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Executives

Kazunori Yamamoto – Managing Director, IR

Kaoru Kato – President and CEO

Kazuto Tsubouchi – SVP and CFO

Fumio Iwasaki – SVP

Hirotaka Sato – Managing Director, Accounts and Finance Department

Analysts

Daisaku Masuno – Nomura Securities

Hitoshi Hayakawa – Credit Suisse

Hideaki Tanaka – Mitsubishi UFJ Morgan Stanley

Tetsuro Tsusaka – Morgan Stanley

Atsuo Takahashi – Mizuho Securities

Daisuke Oshidari – JPMorgan

Shinji Moriyuki – SMBC Nikko

NTT DoCoMo, Inc. (DCM) F1Q13 Earnings Call July 27, 2012 4:00 AM ET

Kazunori Yamamoto

Thank you very much for waiting. We appreciate your presence, or attendance, despite your busy schedule. We will now like to start the meeting announcing the results for the first quarter of the fiscal year ending March 2013. I am Yamamoto, Managing Director of the IR Department. I will now be serving as emcee for this meeting.

Please be advised that this meeting will be broadcast via Internet and also on mobile phones live, and also a recorded video of this meeting will be distributed through DOCOMO’s website later on.

Now, I would like to introduce the participants from NTT DOCOMO. First of all, we have President and CEO, Mr. Kaoru Kato.

Kaoru Kato

Good afternoon, I am Kato.

Kazunori Yamamoto

We also have Senior Executive Vice President and CFO, Mr. Kazuto Tsubouchi...

Kazuto Tsubouchi

Good afternoon, I am Tsubouchi.

Kazunori Yamamoto, Senior Vice President and Managing Director-Investor Relations

Senior Executive Vice President, Mr. Fumio Iwasaki...

Fumio Iwasaki

Good afternoon, I am Iwasaki.

Kazunori Yamamoto

We also have Executive Vice President responsible for consumer marketing, Mr. Takashi Tanaka. We also have Executive Vice President, Managing Director of Corporate Training and Strategy Department, Mr. Kazuhiro Yoshizawa. And also we have Managing Director of the Accounts and Finance Department, Mr. Hirotaka Sato.

Hirotaka Sato

Good afternoon to you, I’m Sato.

Kazunori Yamamoto, Senior Vice President and Managing Director-Investor Relations

For today’s meeting, we’ll be using two sets of documents which I think are already at your hand. We have the earning release and also the presentation slides for the results of the first quarter. At the outset, we will like to ask Mr. Kaoru Kato to deliver a presentation regarding the results for the first quarter, followed by a Q&A session. And we will aim to finish this meeting in about one hour at 6:00. Please also be advised that, regarding the risks containing forward-looking statements, please look at page one of the presentation slides.

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

Kaoru Kato

Good afternoon to you all, I am Kato of NTT DOCOMO. Thank you very much for attending this meeting despite your busy schedule. Before starting the presentation regarding the results for the first quarter, I will like to make a few comments. Two days ago, on the 25th of July, regarding the settings of sp-mode service with – in relation to this function, a certain accident was reported which inconvenienced our customers quite significantly. I would like to take this opportunity to express my deepest apologies for the trouble.

Currently, we have found out who – which customer was actually affected by this trouble and we are individually contacting these customers in order to regain their confidence. In the meantime, we are also trying to identify the cause and prevent recurrence of the problem.

Now I will like to start our presentation regarding the results for the first three months of the fiscal year ending March 2013. We will go immediately to page three of the presentation. Regarding the highlights, operating revenues was ¥1.0723 trillion, which reported an increase of 2.4% or ¥25 billion year-on-year. Operating income was ¥262.6 billion, down 1.9% or ¥5.1 billion year-on-year. Although operating income reported a slight decline year-on-year, operating revenues achieved a steadfast increase and we believe the results were quite favorable toward our target to achieve ¥900 billion in operating income for the full year.

Regarding net income for the first quarter, we achieved ¥164.3 billion, 3.5% increase or ¥5.6 billion increase compared to the previous fiscal year. Packet revenues increased by 9% to ¥485.1 billion; total handsets sales increased by 11.2% year-on-year to 5.17 million units. In particular, smartphone sales doubled almost compared to the last fiscal year to 2.49 million units. And in the month of July we’ve recorded sales of more than 1 million units. So as of today, for the first four months, we achieved close to 3.5 million units of smartphone sales. Total Xi subscriptions reached 3.32 million as of yesterday.

Slide number four. In addition to the numbers that I just mentioned, please look at the progress to full year forecast. Operating revenues, 24% compared to the full-year target and operating income 29.2% compared to the full-year target.

At the bottom, free cash flow, we reported a decrease of ¥30 billion because during first quarter of last fiscal year we didn’t report a dip because – partly due to the earthquake of March 2011. Sales was slack last year for the month of March last year; therefore, we didn’t have to pay so much commissions last fiscal year and also that delayed capital expenditures. So that is the reason why we have seen a reduction in free cash flows this fiscal year.

Now, slide number five, these are the changes behind the – factors behind the changes in operating income. The orange part represents the revenue part and the green part represents the expenses. Voice revenues decreased by ¥41.2 billion due to the expanded uptake of value plan and billable MOU. Voice revenues decreased by ¥41.2 billion excluding the impacts of monthly support. Packet revenues increased by ¥46.1 billion due to the brisk sales of smartphones and (inaudible) devices.

Monthly support impact was ¥28.3 billion. This had a negative impact of ¥28.3 billion. Other revenues increased due to the subscriptions growth to mobile phone protection delivery service and increase of revenues from subsidiaries that we reported a ¥12.8 billion increase in other revenues. And equipment sales revenues increased by ¥35.7 billion.

