NTT DoCoMo's (DCMYY) Management on 1Q FY2018 Results - Earnings Call Transcript

NTT DoCoMo, Inc. (OTCPK:DCMYY) 1Q FY2018 Earnings Conference Call August 2, 2018 4:00 AM ET

Executives

Kazuhiro Yoshizawa – Head of Investor Relations

Hiroshi Tsujigami – Executive GM-Sales and Marketing Division-Broadband Business

Hozumi Tamura – Executive GM-Network Division, GM-Network Department

Kenichi Mori – Executive GM-Smart-life Business Division and Director

Kouji Furukawa – GM-Corp Sales and Marketing Division, GM-TOHOKU Reconstruction Support Office

Osamu Hirokado – GM-Accounts and Finance Department

Seiji Maruyama – GM-Corporate Strategy and Planning Department

Analysts

Daisaku Masuno – Nomura Securities

Hideaki Tanaka – Mitsubishi UFJ Morgan Stanley

Ikuo Matsuhashi – Goldman Sachs

Mitsunobu Tsuruo – Citigroup

Yoshio Ando – Daiwa Securities

Yoshiyuki Kinoshita – Merrill Lynch Japan

Tetsuro Tsusaka – Morgan Stanley MUFG Securities

Kazuhiro Yoshizawa

We would now like to start NTT DOCOMO's results presentation for the first quarter of the fiscal year ending March 2019. Good afternoon, ladies and gentlemen. Thank you very much for taking your precious time to attend our conference. I am the facilitator of this conference.

My name is Yoshizawa, Head of Investor Relations.

Please be advised that this session is broadcast live on the Internet, and also, a recorded video of this session will be posted on DOCOMO's IR website later. Please be advised of that in advance.

Prior to the presentation, I would like to advise you on three points. First of all, let me introduce the participants from NTT DOCOMO. We have the Senior Executive Vice President and Executive General Manager of Sales and Marketing division, Mr. Tsujigami. We also have board members and EVP, six of them.

The Executive General Manager of Corporate Sales and Marketing division, Mr. Furukawa; the Executive General Manager of R&D Innovation division, Mr. Nakamura; Executive General Manager of Network Division, Mr. Tamara; General Manager of Corporate Strategy and Planning Department, Mr. Maruyama; General Manager of Accounts and Finance Department, Hirokado; and Executive General Manager of Smart Life division, Mr. Mori.

Next, let me inform you of the agenda for today. First, our Senior Executive Vice President, Mr. Tsujigami, will make a presentation on the results for about 15 minutes, after which we'll entertain your questions. We expect to finish the session at 6:00 p.m. Japan Standard Time.

Finally, I would like to go through the documents that we'll be using for today. We will make the presentation in accordance with the presentation slides. The presentation slides are posted together with the financial databook and other related material on DOCOMO's IR website. Please refer to them.

Please be advised that, and please refer to the final page of the presentation slides regarding the forward-looking statements, including those made during the Q&A session.

Now we'll begin the results presentation. Mr. Tsujigami, please begin.

Hiroshi Tsujigami

From this time around, myself, Tsujigami, will make this presentation on the results. Prior to beginning the presentation, I would like to make a few comments regarding the torrential rain of July and that was a major disaster. I would like to extend my condolences to those who are victimized and also express my heartfelt sympathy to those affected by this disaster.

We at DOCOMO have made all our efforts to secure communication, restoring our services and providing support activities in the Chugoku and Shikoku area. In some areas, it was difficult for people to access our communication services. However, the service is now restored to normal. We pray for the earliest possible recovery of the disaster affected areas.

Now without further ado, I would like to begin my presentation regarding the results for the first three months of the fiscal year ending March 2019. Please open Page 1, of the presentation deck. This is the results highlights of the first three months of the fiscal year ending March 2019. As you may be aware, starting this financial period, we have adopted IFRS as our accounting standard. And we have also made a restatement of the IFRS accounts for the last fiscal year and the first quarter of last fiscal year's number.

Operating revenues increased by ¥43 billion year-on-year to ¥1,176.7 trillion. Operating profit increased by ¥27.8 billion to ¥309.9 billion. Thus, we recorded an increase in both revenues and profit.

The profit attributable to shareholders of NTT DOCOMO, Inc. increased by ¥18.5 billion to ¥218.3 billion. Free cash flow due to the increase of corporate tax payments and other public dues, it decreased by ¥39.3 billion to ¥47.2 billion. Operating free cash flow increased by ¥17.8 billion to ¥304.3 billion.

Page 2, the results by segment. In Telecommunications business, operating revenues increased by ¥40.3 billion, operating profit increased by ¥21.6 billion. In Smart Life business and other businesses combined, operating revenues increased by ¥3 billion and operating income increased by ¥6.3 billion, therefore in both Telecommunications business and Smart Life and other businesses, we recorded an increase in both revenues and profit.

