Main Q&A (Analyst Meeting after the Results for FY2018/3Q) Questioner No. 1 Q1 I believe bundling of services will become increasingly important for the reduction of churns going forward. DOCOMO bundles "docomo Hikari," "dTV" and various other services in finance and other domains. Among those offerings, which service is most effective for customer retention? Please also let us know if you perform churn rate analysis for the services you offer and make investment decisions based on the results of analysis? A1 The mobile churn rate of subscribers who have joined "docomo Hikari" or "d CARD" is lower than the overall average. "Share Pack" has also turned out to be effective for churn reduction. Specifically, the mobile churn rate of "docomo Hikari" and "d CARD" users is approximately half the overall average, while that of "d CARD GOLD" members is even lower at 1/4 of average. Q2 "d CARD" seems to be a very powerful product, but the competition in this space has also intensified. Have you witnessed any changes? A2 The competition in the credit card business is certainly severe, but we have been able to grow our membership at a favorable pace. Questioner No. 2 Q1 Can you elaborate on the content and size of the measures, if any, that are expected to absorb the negative impact of customer returns to be provided through the new rate plans? On a related note, can you also share with us the drivers behind the growth of operating profit of Smart life and Other businesses in FY2018/3Q? A1 First, as an initiative in our mobile telecommunications business, we will continually work to facilitate subscriber migration from feature phones to smartphones even after the launch of the new rate structure. Second, we will pursue new growth in the non-telecommunications domain, i.e., Smart life and Other businesses. Third, we will seek cost reduction in both telecommunications and non-telecommunications businesses. The drivers behind the operating profit growth in Smart life and Other businesses include the profit expansion of credit card and other financial services as well as the Mobile Device Protection Service classified under Other businesses. The revenues from Mobile Device Protection Service has been expanding due to subscriber growth, while the number of insurance claims has been declining owing to reduced handset damages resulting from improved stability in handset performance as well as recommendation/promotion of use of smartphone cases at docomo Shops. In terms of the absolute amount of profit generated by Other businesses, Oak Lawn Marketing and enterprise solutions have made tangible contributions. However, the Mobile Device Protection Service has been the largest contributor in terms of profit margin. Q2 The operating profit of Smart life and Other businesses for the first three quarters amounted to 134.8 billion yen as a result of achieving a growth of slightly less than 50 billion yen in FY2018/3Q from 86 billion yen in FY2018/1H. Because there appears to be no special factors according to the explanation you just provided, if we set aside the cost increase projected for FY2018/4Q, will it be correct to assess that profit generation from Smart life and Other businesses is generally gaining momentum? A2 That is correct, and the biggest growth driver, as I mentioned earlier, is the Mobile Device Protection Service. Q3 Regarding the three points you mentioned earlier, how do you think these factors will contribute to boost profit in the next fiscal year and beyond? A3 The growth of Mobile Device Protection Service subscriptions has begun to level off and the number of insurance claims may increase going forward given the projected hike in device retail price from next fiscal year. We thus do not expect so much profit growth from the device protection service but rather have higher expectations for other services.
Q4 I do not think your subscriber migration efforts will produce results anytime soon, but what are your expectations for the cost-cutting initiatives? A4 We will tackle cost reduction on an ongoing basis. We set a sizable cost reduction target of 120 billion yen for the current fiscal year. At this juncture, we cannot give you a definitive guidance as to whether we can execute a comparable size of cost reduction in the next fiscal year, but we would like to pursue a similar amount of reduction to the extent possible. Q5 When you announced the results for FY2018/1H, you mentioned that you will accelerate shareholder returns. Were you alluding to the most recent 600 billion-yen share repurchase from your parent NTT, or did you have anything else in your mind when you made that statement? A5 That particular comment referred to our medium-term ambition, and the latest round of share repurchase is not the end of our journey. We will continually look into the possibility of both dividend increase and share repurchase. Both tender offer and open market purchase have their own merits and demerits. This time around, we carried out our program through tender offer, but we will consider combining the two approaches for our future repurchases. Q6 Please explain your dividend policy for the next fiscal year. Can we expect that you will aim for sustained dividend increase? A6 We cannot make a definitive commitment on a dividend increase for the next fiscal year, but as you rightly pointed out, we will aim for a sustained increase of dividends. Although we plan to lower our rates during the next fiscal year, we expect to receive proceeds from the planned sale of our stake in Sumitomo Mitsui Card Company, which will allow us to secure free cash flow comparable to this year unless something very unusual happens. This will provide us with sufficient capacity to execute both dividend increase and share repurchase. Questioner No. 3 Q1 You explained that you have already spent 50 billion yen out of the total 80 billion-yen budget for new growth investment for FY2018 in the first three quarters. Can you comment on the quarterly breakdown of the 50 billion yen and the details concerning the destination of the investment. Are you planning to continue investments for new growth in the next fiscal year as well? Also, do you expect the 80 billion-yen investment made during this fiscal year will begin to bear fruit as early as next year? A1 To give you a breakdown on the investments made in the first three quarters of the year, we spent approximately 20 billion yen for 5G-related investments, approximately 20 billion yen for FinTech, video and AI-related services, and 10 billion yen for reinforcement of our customer channels, e.g., omni-channel development and smartphone classes, etc. We believe these investments can be recovered once 5G takes off and use of FinTech and other services proliferate. We are currently contemplating a comparable investment budget for the next fiscal year. At this point of time, we cannot predict how much of the 80 billion-yen investment made during the current fiscal year can be recovered in the next fiscal year. Questioner No. 4 Q1 The spectrum allocation for 5G is scheduled in the spring of 2019. Do you think there will be a crucial difference between the cases of being able to receive two slots or just one slot in the sub-6 radio frequency bands (3.7GHz and 4.5GHz)? Is it right to assume that DOCOMO is very eager to receive the allocation of two slots? A1 Altogether six slots (each with a bandwidth of 100MHz) are planned for allocation in the sub- 6 bands. I interpreted that your question was about the spectrum acquisition strategy of each carrier. The actual number of 5G users is projected to be insignificant in the early stage immediately after the service launch, but it will gradually increase over time. In addition, DOCOMO accommodates a larger number of users in the same amount of spectrum compared to the competition, so we would like to receive as much spectrum as possible. Q2 You developed a plan to spend 1 trillion yen for 5G over a period of five years. Do you have any plans to invest aggressively to provide 5G connectivity in rural areas from early on?
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