On the other hand, if you look at the right hand side on the expenses, equipment sales expenses increased by ¥8.9 billion, communication network charges decreased by ¥2.8 billion, and other expenses increased by ¥24 billion due to the start-up of NOTTV service and also the expenses relating to the promotion of cloud services. As a result of the foregoing, operating income decreased by ¥5.1 billion year-on-year; however, towards our target of achieving ¥900 billion of operating income, we have already achieved 29.2% of our full-year target.

Now, page number six. Packet revenues for the first quarter was ¥485.1 billion, up ¥39.9 billion or 9% year-on-year due to the promotion of Xi and smartphones.

Slide number seven. Total handset sales, as you can see, we have the track record since 2010 on this slide. But in the first quarter of this fiscal year, our total handset sales increased by 11.2% or 520,000 units, and reached 5.17 million units. We would like to make continuous efforts to achieve our full year target of 23.8 million units.

Slide number eight, number of net additions and churn. We achieved 200,000 – 270,000 net additions this fiscal first half – this first quarter. Churn rate was 0.74%. But if the impact of the cancellations of prepaid data plans was included, net additions would have been 400,000 and the churn rate would have been 0.67%.

The number profitability performance has been improving from April to June due to the impact or effectiveness of the various discount packages that we have introduced in order to compete in these very severe market conditions. We will step up the sales of summer collections so that we can further improve the performance of NMP acquisitions going forward.

Slide number nine is the – shows the topics that I’ll be covering from here. Slide number 10, these are the managing policies that I’ve been adhering to since I took office. We will focus on DOCOMO’s mission and DOCOMO’s dreams and DOCOMO’s strength. As you know, DOCOMO celebrated its 20th anniversary this July. We have become a very large company but we will still continue to speed up our decisions so that we can take on the challenges of achieving further growth.

Slide number 11, this is the business management policies and our focus area. The left-hand side represents our business management policies. We will promote Xi and smartphones. We will also deliver cloud services, focus on customer satisfaction improvement and transforming to a mobile service – integrated service company. And the focus points are illustrated on the right-hand side; please take a look at them later.

And slide number 12. Now let me explain what we have been doing in order to expand the smartphone and Xi sales. We’ve been introducing very meticulous pricing discount services for each different user groups.

Slide number 13, this is the smartphone lineup. We’ve already announced these new models on the 16th of May so I think you already are aware of this. We have released different models under the DOCOMO NEXT series and the WITH series. 17 models altogether will be released, 11 of them are Xi-enabled and five of them are NOTTV-compatible. And of course the popular features such as waterproof casings, Osaifu-Keitai e-wallet, one-segment TV has become a norm for many of them. And we believe we have been able to offer very attractive, even superior models, compared to the competition, which have become more or less available from this July.

Slide number 14. Raku-Raku smartphone, I would like to talk about this, as you may be aware, from the 1st of August, we will be at last introducing this Raku-Raku smartphone. Raku-Raku series, as you may know, have recorded cumulative sales of 21 million units as of the end of last month. And now we will be introducing a new smartphone model for the Raku-Raku series. This will have a vibration factor so that customers can confirm that they have actually touched the touch-panel buttons and it will be – continue to be easy to use, easy to view, easy to read, easy to hear. And of course, we’ll be adding the Raku-Raku phone center capability so the customers can have a direct contact with the professional advisers should they have any inquiries for the operation of the handset.

Raku-Raku Pake-hodai on this page. For this Raku-Raku phone model we’ll be using a dedicated flat rate package, flat rate billing plan, which I think will be suitable for not-so-heavy data users.

Slide number 15, smartphone sales. We’ve already achieved 2.49 million units in the first quarter, and as we speak today, we’ve already achieved 3.5 million units of smartphones. By the end of this fiscal year, we would like to achieve sales of 13 million units of smartphones.

Xi accounted for 40% of the first quarter sales and by the end of – for the full year, we would like to achieve the full year number by achieving then 60% with Xi services. And on the right hand side, you’ll see the market share of DOCOMO at mass retailers.

Slide number 16, regarding Xi promotion. As of the end of first quarter, we had 3.3 million Xi subscriptions: as of yesterday, 4 million subscribers. And by the end of the fiscal year in March, we will like to increase the number of subscriptions to over 10 million. Regarding the Xi area construction, as of the end of the first quarter we’ve already completed the deployment of approximately 10,000 base stations and by the end of the fiscal year we would like to increase it by double to 21,000 so that we can achieve 70% population coverage. Cumulative Xi-related CapEx stood at ¥160 billion for the – at the first quarter, and we believe the number will reach ¥290 billion by the end of March.

Xi billing plans on slide 18. We’ve been promoting the discounted billing plans, which will resume to normal rate from the 1st of October, and three gigabyte of usage would be the threshold for at least one plan. Some may have construed this as price competition but we believe it is very important that we offer an affordable billing plan so that we can broaden the user base and in total achieve an increase in revenues.

Regarding Xi, we believe, in terms of handsets, in terms of area coverage, we have a lead over the competition and therefore many customers appreciate our service, but now that the other companies are entering this service, we will make to take advantage of our first movers advantage with respect to LTE service.

Page number 18, the Xi Family Set Discount campaign. We focused on retaining the entire customers and that is the reason why we decided to introduce this Family Set Discount. Starting the 20th of July, we introduced this on a nationwide scale, but in some limited areas of Kanto, we had a precursor service. So we will now like to expand this to a nationwide scale in order to compete favorably in the market. This Family Set Discount offers various discounts for various generations of users in the family in the hope that many users will start taking up this service.

Slide number 19, is about the billing plans. In addition to that Family Set Discount and focusing mainly on the monthly support, we have introduced various discount packages, taking into consideration the users’ – diversified users’ behavior, and users share volume. We are criticized that these various discount packages have not gained recognition in the market but we will continue to make effort so that this becomes widely known to customers. So we believe promotion at shops will become increasingly important and we’ll be taking a creative approach here.

