had a very thorough analysis of prices compared to our ARROWS versus iPhone. Actually, we looked at the number of frames when the screen maker transitioned from one screen to another. Unfortunately, the Japanese manufacturers’ devices was truly inferior compared to the likes of iPhone. So the feeling that you have when you flip the page was quite awkward. We are now asking the manufacturers to fix these problems so the future models will be eliminated of these problems. Then I will have our expectations on them.

Osamu Hirokado

Now, the person in the middle in the center of the room, please.

Daisaku Masuno - The Nomura Securities

2.8 million net addition. When I look at this number, you lost in additions compared with last year 2 million. SOFTBANK does not release the number. So we don’t know but depending on the situation, maybe you can become number one in the industry with this level. So in a sense, I think you are very well prepared as far as this number shows but as you have mentioned, in April, the actual retail prices are about 10,000 annual lower. So if you continue this approach, continue throughout the month, I’m thinking you will be in a comfort zone, even without iPhone, even in the current situations. So if you can continue this operation for 12 months, are you going to achieve this number? If that is the case, if the answer is yes, monthly support will be increased to 40,000 yen. So the retail price if it is to become 10,000 yen to 15,000 yen. So you don’t have to worry too much about iPhone. The price will be about the same level, comparable level. So maybe you can decide to sell iPhone or decide not to sale iPhone, whatever.

Unidentified Company Representative

Well, our assumption is that we are not we will not sell iPhone. That is an assumption. Since I became President, this is the fourth year. I have been hearing about the iPhone all four years. Now I early introduced to you the Siri and its comparison to Shabette Concier as the Telecommunication carrier, how much value added existing network and DOCOMO market are directly operated market, is also a something we would like to enter. So we don’t want to how the handset manufacturers have to do everything on behalf of us. Of course, this is a competition. So we have to compete against one another. But the main idea is that we would like to use free Android. Now are we not going to introduce iPhone? As I repeatedly said iPhone, well if there is an environment among the customers that iPhone can be one of our options, then we will comply with that such request but as the media says, very large, excessively large amount of volume commitment will be included as a term. That is something we cannot accept. So even without iPhone, I think we can compete squarely in this tough competition. So that is what we will be aiming at.

Daisaku Masuno - The Nomura Securities

Point number two, question number two. Monthly support level, whether it is appropriate or not?

Unidentified Company Representative

Monthly support inclusive base service revenues, everything added, I think, you will see the reduction of 21 billion but the reduction 135 billion, 250 billion yen, the total will be FY 2012. So it will be equal but if you continue in the following year, this is the same with other companies. In March of 2014, the impact of revenue loss will peak. So for this term it’s okay, and the same applies to other carriers. But in the coming year, in the coming year how are you going to fight against such adverse impact so the revenue direction, future direction would be very much uncertain. So whether you are determined to continue with this operation for another year or not, somewhere in between 1,700 yen monthly support, if everything goes well, the operation can be reduced, might be reduced. Is it your idea?

Daisaku Masuno - The Nomura Securities

As for us, we will not stick by this number. This is -- we'll look at the competitive situation, the comparable handset price; that is our target. Comparable; what do you mean by that? 16 gigabit of zero yen and 10,000 yen or something. So if our competitors are changing the situation, so we should be flexibly changing our policies as well. But the final objective is that net additions, we would like to ensure net additions. The share of net additions of 40% is something we would like to target at.

Unidentified Company Representative

May I complement the basic philosophy predecessor’s had mentioned the monthly support or a postponement. I think this is the same practice done by other companies. When do we introduce such scheme? When the handset -- you have a strong product? Well, no. It is not the answer. I think we can introduce such mechanism when the market is growing. I think that is the right answer. So that is the basic philosophy applied to the monthly report. Migration from future phones to the smartphone, this is the timing and the market is exploding, so we can't delay. When the world changes of smartphones, I think we would enjoy the benefit of increasing revenue.

Daisaku Masuno - The Nomura Securities

So that's why in advance are we taking this matter?

Unidentified Company Representative

So in principle monthly support is only provided to the smartphones. I don't know about our competitors, if they provide the monthly support to all the handsets its wrong.

Daisaku Masuno - The Nomura Securities

By that you mean that 200 billion yen monthly support and it will be doubled next year if it continued?

Unidentified Company Representative

So 200 billion yen addition.

Daisaku Masuno - The Nomura Securities

So then in order to come back there you have to increase your revenues by 200 billion yen to offset. So do you have the good simulation to be applied to the March 2014, so I would like to find out whether you have good assumptions?

Unidentified Company Representative

Yes, we have been making simulations to last until 2015. Monthly support will continue to grow. Now on the other hand how much net additions we do have a specific plans about that. Without acquisition of targeted net additions, we will face a difficulty, but otherwise we are quite optimistic. I would like to take the next question. The person in the fourth row.

Atsuo Takahashi - Mizuho Securities

My name is Takahashi from Mizuho Securities. I have two questions. First regarding the expansion of other revenues or other businesses. This fiscal year, your services revenue is going to reduce to 75% of your total business products and the remainder will be coming from equipment sales revenues?

Unidentified Company Representative

Sales and services revenues are going to decrease significantly and other revenues are increasing due to Radish Boya another businesses. This is not going to be Radish Boya only.

Atsuo Takahashi - Mizuho Securities

So can you elaborate on the details of composing the other revenues?

Kazuto Tsubouchi

From fiscal ‘11 to fiscal ‘12 other revenues increased by 60 billion yen to 70 billion yen and actually the majority let’s say 70% of those other revenues were from the mobile phone protection and delivery service and also other revenues from the group consolidated companies.

Actually, the mobile phone protection and delivery service revenues is going to increase as we increase our handset sales. Actually, we’ll have 10 billion yen to 20 billion yen revenue increase per year and that’s already factored in.