The operating revenues for Smart Life business, in particular, because in 2018 February at one of – we have transferred our affiliate, Radishbo-ya, there was a slight decrease in revenues in Smart Life business.

Page 3. This shows the key factors behind the year-on-year changes in operating profit. Operating revenues increased by ¥43 billion year-on-year. The main drivers are: the mobile communication service revenues increase of ¥1.8 billion, the increase of optical fiber broadband service revenues of ¥17.6 billion and an increase in other operating revenues of ¥2 billion. Operating expenses on the other hand, increased by ¥15.2 billion. Consequently, operating profit increased by ¥27.8 billion to ¥309.9 billion.

Page 4. Previously, we talked about the operational performance from here such as the mobile subscriptions, but this time around, we will begin with the membership. This is about the membership of d POINT CLUB. In fiscal 2018, we've been working for the expansion of customer-based pivoted membership and in fact, the d POINT CLUB members as of the end of June reached 66.52 million, of which the total number of d POINT CARD registrants who are able to use and earn d POINTS at our partner shops increased by 1.7 fold year-on-year to 25.13 million.

Now moving on to Page 5. Here, I would like to talk about the operational performance of our Telecommunications business. The mobile telecommunications services subscriptions increased by 2% year-on-year to 76.75 million. The churn rate, excluding the MVNOs, this is a total churn rate, stood at 0.59% and the handset churn rate, in particular, was 0.49%. Both maintained at low levels and we will continue to work on improving customer return measures to curb churns going forward.

Page 6. The total user base of smartphones and tablets increased by 6% to 38.77 million. We are continuing the migration – to work on the migration from feature phones to smartphones and the promotion of tablets. Out of the total mobile subscription, which is the sum of smartphone tabs and feature phones users, the number of smartphones and tablet users now has exceeded two thirds of the total mobile subscription base.

Next, docomo Hikari subscriptions on the June 3, exceeded 5 million, and as of the end of June, it reached 5.09 million, up 32% year-on-year.

Page 7, ARPU. From this time around, we changed the format of the ARPU. We have already given some guidance for the full year when we announced the full year results for 2017, and the previous voice ARPU and packet ARPU are combined together and this time around, it is represented as mobile ARPU. And also the discounts applied are also included in the parentheses.

And previously, we have given that three years worth of data, but this time around, we have streamlined it to only one year worth of data. Now this is the aggregate ARPU for the first quarter, including the impact of the Monthly Support and other discount programs increased by ¥80 from the previous quarter, i.e., the fourth quarter of 2017, and reached ¥4,800.

While continuing proactive customer return measures, we successfully reduced the Monthly Support discounts and increased the docomo Hikari subscriptions and this resulted in a steadfast expansion of ARPU.

Next, Page 8, network. As of the end of June, the total number of LTE base stations amounted to 188,700 stations, of which PREMIUM 4G-enabled base stations reached 114,300. For your information, starting May, we launched Japan's fastest 988 megabit per second service, and the service became available even at the summit of Mount Fuji from July 17. In light of the planned introduction of 5G in the future, we will continue to upgrade our network.

Next, Page 9. This is about cost efficiency improvement. We achieved cost efficiency of ¥34 billion in the first quarter. We are making steady progress towards our annual cost efficiency target of ¥120 billion.

Page 10. Operating profit for Smart Life business. We achieved ¥43.3 billion in this first quarter, up by 17% year-over-year. We were steadily progressing to achieve our annual target of ¥140 billion. The main component categories of the ¥43.3 billion of operating profit includes: Support services for our customer's peace of mind, including on the compensation services, contributing approximately 40%; content or commerce, including dTV and DAZN for DOCOMO contributing approximately 20%; and finance and payment, including d CARDs and d Payment contributing approximately 20%.

Page 11, please. Next, finance and payment services. Transactions handled recorded ¥880 billion, an increase by 22% year-on-year. The number of d CARD members is 19,180,000, out of which d CARD GOLD members were able to make a steady growth. It made a 1.6-fold increase marking 4.250 million. The increase in the number of d CARD members are part of what contributed in steadily increasing the transactions handled in the finance payment services.

Page 12, please. Here, we review again d POINT. But we show a new graph for you this time. It's d POINTs used. So again, this d POINTs used increased by 1.7 fold year-over-year to 41.3 billion points, of which, points used at partner stores marked a 2.4 fold increase, standing at 18.2 billion points.

The number of d POINTs partners representing all brands and websites where you can save and use d POINTs have doubled, marking 273 and the number of participating stores has expanded to now approximately 38,600 stores. We will keep on launching schemes to make sure our point program will maintain attractive and highly convenient to our d POINT members and partners in a proactive manner.

Page 13. This is about promotion of plus d. The number of plus d partners continues to grow steadily and has now become 553. Together with our partners, we will keep on accelerating our cocreation via plus d.