Page 20. This talks about the index of my presentation and cloud services. In dmarkets, we want to enrich our content there.

From pages 21 through 23, here we talk about the voice services. For example, Shabette Concier – sorry, it should be network services as part of the cloud services. So, Shabette Concier service: it’s been five months since the launch of the service and the number of access has reached 130 million and the number of downloads has exceeded 3 million. So we would like to pursue further linkage with e-commerce businesses going forward. So in dmarket stores, by leveraging the voice search function of Shabette Concier, I believe it will be very easy to operate. And so there’s a full linkage we would you like to explore.

And to the right hand side, there is reference to the so-called Knowledge Q&A New. This was not launched anew in June, I’m sure that this is not a service which is very – which is favorable from the standpoint of convenience. The second pillar of the cloud service, and this is related to Mail Hon’yaku Concier, or the text translation. It launched in June. In the two-month period we had a download of 100,000 and the number of accesses recorded at 1.5 million. And inclusive of advertisement, from mid-July we began to increase the recognition through various commercials and the number of accesses has actually increased significantly since then.

Page 23, that is the Translator Phone service. So, 10 languages we are accommodating, and in the first two months we have already recorded 220,000 accesses for the service. And also, recently MD Research Institute has announced the results of the survey on foreign travel and they actually made a comparison of five applications that offer translation services. And as a result of that comparison they actually ranked NTT DOCOMO’s Translator Phone service. It still is number one among the five available applications. So in emergencies and also in terms of normalcy in various usage I believe that this Translator Phone is being utilized and we’re very much encouraged by the results.

Number four – 24, rather, Photo Collection. As I have consistently mentioned about the Photo Collection, it would be possible to automatically upload these photos that you take and you can sort out the photos by using face recognition functions and also it’s possible to have access with external services such as Evernote, Eye-Fi, and HighCam. So again, another very convenient service offered to the customers.

Page 25, in terms of address book and sp-mode mail, the two basic functions will be available through our cloud and as result, we’ll be able to offer multi-device support. Address book is actually an asset, if you will, a treasure trove of personal data so we hope that we’ll be able to leverage that and I’m sure that this could be used for various services. At the same time, from the standpoint of handling personal data, we must be very careful so we must make – these are considerations on this point as well.

Page 26, here we talk about dmarket. This is directly operated by DOCOMO. In the case of video store, we have over 5,000 video titles and this is available at a flat rate, monthly rate of ¥525. Number of subs topped 2 million on July 21 this year.

Looking back, it’s been five months, and in the first five months, we had 1 million. And in three more months, we’ll be able to gain further 1 million, so we’re now topping 2 million. So this service is progressing very favorably. BOOK store, MUSIC store, Apps and review, and so forth, the numbers are available on this chart.

For example, the ANIME store, which was launched, we have already acquired approximately 40,000 subscribers, so all of these services are very well received. On the bottom, we hope to add Gaming as well as Shopping to this lineup. And so what we want to do is to complete the DOCOMO market structure. On the right hand side, I’m just showing to you the growth of dmarket transactions. As I mentioned, these are directly operated by DOCOMO. And so the ¥525 that we receive from customers, this falls directly to DOCOMO so it’s an accumulation in the first quarter. It already reached a little over ¥4 billion. And at the end of this year, we believe that we’ll be able to reach anywhere between ¥15 billion to ¥20 billion, hopefully.

Page 27, the third major principal actions and results, which relate to further improvement of customer satisfaction and reinforcement of safety and security measures.

Page 28, here we talk about the Smartphone Anshin Remote Support. Already 130,000 customers have subscribed to this service. On behalf of the customers, the operators will actually operate the screen. Naturally we’ll offer various explanations to the customers, but if customers are very concerned or have anxiety about these services, we will be able to offer support in a remote fashion. And also together with the Mobile Phone Protection and Delivery services, you’ll be able to receive this services for ¥125. So I believe these services combined offer a very beneficial discount.

Page 29, DOCOMO Anshin Scan. If virus is detected, as is indicated in the green arrow, this would issue alarm warning. At the same time, we added another function of when the user were to access potentially to a harmful site. So in the initial phase it is free of charge. We will display alarm screen to reduce the risk of phishing scams and one-click fraud. The number of families has already reached 5.65 million. Now, safe browsing, it has already reached 2.71 million.

Page 30. Here we talk about improved convenience for DOCOMO Wi-Fi. We’re increasing access points as indicated on left-hand side. We have already reached the access points of 14,200 and we would like to increase this by 1.5 fold at the end of the year. On the right-hand side, we show you the ease of operation. We were somewhat behind in the ease. For example, we’ll be able to switch on and off just by clicking a screen icon and also initial settings will be simplified further so that we can actually promote the usage of Wi-Fi.

Page 31, here we talk about transformation into an integrated service company.

Page 32, actions in new business area. We would like to generate a certain level of revenue. One relates to media and content business, and though for some interim report of the structure. In April, we launched NOTTV service. In the recent we are now coming close to 100,000. We have already exceeded 95,000 subs. And launched, we only have two models that accommodate this service back in April. However, we’re now adding five more models, which means that a total of seven devices will be able to accommodate the service. We’re also expanding the broadcast area as well. And during this quarter the subscription of the services in broadcast area has already exceeded 60%, meaning there’s a very strong level of interest. And so the London Olympic games will be underway starting from today. And so, we hope there will be – and we hope that we’ll be able to offer and air Shini-kare’s drama as well.

In page 33, here we talk about commerce. Why our Radishbo-ya, which is home delivery service we recruited first for selling radish, but we will like to further link this with dmarket and in those applications which will introduce service, will be introduced.

And also Tower Records, it was turned into subsidiary and I think the revenue contribution will be around ¥50 billion. As for Oak Lawn Marketing, three straight years of revenue growth. DOCOMO Insight Marketing, as I mentioned earlier, when I talked about the investigative service, we believe that through convergence of mobile services this will add greater – this will add value.