Radish Boya only has a business size of lets say 20 billion yen, so this is will be consolidated in this fiscal year, so this is also included in the plan for this fiscal year and also for the commodity sales business, Oak Lawn Marketing, D2C see revenues is going to come back after a plunge or slight decrease during the last fiscal year. So this also have a 10 billion yen to 20 billion yen impact of other revenues increase. So that’s why we say that we can expect to have 60 billion yen to 70 billion yen increase during this fiscal year from other revenues.

Atsuo Takahashi - Mizuho Securities

Then this relates to other, your global services, there was a speculation that regarding our skate holding in TTSL. What’s your plan for TTSL; then this could be answered by Mr. Suzuki?

Masatoshi Suzuki

Basically, there is no change in our plans. The India market, our ARPU level has been lower than expected. So there is a delay in the accomplishment of the plans, but generally there is no changes to the plan because we are seeing a recovery in their performance.

Atsuo Takahashi - Mizuho Securities

TTSL’s business performance; is it going to recover this year, this fiscal year?

Masatoshi Suzuki

Although, there was a punch earlier, but the recovery trend is already visible. So although there is a delay in achievement of the plan, but we believe that the recovery is on track.

Atsuo Takahashi - Mizuho Securities

Now the second question regarding your capital expenditures; Mr. Yamada you mentioned before, that due to the surge of network traffic, you are anticipating that your network capacity will be full at some point. This fiscal year, I think you had seen a double increase last fiscal year in the total traffic level. I think you are, we’re expecting a growth in traffic level this fiscal year after the series of network troubles, I think I understand that you have implemented many measures, but on the other hand, the smartphone is going to increase and in a sense, you are toting yourself by accelerating the adoption of smartphones?

Ryuji Yamada

The growth in traffic between 2011, 2012. We have seen 2010 and 2011 we saw as 2.1 fold increase and between 2011 and 2012 we are expecting a 2.5 fold increase due to the expansion of smartphones.

In addition, we will also be offloading data traffic using Wi-Fi. We will be meticulously expanding the Wi-Fi coverage, but of course the main solution would be the expansion of Xi network, because it has three time higher efficiency. So that is why we are aiming for 70% population coverage for Xi service this fiscal year.

In addition to that, we will be relying upon data uploading using Wi-Fi and after our progress, we will start the tier pricing, the complete tier pricing for Xi service for super-heavy users will have to pay additional charges after a certain threshold. So I think that will rationalize the behavior of these super-heavy users.

Atsuo Takahashi - Mizuho Securities

So you are saying that there is no basic changes to your (inaudible) then you said the Wi-Fi hotspots will be also get an increase of 60,000 spots for the whole of NTT Group? What about next fiscal year over the medium-term? What is the time for the entire NTT Group? How many hotspots are you going to increase going forward?

Ryuji Yamada

And I am not sure about the entire NTT Group, but this fiscal year, as far as DOCOMO is concerned we will increase our Wi-Fi spots to 60,000 and 30,000 correction by the summer and thereafter possibly to 100,000 if need be by the end of this fiscal year or may be in next fiscal year to potentially to 100,000 next fiscal year. Any other questions?

So with this, we would like to end receiving questions please.

Shinji Moriyuki - SMBC Nikko

SMBC Nikko, Shinji Moriyuki. Sorry for asking you very harsh question at the very end. Now why are you giving additional incentive by raising the monthly support? That is a repeated question, net additions are since quite good and still you are trying to increase the net monthly support?

Ryuji Yamada

The net additions, if everything goes well as planned. I don't know -- we don't know about the competition but if that happens are you going to lower the monthly support amount or are you going to stay with this level? Because two years would be sufficient to strike the balance. So I think are you going to continue with this approach or is it profound net additions seems achievable? This postponement approach would not be very preferable. So are you going to lower the monthly support amount?

Unidentified Company Representative

Yes, the answer is we would like to remain flexible. The reduction and then going back up again. So its, we can't do it so easily. So we have to look very carefully at the environment, but having said that we won't stick to this approach.

Shinji Moriyuki - SMBC Nikko

I know if you increase the monthly support, then other carriers must follow and it results in a very bad situation. So the KDDI who pioneered the (inaudible) new incentives, depending on the competition environment, could, might be lowered. That’s what they say. So if such trend becomes obvious, then can we have -- can you say that you can lower this monthly support?

Unidentified Company Representative

Yes, again let me say we will remain very flexible. Just one more, [crossy-crossy] service and other.

Shinji Moriyuki - SMBC Nikko

And you are extending your campaign to lower communication charges but at the same time, on the other hand, in autumn you were introducing tiered scheme. So it’s through that such changed modification, you can recover the situation. So do you think this approach would be viable? It seems that you are lowering the communication charges. So can you meet the goal? I have a suspicion that after all you have said that you will be defeated in the competition against the other carriers.

Unidentified Company Representative

Well, with the Xi, we were the pioneer and the [feature] scheme is very similar to us. So tariff discount war is not occurring at this point in time. So there is a steered approach rather than collecting appropriate level of charges on our part because of this staging by seven gigabyte, the user will think of using the wiser use of traffic. So the question is how can we control these super-heavy users? Let me ask you in this way, Xi, whether you would stop the campaign and go back to the previous tariff. I think you will be the decision maker. So basically you are determined to do that. Yes this is by seven gigabyte tiered approach. Yes this is something we are determined to adopt. Let say Raku-Raku smartphone will not be subjective to such high price. So it’s all in a natural is if a convenience to our customers, affordability comfort of the users.

Unidentified Company Representative

With this, we would like to finish this analyst meeting. Thank you very much for your attendance.

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