Page 14, please. Actions taken for our medium-term strategy Declaration beyond. We have Declarations 1 all the way to 3 here. It is about value and excitement to customers.

Declaration 1. In light of the growth of docomo Hikari subscriptions to over 5 million, we will start providing docomo Hikari renewal loyalty points from September 1. Subscribers will be given 3,000 points every time they renew a two year subscription.

Declaration 2. We started AI agent my daiz from May 30. We've achieved 3.5 million downloads as of July 26. And we will keep on polishing, brushing up our services delivered.

Declaration 3. We are enhancing our works around docomo Smartphone Classes. Over 80% of docomo shops now organize three or more sessions a week, participated by a total of approximately 300,000 customers in this first quarter.

Page 15. Here, we show Declaration 4, 5 and 6. And again, value cocreation with partners. Declaration 4. DOCOMO 5G Open Lab and Yotsuya will also be opened in Osaka, well in this slide, we show 1,638, but we show 1,538, but at the moment, we have over 1,600 partners under our DOCOMO 5G Open Partner Program being offered a free environment for 5G technical verification.

Declaration 5. Currently, there are many regional revitalization programs underway and DOCOMO signed partnership agreements with Maebashi City, Osaka Prefecture and Hiroshima Prefecture. We will keep on improving our services offered to local communities through our regional revitalization works.

Declaration 6. We launched global IoT solution for enterprises, Globiot. Our knowledge behind providing global support in adopting IoT will now be offered as a service, a one-stop offering of connectivity, operations and consulting. We, of course, do have other projects underway, and we will further expand our initiatives in making our Declaration beyond happen and to create a rich-fulfilling future.

Page 16, please? This slide shows again our FY2018 first quarter summary. Next is my final page. Under our slogan, always chosen to sustain connections as your robust ICT service partner, we will keep on consistently executing and promoting our Declaration beyond in FY2018, putting our utmost effort in structuring our new businesses, centering on our member base, and we will operate our business to achieve our annual target.

So that would be all for my presentation. Thank you.

Unidentified Company Representative

Now we'd like to entertain your questions. As we have advised you beforehand, you will have to register yourselves and connect to the telephone conference system. From those people, we will receive questions first. As to how to accept the questions, the operators will give some explanation to you.

Question-and-Answer Session

Operator

[Operator Instructions] Now from Nomura Securities, Mr. Masuno. Please begin your question.

Daisaku Masuno

This is Masuno from Nomura Securities. I've got several questions. First of all, I would like to ask regarding your ARPU, I would like to see some details pertaining to ARPU. The mobile ARPU, before applying the discounts, before applying the Monthly Support discounts, it was ¥5,300 compared to the previous fiscal year's same month, it's flat. So up until now, we have seen a reduction in the core ARPU, but this is now flattening out.

But when you look at the full year guidance, it seems that you are projecting a ¥40 decline in the ARPU. I think that was the number that you are projecting. So can you analyze what is happening in the current moment in light of the projections for the future?

Unidentified Company Representative

Just one moment please.

Osamu Hirokado

I'm Hirokado, Head of Finance and Accounts. The first quarter mobile ARPU before applying the discounts compared to on a year-over-year level was zero, flat. So we believe this is a solid development. The simple plan and Ultra Pack, due to these impacts, we have seen a slight decline, but the migration to smartphones is making a steady progress. On the other hand and Ultra Pack uptake has increased.

So the one gigabyte top-up was expected to come down, but this is not really the case, actually that's not really happening. The full year ARPU projection has not changed, but we believe we're making a steady progress in the first quarter so far. So, if things stays unchanged, because the universe is so large, this will have a positive impact on the revenues, I believe. So we'll keep an eye on this.

Daisaku Masuno

And also on the mobile, it's ¥910 discount, and so that's going to be ¥930. And looking at – do you think this is something that is being controlled? That's how I see it, but how do you analyze it so far?

Unidentified Company Representative

Please wait for a moment.

Osamu Hirokado

This is Hirokado from finance. So as for the impact of discount, so Monthly Support, this is something that, yes, we're able to keep a good control. And so again, this is another area where we do find a steady progress. So that would be all for my response.

Daisaku Masuno

Second question regarding expenses. This time around, depreciation and amortization compared to a year-on-year level, we have seen a reduction, which is a rare case. We haven't really seen that in the past. And also the communication network charges, because of the increase of the optical fiber service – cost of optical fiber service, you have been able to suppress the growth of communication network charges. So network-related depreciation and, perhaps, the efficiency improvement of communication network charges have been great. Is that correct? Is that a correct understanding? Can you analyze this – on this point?

Hozumi Tamura

Yes. My name is Tamura, head of Network division. You're correct. As far as CapEx is concerned, we have been able to make an efficient utilization of CapEx and for the telecommunications network charges compared to 3G and 4G, we have integrated the base stations and thereby improved efficiency. So therefore, the costs have come down in an efficient manner.