Page 34 talks about medical and healthcare. And DOCOMO Healthcare Inc. that was established in July and we are dispatching management to this company. And so the existing healthcare services of DOCOMO and Omron have been converged. For example, iBodymo’s health support service will be integrated there. So therefore through this integration and convergence we hope there will be – new services will be available throughout this fiscal year. In five-year time we want to increase the revenue to around ¥10 billion through this service.

Page 35, here we’re talking about aggregation and platform. We want to further expand the aggregation platform business into a global fashion so therefore we carried out successfully TOB of Buongiorno in Italy. We believe the work will have progressed to the (inaudible) that phase. And also in terms of China we are now establishing a joint venture firm with Baidu. So going forward we would like to continue to pursue linkage with various operators so that we’ll be able to expand our services on a global scale.

At page 36, here we talk about strategic partnerships with overseas carriers. On the left-hand side, I believe the news release has provided, in relation to the joint M2M platform business with six major operators. M2M is a business without any borders so therefore we hope that this will serve as a footing for our global service going forward.

On the right-hand side, the key word is Vodafone. In Asia Pacific, we have CONEXUS for our partnership. On top of that, we have added alliance with Vodafone so the solution that we hope we’ll be able to serve the requirements of global customers.

So heretofore I have provided you with the highlights, both the first quarter results of fiscal 2012. Reviewing this first quarter as I look back, I believe we’ve been able to strengthen our competitiveness, leveraging the total strength of DOCOMO. And we’ve entered these first measures, leaving improved packet revenues, promoting smartphone sales, develop Xi services and also expanded our new business domain. But some of those results haven’t achieved in terms of net and churn rate. It’s a very challenging situation, continues however through family discounts – the Family Set Discount and Xi Pake-hodai Light. And so with the new summer model lineup, we hope that we’ll be able to achieve improvements.

Going forward, we want to offer attractive services based on cloud and also we’ll also extend our new business areas with speed and a sense of challenge. And we will make efforts to achieve our annual targets. So I would very much appreciate your kind support and understanding.

With that, I would like to conclude my initial presentation. Thank you. I would like your questions now.

Question-and-Answer Session

Kazunori Yamamoto

Thank you very much, Mr. Kato. We would now like to move on to the Q&A session. Before you start your question, please identify your name and affiliation. Now are there any questions? Yes, I see a hand in the first row.

Daisaku Masuno – Nomura Securities

My name is Masuno from Nomura Securities. I have two questions. First, regarding your last point, the net additions and churn rate, how are you planning to improve your performance in these areas? To be honest with you, you have LTE and compared against 3G and WiMAX of other companies, you have a superior technology and your data billing plans, if you have this packet holder, a light package that will start from August – from October that’s much cheaper, well like ¥1,000 cheaper compared against other companies, and your handsets and product price is like ¥10,000 cheaper compared against your competition. Still that’s not really appreciated by your competitors’ customers. What are you going to do in order to further expand the recognition in the market? I think there is something more you can do in those areas in order to further expand the recognition of your superior prices and products.

And the second question is about your comments regarding your performance improving after July compared against the first quarter, but when the sales becomes active in the month of July, August, what are you going – what kind of improvement are you going to expect in the second quarter? And before, when you come up with some additional offer, that’s – what kind of measures are you contemplating?

Kaoru Kato

Yes as you rightly pointed out, when you look at many customer survey results, there’s a wrong perception that prices are much more expensive compared to the competition. So I believe that we have been insufficient in promoting our prices and communicating these prices to customers. So, as I just explained, we have presented many different initiatives and packages, discount packages, for different user segments. So we are now inferior to our competition in these regards. But when you look back in the month of April and May, I think we lost a lot of NMP customers. That’s due to the fact that our competitors offered hefty cash rebates or many other reasons.

So as I said earlier, now that we have a full lineup of products in the month of July and August, and we now have the new discount packages, we would like to leverage these schemes in order to make ourselves more active in the month of August and July.

In the fall, there will be a new version of iPhone – I’m not sure if it’s called iPhone 5 or 4G or whatever – that’s going to be one element that we have to take care of and they may be very cheap also. So that is the reason why we decided to expand the Family Set Discount to a nationwide scale and we will have to see what happens in the competitive arena with the introduction of this campaign. But market changes constantly, so we will have to look into the situation and respond back.

Any other questions?

Kazunori Yamamoto

We’ll go to the gentlemen sitting in the front row.

Hitoshi Hayakawa – Credit Suisse

Thank you. Hayakawa from Credit Suisse. I have just one question. ¥4,130 billing plan for Xi. The philosophy behind the introduction of this new billing plan and the objective behind this – the introduction of this new billing plan, I’m sure there are various ways to interpret this. I think originally you were going to stop introducing new campaign in the fall period but actually when you introduced news campaign, if this is going to generate greater revenue going forward, then the volume – the number of Xi customers who sign on to the ¥4,900 billing plan may increase. So reduction by ¥500, ¥1,000, I’m sure there were various options available to you. But what is the objective for your introduction of this new billing plan priced at ¥4,900, and what effects do you envision as a result of the introduction of this new billing plan?

Kaoru Kato

Well from the standpoint of pricing or billing, the former billing plan became somewhat complicated. That’s the general trend. So we wanted to introduce a new billing structure for our LTE services, the Xi service. So that’s why we introduced Talk 24 and also add seven gigabyte, that will be the threshold point, if you will.

So in a sense, let’s say a flat rate voice type of a plan, and in terms of packet it’s a combination – it’s a hybrid or combination of usage-based as well as flat rate. So against that backdrop when we observe the usage of the data service, we found – we wanted to migrate as many people possible – customers possible to Xi because of our – from the standpoint of the background network.

