Q&A for 3Q of FY2016.3

For the past three years we have worked toward our goals of improved business performance (a double-digit increase in operating income) and a dividend payout ratio of over 30%. We hope to announce a new capital policy in the next medium-term plan to be announced in the financial results for the current term, so we kindly ask you to wait. The current purchase of own shares is in response to the wishes of KYOCERA, and part of the 50 billion yen is assumed to be for the purchase of shares from the market. We have announced the current buyback, but as for the rest, we ask you to wait for the financial results announcement.

With regard to the cost increase in the Personal Services segment, as you know, with the intense competition in MNP acquisition, sales incentives in the third quarter have risen 14 billion yen over the same period last year. However, even amid fiercer competition, our operations are proceeding well and the monthly discount has fallen dramatically compared with the same period last year.
In the Global Services segment, price competition has intensified in Myanmar and there has been a decline in dealings by DMX, resulting in a fall in income and profit. The decline in revenue compared with the second quarter was affected by the weak kyat from July to September 2015, which is the consolidated accounting period for business in Myanmar, and the partial sale of KDDI America's calling card business. In future, we see the disappearance of temporary factors that contribute to a decline in revenue such as DMX, and continued revenue growth from business in Myanmar where the kyat has stopped falling.

The cause was heightened liquidity due to the fact that the third quarter is the selling season for specific models and that, following discussions held by the Task Force on mobile phone rates and other provision conditions, customers were motivated to purchase a phone before the regulations came into effect. Churns due to switching over to MVNOs are also steadily increasing. In future, we believe we can reduce the churn rate with au Smart Value and au Denki (electricity service,) which are proving effective in this area.

It will be quite tough to achieve the term forecast for value-added ARPA of 500 yen. au Smart Pass is doing well and has exceeded the plan. The churn rate is less than 1% and the total number of members is on the rise. On the other hand, sales of Video Pass and other pass services (online up-selling services) are being carefully promoted, so the impact on value-added ARPA is diminishing. In future, as well as continuing to expand our pass services, we aim to devote our efforts to au WALLET Market and other commerce services.
In addition, our Value Services segment is often compared with NTT DOCOMO's Smart Life domains, but NTT DOCOMO's Smart Life business and other businesses include module services and other services so the two are not comparable on the same level. Smart Life business corresponds to our Value Services segment, but in terms of profit level, it comes out on top. We will bear that in mind in our efforts to grow value-added ARPA in future.

There are two factors. One is that au ARPU has shifted from a flat trend to an upward trend. The other is that, with strong sales of routers and tablets, the number of mobile devices per person is high vis-à-vis the plan and is expected to continue so.

Data is the cause. The selection rate for 5GB or over with Kakeho and Dejira*1 (including Super Kakeho*2) is rising and the fact that the monthly discount is controlled is a plus factor contributing to the upward trend. The impact on voice ARPU of the unlimited free call plan has leveled off and the shift to smartphones by the introduction of Super Kakeho is progressing. These factors have also contributed to the rise in au ARPU and we see this as a favorable trend in the coming term.

• *1

  Unlimited free call and flat-rate data plan

• *2

  Unlimited free domestic calls for the five minutes or less per call

The measures we have taken this term toward further growth (au WALLET/au WALLET Market/au Denki) are ready to be expanded in future. We believe a vertical start-up will be difficult, so we are making thorough preparations this term, and next term we aim to expand our growth in new domains in addition to organic growth.

Following on from the third quarter, many sales incentives were implemented in January, but these are expected to diminish in February and March, so we expect a slight rise in profit in the fourth quarter. We hope to achieve the double-digit growth to which we are committed. As of the present time, I cannot comment on the next term; we will discuss it in the future.

That is so.

We are participating in JSC in the sense of participating in J:COM growth, coupled with a view to maximizing our commerce business by drawing in au customers. KDDI has bought out LUXA and launched au WALLET Market, but not on any sort of scale that could compare with Rakuten or Yahoo. This area needs to be boosted in future, but it will not be on the same level as investment in JSC. In the area of finance, we have also started banking, life insurance and non-life insurance services. Jibun Bank offers housing loans at low interest rates, and we are reviewing how to make it easier for customers to understand.

We are working toward growth by IDs x ARPU, so even if temporarily there are preceding costs, there is no problem so long as we can recover the costs by ARPU after acquisition. We are working hard to maintain the momentum.

We are committed to building ID expansion on top of au ARPU/ARPA expansion. Please wait two or three years.

As far as downlink speed is concerned, we are confident that we provide the best quality in the business. The reason our uplink speed comes out lower is that, with WiMAX 2+ (TD-LTE), the frequency distribution is set at 3:1 downlink-to-uplink and the uplink speed is not compatible with carrier aggregation. Customer traffic is 10:1 downlink-to-uplink and the bandwidth is designed based on actual customer usage, so in actual use there is no problem and the speed is equal to customer needs.

Yes, we are.