Daisaku Masuno

As for the profit or increase or in terms of the operating revenue increase, optic fiber is where we're finding growth. Now I'm not exactly sure how this is going to grow on an annual basis. I guess, the figures are included in the cost efficiency part. But can you analyze on this a little more? So after COGS, do you think you'd be able to find some scale advantage?

Hiroshi Tsujigami

This is Tsujigami. So I look after the marketing and sales. So this is something I would also like to answer for docomo Hikari. So we have been able to turn profitable year-over-year. This is something that I presented earlier. But like you pointed out, we have been able to increase the subscription, the stock. The net additions, as a matter of fact, is decreasing. However, we have been able to control the churn. So stock is increasing at the moment. And net additions or how much we've been able to acquire, again, is going down and some of the application or opening of the line, those works around that. We have been able to do this in a more efficient manner, but the collaboration between NTT East and West is increasing year by year. And so some of the costs that we used to incur came before we'd be able to see the contribution of net addition. However, now we're seeing a better result in terms of profit at the moment. So that would be all for my response.

Daisaku Masuno

Okay, thank you, that is all from my self.

Operator

Next is from Mitsubishi UFJ Morgan Stanley, Mr. Tanaka. Can you begin your question please.

Hideaki Tanaka

All right, just briefly. I have four questions. First of all, thank you very much for the clarification anyway beforehand. So on Page 2, Smart Life business. You mentioned that, you talked about Radishbo-ya's business transfer. And in the first quarter of last fiscal year, Radishbo-ya P&L impact, how sizable was it? Actually, what was the impact of removing out Radishbo-ya from your consolidation, I think, in terms of profits or losses? Can you quantify that?

Unidentified Company Representative

In terms of revenue sales, about ¥5 billion. But profit, the impact was negligible.

Hideaki Tanaka

So in other words, this time around, basically that ¥5 billion operating revenue, you will not see it anymore, but you still will be able to make it up for that from other business. And so that is why there's going to be all in all, you're going to have a contribution overall?

Unidentified Company Representative

Yes. So we are finding increase in operating revenue and profit.

Hideaki Tanaka

Now what – can you elaborate, or can you give us a little more break down of what contributed more in terms of the operating profit?

Kenichi Mori

Yes. So this is Mori from Smart Life business. So what contributed to the operating profit is really about finance and payment. So that's one area. This is about number of d CARD transaction amount increased, and we've been able to do a lot of promotional activities, and it all worked well. At the same time, anything around a piece of mind related services, which is also making a steady growth.

So, the migration from a feature phone to a smartphone, and that has increased the number of subscriptions for this peace of mind type of package. And also, some of the refurbishment is also making some cost efficiency, and that is why we're seeing a better profit base. As for the enterprise solutions, this is also an area where we're finding steady growth year-over-year, and that again contributed in increasing the Smart Life business profit.

Hideaki Tanaka

This impact actually, is this included in other business? Or does it have a major impact on the enterprise business?

Unidentified Company Representative

That is correct, yes.

Hideaki Tanaka

On an extended note on Page 10, you gave us a breakdown of the operating profits. So altogether, they account for 80%. So can you just give us a breakdown of that, again total 100%? So the remainder is the lifestyle and enterprise solution, if you combine them, that EBITDA will account for the remaining 20%, you don't break that down even further, don't you? So 10% each, enterprise and also the lifestyle?

Unidentified Company Representative

The enterprise solutions 15% and lifestyle 5% that's the breakdown.

Hideaki Tanaka

My second question. So this time around, I'm looking at Page 12, this is about d POINTs used. So you want to have your members use more d POINTs, and this is correlated to the satisfaction amongst the users. But this 24.7 billion growing to 41.3 billion points now. So when someone outside look at this, how are we to analyze? I mean, would you have any advice for people outside DOCOMO about how we're supposed to be analyzing this figure?

Unidentified Company Representative

Yes. So can you elaborate your question?

Hideaki Tanaka

Yes. So you've been able to disclose this value 24.7 billion to 41.3 billion, but what's the implication behind that?

Unidentified Company Representative

So again, this is increasing. So from the users perspective, they'll be able to save the points, but that's not it. They'll be able to find more areas where they'll be able to use d POINTs, which contributes to their satisfaction. And especially, d POINT partners, we disclosed a number of partners. So within the d POINTs usage, it's already 44%, that's the amount being used at d POINT partners. Previously, whenever the users made some upgrade of their handset, that's where they use d POINTs. However, it's different now. It seems like users are now – subscribers are using their points at partners, and I think that also shows the appeal attractiveness of the d POINT services that we offer.

Hideaki Tanaka

Okay. So lastly – my last question, on Page 15, Declaration number 5, regarding a partnership with local governments and municipalities. Actually, SoftBank recently have entered into this kind of similar partnerships or agreements, that's what we read from the newspaper articles and so forth. But on the field level, what kind of competition are there with those your competitors? And when you have actually concluded these agreements, is it possible to have an exclusive arrangement? Some color to that.