So we decided to consider the two tier plan as well as the plan whereby the customers shoot up immediately to the seven giga. And we had a very fierce discussion as to where the threshold should be. So on the one hand, we should bear in mind the level of the pricing, which is set during the campaign period. So that’s our philosophy. So the mid- to medium-use customers hopefully will migrate to Xi. And also customers who may, for example, through dmarket video, which will use up more than three gigabyte if it will service, if that could accommodate the requirements of the customers and the customers sign on to this greater volume of data, then that will be a very welcome development for our side as well.

Hitoshi Hayakawa – Credit Suisse

And what about the impact on increasing revenue? So from the standpoint of wanting to generate greater revenue, and the – at the breakdown of the data plan, how will this play out in the next couple of years? I’m sure this will be a very significant point for you.

So this middle – something that is below ¥4,100. In other words, from the standpoint of ¥5,400 or ¥5,100 compared against the initial plan you’re offering, your billing plan which goes below ¥5,000. So which is – so this is very inexpensive. Are you going to offer greater variety to your billing plan going forward? Do you have such plans?

Kaoru Kato

At this moment, we are – we don’t have such intentions. We don’t want to make Xi billing plans as complicated as the ones we saw for 3G. So we want to offer something which is easy to understand and easy for the customers to choose. So we have no intentions of introducing more billing plans for Xi at this point in time.

Kazunori Yamamoto

The gentleman sitting in the middle.

Hideaki Tanaka – Mitsubishi UFJ Morgan Stanley

Mitsubishi UFJ, Morgan Stanley. My name is Tanaka, I have only one question. Currently, when you look at your users, those users whose usage is less than 500 megabytes and those customers who use up to three gigabytes, what’s the percentage of those customers?

Kaoru Kato

Those customers using less than three gigabytes is like 70% to 80% of the total. But after they migrate to smartphones we see a general trend but their usage increases generally. So if we can continue to achieve this, up this, I think we’ll be able to achieve an upward trend going forward.

When it comes to 500 megabytes, I’m sorry, you’re talking about 500 megabytes; we don’t have that distribution available. We have a one gigabyte. Let’s say 50% of those customers generating smartphone traffic, 50% of them are using less – one gigabyte or less. That’s the distribution data that we have at this point of time. We don’t have any data for sub-500 megabytes.

Kazunori Yamamoto

There was an additional answer.

Kaoru Kato

500 megabytes or less accounted for 30% roughly but their usage develops and they migrate to broader – to greater usage volume, so please be advised of that.

Tetsuro Tsusaka – Morgan Stanley

Thank you. With Morgan Stanley, Tsusaka is my name. I’d like to ask two questions. The first question, now that you begin the president, Mr. Kato, I want to ask what you would like to do as the new President and CEO? You talked about speed and challenge earlier, but I think there is no luxury of time available for you. To be quite candid, the former President had introduced measures which were very inward-looking and I think that is the reason why, in terms of number of subs and also in terms of revenue and in terms of your stock price, you had a lot – you lost a lot of ground.

But I think you’re not at a stage where you have to introduce many new measures at a top down level, so you’re losing ground in the marketplace. Do you believe that the measures you introduced will be sufficient to overcome that, or do you not believe that you need to more boldly change the strategy of DOCOMO? I have observed your comments through the media and I get the impression that nothing is going to change. If that is the case, my impression is that maybe nothing will indeed change, but will something change under your leadership, that’s my first question.

Kaoru Kato

Okay. I’ll respond to your question one by one, then. When I say nothing will change, the context is that in terms of the basic philosophy, I work together with Mr. Yamada in formulating the basic policies, so that is why I mentioned that it’s not going to change. For example, we will continue to be active as an integrated service company. And also, we will want – we will make a further shift to smartphones. So in that regard, in that context, nothing will change. At the same time, though, we’re celebrating the 20th anniversary. DOCOMO has become a much larger company in the last two decades. Maybe, we are erring on the side of caution as a result, and sometimes the pace has become much slower. So included with the top down decision-making, we will be more bold.

So although we talk about the so-called integrated service company, we have to make sure that our core service, mobile business, will not waiver because we cannot add anything if the core services were to waiver. So in that regard, we will leverage our know-how in mobile and we will certainly mobilize our expertise in the fullest sense so that we can be a company which can continue to enjoy sustainable growth. So in that regard, maybe the way in which we operate may change because something that is based on my own characteristic may emerge. So the overall direction will not shift. However the ways in which this will be achieved may shift going forward.

Tetsuro Tsusaka – Morgan Stanley

If I could add up – if could add, correction, when you announce your first half results, I’m sure that your management policies will become more clear when you announce the first half results at that juncture. But you are the number one mobile operator and SoftBank’s profit is becoming very close to the number of operators level, although the stock price is totally different, between the two companies. The share price is different. So when you announce your first half results, are you going to be able to announce new commitments? Are you going to be able to show something that will indicate that DOCOMO is indeed going to change? So although the market share is different, your stock prices are different, and also – and so I hope that you will announce concrete numbers.

Kaoru Kato

Well, the first quarter results have just been announced. Now what will happen to the full-year targets which we announced at the beginning of the year? In that regard, that is not going to – it’s not been changed. However, the market is very dynamic. The commitments of our environment is very dynamic. So when the first half is over, if we decide that it will be warranted, we may change at that junction. We may even add on something toward the positive side. It could be that depending on the competitor situation, bearing in mind our situation of vis-à-vis the competitors, we will sincerely address this situation at that juncture.

Tetsuro Tsusaka – Morgan Stanley

And I could follow up with a second question, I know that the summer model will come into the marketplace going forward, so maybe you might say this question is too premature. But Galaxy – the Galaxy S III, when I compare it to the S II, it seems that the S III models sales is somewhat slower, and also Xperia HD which was introduced in spring. Compared against that, again, it seems to be the sales record is somewhat slow this time around. So at the end of the day, in the second half, the blockbuster product like iPhone, these flagship terminals – handsets – will be introduced by competitors. So when you bear that in mind, although the lineup that DOCOMO has may be competitive, it seems that the unique features which are available only in DOCOMO handsets become more diluted. So do you believe that you can indeed be competitive against the competitors come second half of the year? What are your thoughts?

Kaoru Kato

You talked about the summer model, we have five summer models. On June 28, I made the announcement Galaxy S III. On the first two days, it’s true that S II model enjoyed higher sales. However, in terms of the sustainability, I found that the S III models are selling much more briskly. And based on the numbers this morning, we have already close to 40,000 sales now. Now in general, the total of – sorry, the summer models have already garnered 130,000 units of sales.

In a previous financial presentation, we were scolded for being a plastic. But in terms of speed and in terms of aesthetics, I think our models are becoming much more improved. And S III is an illustration of them and also Regza and Xperia. They have already enjoyed a certain level of brand recognition, so therefore going forward we’d like to observe how the sales record pans out.

Now what about iPhone? It could come out in the fall, and what will happen to our advantage at that point in time? We were talking about one product versus a lot of lineup and a lot of products. And if you have a lot of lineup, of course then there’s naturally going to be greater commonality between those. However at the same time we have strengthened in terms of area coverage and in terms of the quality of the services, and the specific services available. At the same time of course we must cover certain ground. So in the medium to long term, I’m sure that we can make further efforts to make these improvements. I would appreciate your kind understanding and support.

Kazunori Yamamoto

Are there any other questions? Yes, I see a hand.

Atsuo Takahashi – Mizuho Securities

My name is Takahashi from Mizuho Securities. I have two questions. First, this is about the outlook towards next fiscal year regarding your mobile phone business, and the second one is about your enterprise business. Regarding the first question, at this current moment, when I look at the progress after the first quarter, when you look at the discounts, I think more or less in line with your earlier expectations in terms of ARPU, but after next year, when the multiple discounts have its peak with the expanded uptake, do you really see that you’ll be able to achieve increase in net additions and they – of course you have to anticipate a decrease in ARPU. So overall, as total service revenues, in reality do you think you have high potential Ion achieving growth? Can you comment on that?

Kaoru Kato

When it comes to mobile phone business, we can divide it into two factors: one is the new business, the integrated service kind of business, and the other one is the core mobile phone business. When it comes to the core mobile phone business, as at – after the end of the first quarter, when we have to look into the prospects for the summer towards the first half, we are now contemplating what strategies we will have to take. Therefore, we don’t see – we have no idea as to what to do for the next fiscal year and beyond.

Of course, we are seeing general trends, what is happening as a general trend in the market, so we would like to secure as many net additions as possible and contemplate measures that will achieve growth towards the future but of course we will have to anticipate greater impact from the Monthly Support discounts going forward. But that relates to the track record of sales. So for every quarter we will have to make an assessment and based on that develop the outlook for next fiscal year because if we comment on this one only after the first quarter, I think actual results will be quite different.

Atsuo Takahashi – Mizuho Securities

Now the second question, when you look at the enterprise market, in view of the market trends, what is your view?

Kaoru Kato

Now KDDI is now looking into a different dimension and they are now able to confirm the profit and losses, and of course SoftBank they are now focusing quite a lot on mobile phone sales from corporate customers, the same for eMobile as well. So not only residential customers but eMobile – I mean the enterprise customer is becoming a very important indicator.

Atsuo Takahashi – Mizuho Securities

Having said that, however, in your presentation you don’t have any explanation regarding your position in the enterprise market with a clear awareness of the competitive situation. So what kind of appeal, what kind of promotion are you going to contemplate for the enterprise market if you have any strategy for that?

Kaoru Kato

In the presentation today, we didn’t have any specific slide regarding the corporate segment, only data is the only explanation that we have included there. But of course our enterprise team is working quite energetically. And of course, if there’s any improvement needed, we would like to do so. So far, in many cases, we recorded great victories or great losses when it comes to customers but I think we would like to give more thinking as to what to do with the enterprise segment.

Atsuo Takahashi – Mizuho Securities

If you can add some other comments.

Kaoru Kato

I think the – your opinion is that I think you would like to have a more detailed result analysis for each different user segment, residential and corporate. Yes. This is something that we would like to look into. I’m not sure if this is the right thing to do, but we are looking into other companies as well. I-channel for example is included in the (audio gap) ARPU but this could be singled out as value-added ARPU in the future. And of course if you see an increase in content revenues, this may be singled out. I see dmenu or dmarket revenues going forward or we might be able to single them out from the packet revenues going forward. So we will have to look into the ways that we report. When it comes to corporate marketing, it is very difficult to single out these different sources of revenues, so although we may not be able to make a separate disclosure but this is something that we will like to give more thinking into going forward.

And if I may add another comment, just now, we talked about the disclosure and we are currently studying many different approaches. Even at this point, the corporate revenues and corporate profitability this -network revenues or SI revenues on a monthly basis, we are managing them internally. And we distribute the common cost based on a certain understanding. Those data are aggregated, but how to disclose them to analysts is something that we have to study going forward

And in the case of enterprise segment, when it comes to corporate segment, it is the subscription title as an enterprise client but even if it’s a residential subscription, in many cases the phone is used for enterprise purposes so effectively how to single out or how to separate these accounts is another thing that we will like to look into going forward.

Atsuo Takahashi – Mizuho Securities

And also what are your strategies against these low priced carriers? That’s another question that I have. Do you have any concrete strategy how to counter them? Like, do you plan to offer something like LCC, just like AE&A did for – with a subsidiary? Is it possible for you to do? If it’s impossible, that’s fine, but do you have any plan of separating another company and...