Kouji Furukawa

I'm Furukawa, responsible for corporate sales and marketing. Regarding your question, there are some sensitivity that will make us difficult to give you the straightforward answer. So Declaration number 5 is about how to collaborate and cooperate for the regional revitalization. So rather than trying to secure the turf, it's about trying to accommodate the request of the local governments and how to provide solution, leveraging ICT and the software problems.

That's the approach that we are taking to pursue this kind of opportunities. So whenever there is a request from local governments and through our day-to-day sales activities, we try to find out the challenges or the issues they face. So it's not about the competition for a turf, if you will. It's not that we are aware of the competitors. So I think the nature is somewhat different. That's how we approach this business.

Hideaki Tanaka

Okay, understood very well. Thank you.

Unidentified Company Representative

Mr. Tanaka, did we answer to your question?

Hideaki Tanaka

Yes.

Unidentified Company Representative

We’d like to take next question.

Operator

Next question comes from Mr. Matsuhashi from Goldman Sachs.

Ikuo Matsuhashi

This is Matsuhashi from Goldman Sachs. I guess, it's my turn.

Unidentified Company Representative

Yes, it is.

Ikuo Matsuhashi

I have three questions. First – my first question. So again, the actuals for this first quarter compared to your annual target, what is the condition or how do you see your first quarter result versus your annual target? So annual, you're expecting a flat growth in your operating profit, but you've been able to refine growth in the first quarter. So am I supposed to take this as in line with your plan? I'm not exactly comfortable in taking that way, but can you elaborate a little more?

Hiroshi Tsujigami

Yes. This is Tsujigami. So as we have been discussing, we have been working on cost efficiency. This is something we have been continuously doing. And anything around docomo Hikari, the revenue is doing well. Smart Life is making steady growth. So we are making steady growth, at least we have been able to have a very smooth start of the fiscal year. As we look ahead, any – customer returns is something that we certainly would want to accumulate. And in order to materialize Declaration beyond, we need to make sure we have advanced investment. So for the annual result or forecast, it's not like we are being really optimistic at the moment for the full year.

Ikuo Matsuhashi

Okay. Then towards the second half of the year, you're saying that in order to improve the customer satisfaction, you have to anticipate larger costs. And also, in order to alleviate the subsequent-year impact, you are going to implement some additional measures. Is that the right understanding?

Unidentified Company Representative

Yes. Rather than the alleviation of the future impact, actually this fiscal year, we are going to make investments, sowing the seeds for the future growth. That is what we have been stating from some time already. And therefore going forward from now onwards, we would like to work together with various partners, developing new businesses. So we need more investments. So in that regard, of course, the full year target, the delivery of full year target is something that we must do by all means. But the first quarter was favorable, but it doesn't mean that we are complacent that we can achieve a significant upside. There are so many unknown things that we have to keep a close eye on.

Ikuo Matsuhashi

My second question is related to my earlier question. So if you look at how operating profit goes, so anything about docomo Hikari, there's going to be an increase and other network-related costs is also going to be increasing. So if you look at the wholesale, I do not think there's going to be large marginal profit expected, or I'm not exactly sure my understanding is correct, to begin with. But perhaps aside from optical fiber, there might be some initiatives to – factors to reduce down the cost. Did you find anything like that in the first quarter? If you have, can you elaborate on that?

Unidentified Company Representative

Yes. So you've heard from Mr. Tamura explain earlier and it's really exactly what he said about optical fiber, the wholesale, the structure. And of course, our docomo Hikari subscription itself is increasing, and so the payment or the cost paid to NTT East and West is, of course, increasing. So it's not like refining the wholesale payment or the costs were being reduced all of a sudden.

So in a sense, what you just said is correct, but anything around network-related COG – expense. So other than the costs that we paid to NTT East or West in regards to optic fiber, so, for example, anything around depreciation, amortization, any costs around communication network services, we also have to look at that. But we do find our cost efficiency activities are showing some contribution.

Ikuo Matsuhashi

My last question, the third point. As of today, Rakuten's roaming arrangement is not announced by yourself at this moment so far. So let me just confirm some points here. If you are going to have any sort of agreement with Rakuten, just like the similar precedents in the past, you are making announcement, is that correct? Can we expect some announcement from you? And as of this point of time, to the extent possible, can you comment on the progress with respect to the roaming arrangement with Rakuten?

Seiji Maruyama

This is Maruyama, the Head of Corporate Strategy and Planning. Regarding the discussion with Rakuten, because this is an issue – a bilateral negotiation, and we cannot comment on any details pertaining to whether we have a negotiation in place or not. The basic stance remains unchanged. Rakuten has decided to enter this space as an MNO, network operator. So they have the responsibility to build their own network and facilities, and that is I think the essential mission that they have to fulfill. So we would like to respond on a case-by-case basis. Whether to go for roaming arrangements or not, this is going to be discussed on a business basis. That's all. Thank you.

Ikuo Matsuhashi

Thank you.

Unidentified Company Representative

Thank you. We’d like to take next question.

Operator

Next question comes from Mr. Tsuruo from Citigroup.

Mitsunobu Tsuruo

Yes, this is Tsuruo from Citigroup. So I guess, this is my turn now?

Unidentified Company Representative

Yes, it is. Mr. Tsuruo, please.

Mitsunobu Tsuruo

So I'd like to be brief. My first question is just like a housekeeping question. So can you explain how – subsequent-year impact, did it go down? And can you share us your thoughts behind that, behind this reduction?

Osamu Hirokado

This is Hirokado. So it's not that we manage numbers that way. In other words, the subsequent-year reduction, we don't keep track of this, as you said. But the cost, the key factors is exactly what you find in the presentation, it's ¥38 billion – or ¥34 billion. So it is in line with our plan. Overall, our operating expense, we have been able to control this.

Mitsunobu Tsuruo

Okay. Then my second question regarding cost efficiency improvement, I think you're making progress at a very favorable pace. At the end of the day, on a full year basis, cost efficiency improvement, is there any potential for achieving upside higher than expected? If that is the case, will that be translated into cost? Or is this going to be used for additional promotion because Rakuten is going to enter this market? So are you going to use it for promotion or other sales activity?

Hiroshi Tsujigami

This is Tsujigami. Compared to last fiscal year, we are expecting ¥120 billion in cost efficiency improvement this fiscal year. So this is an ongoing effort, and we have been able to materialize this number as a result of our cost efficiency improvement on an ongoing basis, but we are building out many tiny things to achieve this. So first of all, we would like to aim for this, the delivery of our full year target. That's all I can say at the moment.

Mitsunobu Tsuruo

All right. My third question is on CapEx. So you're I'm sure looking at 5G initiatives, but there must be some related activities and I do believe that Mr. Yoshizawa, the CEO, has mentioned that by 2020 spring, you'd like to start 5G service. He made an official announcement. And so at the moment, what's your CapEx plan? You're trying to deploy the 5G service in 2020 spring and where would that be? And what kind of a time line or schedules do you have in mind? If there is anything you'd be able to share with us, I very much appreciate.

Hozumi Tamura

This is Tamura, looking after the Network. So during the 3GPP standardization, we now look towards the 2020 Tokyo Olympic and Paralympics so that we be able to build infrastructure behind that. And the CapEx plan, at the moment, it's still being compiled, and so when we have it, we should be able to give you better numbers.

Mitsunobu Tsuruo

Okay, understood. That’s all from my side. Thank you.

Hozumi Tamura

Now next questioner, please.

Operator

The next question is from Mr. Ando of Daiwa Securities.

Yoshio Ando

Hello. This is Ando. Can you hear me well?

Unidentified Company Representative

Yes, I can hear you well.

Yoshio Ando

Well, first of all, I just would like to come back to the ARPU question. Two things relating to ARPU. As a baseline, I think as your full year guidance, ARPU is expected to come down slightly due to the reduction in mobile communications service revenues. That was the guidance that you have given us. But the first quarter, I think the trend is quite opposite, the trend is quite different. So that's what I thought as my impression. So that's the reason why I'm asking this question.

So the projection for the decline in ARPU, was it because of the customer return measures? I think that was the assumptions, but in the first quarter, the customer returns, I think – are you sure that your customer return measures are making favorable progress as planned? And the discounts, the impact of discounts, for example, docomo with, is it the uptake expanding at the same pace as before. Can you comment on these things first?

Unidentified Company Representative

As for the ARPU, the first quarter, as I mentioned earlier, we have seen a favorable progress in the ARPU for the first quarter. The basic plan uptake was anticipated. This was launched in May, so the basic plan. So the impact in the first quarter was negligible. User – this is the user plan, the plan for your users. And therefore, the users do not migrate to the new plans immediately.

So we see an increase in uptake in the second quarter, third quarter and fourth quarter going forward. Although we made – got off to a good start in the ARPU, because we got off to a good start, I think the trend is favorable for us. As for the impact of discounts applied, as you can see, this includes Monthly Support, docomo with program and the proportion of such impact is just in line with the plan for the first quarter.

Hiroshi Tsujigami

And this is Tsujigami. I would like to add some comments there. The basic plan is a plan to counter the local smartphones because for those customers who are attracted by local smartphones, we want to have them – keep them in DOCOMO so that they can continue to be long-term users of NTT DOCOMO. So the migration from feature phones to smartphones, the senior users, in particular. This is a very important point for us to keep in the competitive landscape.