Kaoru Kato

Yes, the approach, LCC approach? I’m not sure if that jargon is correct, but a more flexible or a more operation is something that we may have to look into. And it’s not that we are doing that immediately. If we decided to do that, we will poison ourselves immediately, so that’s something we cannot do immediately, but, if need be, we will like to study that kind of possibility but as of this point we don’t have any plans.

Kazunori Yamamoto

We are running out of time so we’ll take two final questions then. We’ll start from the gentleman on the left hand side.

Daisuke Oshidari – JPMorgan

Thank you. Oshidari from JPMorgan. I would like to ask two questions. This is covered on page 39 in the appendix. It talks about ARPU, page 39. So I would like to confirm with you. So, the decline in voice ARPU continue to be very steep. So how far or to what extent will we have to go before we’ll see a bottoming out?

Kaoru Kato

Of course the impact of the Monthly Support is becoming smaller on a year-on-year basis but still MYU continues to decline, so essentially the downward trend of voice ARPU probably will not stop.

Daisuke Oshidari – JPMorgan

I know that to your responses that voice will continue to decline, however, it’s not going to become zero. So at the end of the day, the bottoming out of ARPU hopefully can be expected this fiscal year. I think that is your expectation, in other words bottoming out. So how do you interpret and envision the trend pertaining to the voice ARPU, that’s my first question.

And my second question, several people have actually raised the same question but under the new management team, what are – what do you want to do? What do you want to change? It’s not very clear.

Maybe it’s too premature at this juncture to ask about your policy for the medium to long term. But these are the first quarter results after the new management team. So what’s the message do you want to communicate? Because the presentation, it’s about – it’s not so much a financial presentation, it’s about the services. And the format of the PowerPoint has only slightly changed and the substance hasn’t really changed all that much from the previous management team.

So this time, the share price isn’t going to change and the people who are going to be choosing DOCOMO stock will probably not increase in numbers. So we get the impression that nothing has changed from the previous management team. So what is your message? What are you trying to change? What is going to happen? What do you want the market to expect from you? Can you be more straightforward in this point? Thank you.

Kaoru Kato

So your question is about the new management team. It’s been one month since the new management team has appeared. It’s very difficult to say specifically what has changed. And to a certain extent, I hope you will wait, if you will, until the more medium-term outlook is clear. But at the same time, the NMP, the number portability situation, has become very stringent and very hard. So we need to – we’re constrained by to – for example, one trial, if you will, is the Family Set Discount and it’s become – and it has actually brought about tangible results. That’s why we we’re going to do this on a nationwide basis until August31. That’s one decision we made.

Also smart value. The young people actually kind of guide the whole family usage. So we’re trying to gauge the effect if you will of this Family Discount program. But this is under – this decision was made under the new management team. So it might be a small step, but in that regard – and you might say that this is simply a patchwork effort – by compiling, continuing on with these small efforts, we hope that we’ll be able to make a certain achievement.

In terms of ARPU, as we point out, MOU, voice MOU continues to decline. For one thing, voice over IP is beginning to have maybe 10% to 20% impact. Now at the same time we’re trying to shift to LTE Xi, for example Xi 24, we hope that as many people as possible will use this service.

At ¥700, you will be able to enjoy free-of-charge communication between DOCOMO family members. And we’re trying to communicate that point through commercial. So we hope that we’ll be able to gain greater subs through Xi and at the same time, in terms of packets, since we’ll be introducing the new Light plan, we hope that more people will use data and we certainly hope that the customers will feel that their mobile phones are indeed, very easy to use, at DOCOMO.

So Xi Talk 24. We hope if this penetration increases then we’ll be able to see a possibility for bottoming out. At the same time, though, what is the likely impact of Voice over IP? This is not yet clear. For example, we see greater penetration of line, so it’s no longer like, kind of blank. Voice over IP is more like social network service-oriented Voice over IP. So we need to observe this trend. And consider what would be the best possible option for us.

Daisuke Oshidari – JPMorgan

Well, the impact of Voice over IP, is there any numerical number? Sorry, a number that you can talk?

Kaoru Kato

I think it could be anywhere between 10% to 20%. We really can’t see the concrete desegregation but the report I received is that the impact is between 10% to 20%. Now how far will this go in vertical and for technological innovation, and the ease of use. If there’s a breakthrough in those elements and then there’s a percentage that the Voice over IP could account for, a greater percentage, so we need to closely observe the situation.

I think it’s a matter of how we interpret the first quarter results. You might say that nothing has changed. That seems to be the impression that all of you have after the first quarter. But if you scrutinize further, I think you will find that the first quarter financial results will give you very positive indication for the future. Despite the very tough competition in the marketplace, the expenses have been minimized. It’s been controlled and we’ve been able to achieve a certain level of profit, meaning that we now at DOCOMO have been able to garner sufficient cost related capacity. And of course, there could be costs in the second half but this is something that is already projected so we’ll continue to cost – we’ll continue to control costs and also plant seeds for the future.

Now of course, the outlook of customers, subscribers through NMP is a challenge in process. We’re taking measures but we believe that we’ll be able to achieve certain results. So from the standpoint of revenue and expense, that is how we interpret the first quarter results. The other element, someone else mentioned this, but – bid, ARPU, revenue or bid phone revenue – you know, so mobile revenues – maybe we have actually disclosed the numbers being fixated on those indicators. However, there are other sources of revenues that are occurring, which may not be disclosed in the fashion and that’s actually increasing. For example, i-mode revenue or i-channel revenue. This is now in the area of tens of billions of yen.

It’s included in the overall ARPU. It has been increasing even though we have been migrating more to smartphones. So this is revenue which we may have lost out had we introduced wire phone. And also, on top of it, we have dmarket related revenue. We have revenue, content-relate revenues which are possible because we are the content provider. We’ve been taking various measures and so these numbers are growing. And so it is a matter of trying to disclose those numbers to gain your understanding. We are not yet at that juncture but we are planting seeds for source of revenues in the upcoming generation. And I’m sure they will be able to grow this next-generation revenue. Hopefully we’ll be able to add new ideas when we announce the first half financial results.