So based on the actual usage behavior, we would like to set a proper price plan so that we can boost the customers' satisfaction. And we will drive the usage and then migrate them to the larger data bucket as a result of that. So we are now proposing the optimal data plan over the billing plan to the customers. So therefore, I believe the uptake will penetrate to a larger data – the user base going forward, and therefore, we have to anticipate a certain impact on the ARPU.

Yoshio Ando

My second question is about the subscribers. So Tsujigami, you talk about i-mode plus. And yes, I've been looking at that and sp-mode as well. Now in the fourth quarter last year, it turned to increase. But I guess, in this quarter, we – again we're finding some deceleration. Now in acquiring the subscribers, I know the churn rate has very much stabilized at the moment, that's very good. But the net additions, the trend behind that, can you elaborate a little more around that?

Hiroshi Tsujigami

Yes. This is Tsujigami. So again, this time around, just giving you the entire picture. The TCA-based net adds, net additions in the first quarter, that was 380,000. This is something that's already been disclosed, but module, that's 130,000. So it's really the module growth that contributed. But this year, without module – I mean, we do know that everyone have been able to acquire good net additions.

So the sales of the DOCOMO brand has been able to have a good growth otherwise, so we're finding good growth, but – MNP, so MNP here, it's the main brands, sub-brand of other peers all included. But compared with the first quarter last year, MNP, we're finding lots of outflows and inflows, it's being accelerated. In other words, there's tougher competition now. But in terms of the pure net growth, so this is about enterprise customers or individual, but we have been able to acquire new subscribers in total.

So that worked well. I-mode, sp-mode, you mentioned that it's decelerating, it is going down now. Now users who use our service – so it will be enterprise people who would be using other than i-mode or sp-mode. In other words, they'll be going through packet communications otherwise. And so that's the portion of the population we're finding an increase at the moment. And so that's why. So module excluding MVA is increasing. And so i-mode, sp-mode yes, it is going down a bit, but it doesn't mean we're finding a great change in the subscriber base.

Yoshio Ando

Thank you.

Hiroshi Tsujigami

Thank you. Now the next questioner, we’d like to take the question from next questioner.

Operator

The next question will be from Merrill Lynch Japan, Mr. Kinoshita. Please begin your question, Mr. Kinoshita.

Yoshiyuki Kinoshita

Hello. I am Kinoshita from Merrill Lynch.

Unidentified Company Representative

We can hear you.

Yoshiyuki Kinoshita

When you call the name, the name is inaudible, so that's the reason why people are finding anxiety whether we can ask the question. So I have three questions. Please answer to the extent possible. Regarding d POINT. Now you have disclosed the usage data, thank you very much for that. And I'm going to deep dive on that, so sorry about that. For d POINTs issuance, the points issued by the partners, what is the proportion of such d POINTs issued by your partners? Can you disclose that information or not?

Kenichi Mori

I am Mori from the Smart Life business division. We have that information available, but we do not disclose that. Please allow us not to comment on that.

Yoshiyuki Kinoshita

Next question, again, this is about Smart Life business. So on the breakdown of profit, you have been able to tell us. But compared to full years of last year, like 40%, 20%, 20%, and you've been able to give us the remaining that 15% and 5%. But practically speaking, all sections are growing at the same pace. Is that how we're supposed to take it? Because within Smart Life business and other business, if you look at the first quarter result, the growth of operating profit is like 16% or 17%, it's really similar.

However, like Smart Life within like, for example, content/commerce, finance/payment, lifestyle and you have enterprise solutions and also support service for customers' peace of mind, et cetera, are they growing at the same pace? Or within these, is there any part that's growing more than others? Or do you have any – do you find any potential with one of them?

Kenichi Mori

This is Mori from Smart Life business. So right. So how do we expect looking forward? So this is about finance/payment from d card, the society is turning cashless nowadays and it's going to be important that we make presence here. And so we do expect finance payment will grow stronger. On the other hand, for example, content/commerce, so content part. So the monthly subscription model, we do have a very large base, subscription base, and we want to make each users use more.

And it's really – it's not like we're trying to fix – secure more people, but – it's not like we're looking at a large population in that sense, but we're trying to make sure we be able to enhance the engagement of these users. For example, how much we'll be able to try charge among the users. And so the usage-based billing, how much we'll be able to increase, that's going to be the key in finding more growth for the content/commerce. Now within the entire Smart Life business, that's how we look at it.

But lifestyle, support, of course, this is an area where we want to work more. It's not like we're going to find dramatic growth immediately, but we want to make sure we'll be able to have a steady growth. For enterprise solutions, it's from now that we can expect growth. Please hold expectation – please look forward for what we'll be able to do with enterprise solutions.

Yoshiyuki Kinoshita

So at the moment, within the Smart Life business, the finance and payment is the driver, and we can expect more going forward, that's correct? And for other businesses, the support services for customers' peace of mind is growing steadily and enterprise solutions have great potential. Is that the right understanding?

Kenichi Mori

Yes, that's correct. I think your interpretation is correct.