So the expression for the first quarter results may not have changed, however in terms of substance it has changed. As you know, the best possible bamboo, it’s best if you stomp them on the ground before they come up. So we will continue to explore for tastier bamboo going forward.

Daisuke Oshidari – JPMorgan

I would like to confirm this. You talked about the outflow of subs, but – and you mentioned this as challenging – but this has been an ongoing phenomenon. So at what time do you believe that you’ll be able to put a halt to this outflow? In order words, as far as the management is concerned, do you have any clearer timetable as to when you’ll be able to put a halt to this outflow? You don’t have to commit to that timeline.

Kaoru Kato

But it’s very difficult to say, as we have already indicated to you, the outflow of subs has not yet stopped. However we are seeing signs of improvement and it has not changed in the month of July. However we’re going to compete in the hot month of July and August. I have an agenda. We hope this will be a very a hot season of competition. But with this lineup, how can we compete with the competitors and how this plays out in the marketplace?

On a daily basis, we do watch the transfer to number portability. Actually on certain days, we have positive inflow. I don’t want to be overly cynical. We – and I think that’s a result of the introduction of various new metrics and also the result of the lineup that we introduced.

Daisuke Oshidari – JPMorgan

So in the month of July and August how can – at what extent can we improve? That’s what we really like to observe. It’s like preaching to Buddha. But the number portability of program, this will affect the larger mobile operators because the stock is larger for the larger mobile operator. So, hopefully we’ll be able to stabilize. That I believe is the immediate challenge for us. We hope that you will allow us a little more time to deal with the situation. Thank you.

Kazunori Yamamoto

Okay. Now, this will be the last question for this – today’s meeting.

Shinji Moriyuki – SMBC Nikko

I am Moriyuki from SMBC Nikko. This relates to the question by the first questioner. Now you have a good lineup that can compete favorably against the competition, your billing plans are also favorable, and your handset prices in some cases is cheaper compared against other companies.

So you are superior on all fronts but still you’re not losing, you’re not winning against the competition. That’s because the awareness is so low. So what kind of marketing are you going to contemplate in order to drastically turnaround the situation, but looking into – listening to your presentation, it seems to me that you have so many options that the message doesn’t really go through to the consumers. In the case of KDDA, they came up with this smart value campaign and that’s well communicated to the consumers. So, although you mentioned that you have this patchwork effort, what are you going to do in order to fully improve the recognition?

Kaoru Kato

As I mentioned earlier when it comes to the building plan, we had – with the former service, we had so many diversified options for our former service. So we reflected on that and tried to simplify the Xi billing plans as much as possible. So discount package is the same, as you rightly pointed out. We are not really well communicating the message to the customers, Xi Talk 24 is somewhat misunderstood by customer that this is only available for Xi devices, but we are now trying to make it easy to understand for customers through our commercials that all this is applicable to any phone call from a Xi device, but there is a general misperception that our prices are more expensive compared to the competition and we are struggling to eliminate this misperception.

We are now inferior to all companies in many other areas, in all fronts, but still customers have this persistent misunderstanding that we are expensive on all fronts. So how to deliver the message is something that we have to be more creative. Even if you say that we are cheap, it doesn’t really go through to customers and so we go to – if you go to DOCOMO shop, you’ll be able to see at that we have a very straightforward message that we are cheaper, prices are cheap. We have all these posters on the windows of DOCOMO shops so, taking many different approaches, we will like to convey the fact to customers so that they will understand. But you are right.

Shinji Moriyuki – SMBC Nikko

So going forward, can we anticipate that there will be some new approaches going forward? Because otherwise you will continue to lose customers.

Kaoru Kato

Yes we will have to try to continue our approaches to get the message straight and right and see the results.

Shinji Moriyuki – SMBC Nikko

Now, you said that you will try to respond when the next iPhone version will come out to the market. As of this point, what kind of elements are you going to appeal in order to counter the iPhone product going forward?

Kaoru Kato

I think we would like to leverage our comprehensive strengths. It’s not only the devices, the device functionality is catching up with iPhone. In some elements we are superior to the iPhone in our devices. Our network quality is quite good. Shabette Concier voice agent service is also quite superior. In terms of service offerings, we would like to compete against the competition. So these remain intact. But we’re not really sure about the next generation iPhone. So after observing what is going to happen with the next generation iPhone, we would like to take the proper measure without delay.

Shinji Moriyuki – SMBC Nikko

And then my last question. Regarding the number portability, you said that large operators tend to suffer a lot of NMP outflows. But if you are improving, as you mentioned, the stock market will appreciate that. It seems that the stock market has an appreciation that you are a medium-sized player, medium-priced player, but at which point will you be able to reduce your incentives and try to resume to normal?

KDDI already mentioned that they will reduce their incentives even if they suffer a lot of reduction in their net additions because, I believe, the current level incentive is not just proper for the industry. So do you have any indication as to at which point you would like to reduce your incentives?

Kaoru Kato

Of course, it is better to reduce the incentives, but we do not think that we are leading the price discounts. We are not the price leader in the market. And I think you’ll be able to understand that if you look at our track record of activities when it comes to cash rebates. It was other companies that took the lead in offering cash rebates and that was the main factor as to what happened in the months of April and May.

But, of course, we are not living in an isolated market, we are living in a competitive world, so we just cannot let them go unchecked. So we will have to respond, taking into consideration what is happening in the market. So it is very difficult to say at which point we will resume the incentives to the normal level but we had this goal of reducing the number of NMP outflows to half the level of last fiscal year, from 800,000 last fiscal year but it’s very difficult to comment on your question.

Kazunori Yamamoto

Okay. Now, we will like to finish this analyst meeting at this point. Thank you very much for attending despite the hot weather.

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