Yoshiyuki Kinoshita

Now regarding the capital expenditures for 5G services, when you start acquiring the licenses going forward, in five years' time after the launch of service, what kind of coverage are you aiming for? Do you have any image like that? Or do you have any plan like that? And can you share that with us? Please – if possible, please share that information with us.

Unidentified Company Representative

Regarding the network rollout plan, the details will be finalized going forward. So we cannot comment on the details at this point of time.

Yoshiyuki Kinoshita

My final question. So again, as we look at the ARPU looking forward, there's something I would like to know. So Y!mobile yesterday said about they offering some service or iPhone, simple iPhone for I don't know if it's for senior citizens to appeal to the feature phone users. And it seems like the package there is really for light users. So that's the price package that they were announcing. And would you be launching any counter initiatives?

Hiroshi Tsujigami

This is Tsujigami. So again, the migration from feature phone to smartphones, this is obviously what each carriers are focusing on. So I guess that's why we're finding something coming from Y!mobile. It just came out, so we have yet to analyze before we'd be able to decide how we're supposed to cope with this. So like smartphone and being able to offer through DOCOMO with or anything around simple or basic plan, we have this assortments of services and packages, so it's not like this is going to be a threat.

Unidentified Company Representative

Well, it's about time to finish the meeting. So we would like to take one final question from the last questioner.

Operator

The last questioner will be from Morgan Stanley MUFG Securities, Mr. Tsusaka.

Tetsuro Tsusaka

Hello, this is Tsusaka. Can you hear me okay?

Unidentified Company Representative

Yes, we hear you very well.

Tetsuro Tsusaka

I just got one question. This is a question that was repeated by my previous questioners already. Regarding the revenues, I think you are making a favorable progress so far. And on the expense side, you have achieved great achievement in improving the efficiencies. So both on the revenue side and also the cost side, you are making a positive development that will have a positive impact on the profits, that is the current situation. So – and you are now sowing the seeds for the future growth, that's what you mentioned.

NTT Group or other companies that has a large customer base like you, when you have – this is a unique thing for those services that offers – that is offered to a large customer base. When the revenues are generated in a favorable fashion, I think it seems that you are able to generate profits that can – that goes beyond your ability to offer the services to customers. So if anything happens, that will positively affect your profits. In your company, do you have the sufficient number of human resources to invest for you to sow the seeds for the future? Do you have the sufficient resources to do that? I just wanted to confirm on that point.

Unidentified Company Representative

What is sufficient is a very difficult point to define. So we cannot really say confidently that we have sufficient resources. But in that regard, previously, traditionally, we were a telecom-dedicated operator and we were combating within our own respective field. But going forward, we will have to partner with outside players, and we have to bring in capability that is not available with us through the collaboration with external partners. Or in some cases, we may have to acquire such assets from outside.

That's what we have to do. And we are aware of that need. So in terms of staff or human resources or other know-how, we have to secure them properly and accumulate them properly. Maybe I didn't answer to your question as appropriate, but that's all for myself.

Tetsuro Tsusaka

On a follow-up note, let me – so today, for example, KDDI, we heard that they've announced they're making a very large investment, capital alliance as well. But in DOCOMO, like major capital alliance or any acquisition that requires large investment, we haven't heard much from DOCOMO recently. So I guess KDDI wants to secure M&A budget for like ¥700 billion. But when you say about sowing seeds for future growth, making some investment for future, what is it that you specifically mean? What is it that you mean by sowing the seeds for future growth? Can you define that for me?

Unidentified Company Representative

So definition you've asked. But we already look well beyond 2020. And so anything around consumers or partnership with enterprises, that's exactly what we look in trying to grow our business foundation, at the same time tapping into new fields, that exactly what we're trying to envision in the midterm strategy. And so 5G, IoT, we're trying to invest to develop new technologies there. And also the subscription-based business, creating the membership-based new platforms. This is something that we're really going to be working on and how to utilize AI to make efficiency, put efficiency in our operations, but at the same time, tapping into new business.

That's everything is what we're trying to do. That means, we will need to make some sizable advanced investment. It's not just about capital expenditure, but we will need to make some, well, future-looking investment. It's really about sowing seeds for our future. So from looking at the size, may not seem like a large project, but we are working to secure lots of resources. That's what we are working on at the moment, but it's not that we'd be able to make some formal announcement today. So that's all. Thank you.

Tetsuro Tsusaka

Okay, thank you. So a moderate size new transformation is what I’d like to hear from you shortly.

Unidentified Company Representative

All right, thank you very much.

Kazuhiro Yoshizawa

Thank you very much for your precious inputs and comments. We appreciate that – we would love to entertain more questions, but we are sorry, we have run out of the time already. So with this, we would like to finish the first quarter results presentation for the fiscal year ending March 2019 by NTT DOCOMO. Once again, thank you very much for your participation today.