KDDI HOMECorporate InformationInvestor RelationsIR DocumentsPresentationsFY 2021.3Performance Highlights and Q&A for the First Half of the Fiscal Year Ending March 2021

Performance Highlights and Q&A for the First Half of the Fiscal Year Ending March 2021

Date October 30, 2020 (Fri), 5:30 - 6:30 PM
Location KDDI Hall (Otemachi)
Respondents Makoto Takahashi, President; Takashi Shoji, Executive Vice President; Shinichi Muramoto, Executive Vice President; Keiichi Mori, Senior Managing Executive Officer; Kazuyuki Yoshimura, Executive Director, Technology Sector; Nanae Saishouji, Executive Officer, General Manager, Corporate Management Division; Ikuko Hongou, General Manager, Investor Relations Department (MC)

Performance Highlights

The Presentation of the Financial Results

At the financial results meeting, President Takahashi described four points: "5G for Everyone," "Multi-Brand Strategy," "KDDI Accelerate 5.0," and "Aiming to Expand Growth Fields and Achieve Medium-Term Targets."

1. 5G for Everyone

As announced previously, au will roll out a broad lineup ranging from high-end to middle-range models, with all models supporting 5G. A new 5G-compatible iPhone has also launched, showing steady sales.
au will accelerate area expansion for 5G, utilizing existing frequencies. About 10,000 5G stations are to be opened by March 2021, and about 50,000 by March 2022, aiming to cover 90% of the entire population. Furthermore, all 47 prefectures are scheduled to be covered by the end of December 2020. In terms of frequencies, we want to expand into the new 28GHz, 3.7GHz and 4.0GHz bands with extremely high frequencies, and achieve 5G capability with 700MHz, 1.7GHz and other existing bands as soon as possible, to expand our area.
As for pricing plans, we have expanded the unlimited data plan for users to fully enjoy 5G. With Data MAX 5G as a base, we have bundled services like the Netflix Pack, Television Pack and ALL STAR Pack. We will also launch the Students Discount, expanding eligibility to customers 29 years old or under as the bundled services are popular with this age group.
We will also promote the au 5G Experience, realized by the strength of unlimited data plans and a wide 5G area. The new 5G iPhone carries a feature that automatically identifies if it is in a 5G area. For example, customers on an unlimited data plan can enjoy new value as their handsets automatically switch to full HD in a 5G area.

2. Multi-Brand Strategy

The Multi-Brand Strategy involves the entire Group working to meet a wide range of customer needs. The au brand will offer 5G-based unlimited data services for additional comfort. UQ mobile will serve as a simple and affordable brand with a new 20GB plan, and BIGLOBE mobile, J:COM MOBILE and the DX new brand will offer unique services. We have diverse price plans to accommodate diverse customer needs.
UQ mobile will offer price plans with high quality services that are comparable to international price levels. The 20GB SUMAHO Plan V will be 3,980 yen, and bundled with a call option it will be 4,480 yen with up to 60 minutes of calls. This is equivalent to New York and Seoul that offer similar plans with high quality like Japan.
The new DX brand will offer a new UX for digital natives. Together with Singapore-based Circles Life, it will have simpler and faster procedures, it will be fully online using eSIMs, and customers can customize fees as they like. In November 2020 a new MVNO company KDDI Digital Life will be established. The brand name will be announced at a later date.
To summarize the multi-brand strategy, we will enhance our ID base and promote further up-selling. First, using au, UQ mobile and the Group MVNO, we will prevent au users from flowing to non-Group providers. Second, we will acquire new users by offering an attractive lineup from each brand. Third, we will enhance up-selling from UQ mobile and the Group MVNO to au, enhancing ARPU as a group. Since the UQ mobile integration in October, up-selling from UQ mobile to au has been successful, over 3.5 times during a two-week period in October year on year.

3. KDDI Accelerate 5.0

Aiming to realize Society 5.0, we set up KDDI Accelerate 5.0 for 2030 and released it in August. Society 5.0 is an initiative that aims for a sustainable society as proposed by the government, and it seeks to achieve an enriched society by merging physical society with virtual space. It aims to bring a circulated society by collecting data in physical space, analyzing it in cyber space with AI, and then feeding the results back to the physical space to improve it. We consider 5G to constitute the foundation for this idea, and KDDI Accelerate 5.0 embodies a message to accelerate Society 5.0 with the power of 5G. To accelerate Society 5.0 through 7 technologies and 3 layers centering on 5G, we are pursuing research with KDDI Research. We have launched and will engage in a joint research project with prominent overseas universities and researchers in the fields of AI and wireless communication.
In initiatives for KDDI Accelerate 5.0 we have launched the KDDI 5G Business Co-Creating Alliance with partnered companies to drive DX in the 5G era. We will also link 3 sites in the Toranomon area to bring new business development. These sites are the corporate sales division to support clients' DX, KDDI DIGITAL GATE which is our business development hub, and in December we will open the KDDI research atelier which will engage in applied research and development. These three locations will work together to pursue DX.
In the business and capital alliance with Toyota announced today, we will strengthen our partnership for a society where towns, homes, people and cars are all connected. Up until now we were partnering to offer connected car services at home and abroad, but now we are going to develop this further and launch new initiatives that go beyond the "mobility" and "telecommunications." Together, we will work on R&D for a telecommunication platform, operational and management systems for next-generation connected cars, services and platforms that pursue safety and security, and in solving social issues with big data.

4. Expanding Growth Fields and Achieving Medium-Term Goals

In the first half of the fiscal year's consolidated sales, operating revenue was 2,537.2 billion yen, down 1.1% year on year. This was affected by a drop in device sales but we will strengthen sales toward the second half of the year, centering on 5G. Meanwhile, the second quarter saw expansion in the Life Design Domain and Business Services Segment, both growth fields.
Operating income was 588.8 billion yen, up 6.4% year on year driven by growth fields. We will aim to expand the growth fields to achieve the medium-term management plan targets.
Consolidated operating income in the first half of the fiscal year was up 35.4 billion yen year on year, largely due to the growth fields (the Life Design Domain and Business Services Segment) accounting for 30.9 billion yen. In the Personal Services Segment, mobile telecommunication revenue from au and the Group MVNO dropped below that of the previous year. In "Others," income was up 6 billion yen due to temporary effects such as the lower au device sales cost and lower gross profit from device sales. We will strengthen our activities toward the next term and aim to meet the original forecast by expanding growth fields to cancel out the effects of lowered telecommunication fees.
In the growth fields that underpin consolidated performance, the operating revenue of the Life Design Domain was 603 billion yen in the first half of the year, up 46.7%, and 476.2 billion yen in the Business Services Segment, up 50.1%. Both are progressing steadily toward meeting the medium-term management plan targets.
As for shareholder returns, we have resolved to repurchase up to 200 billion yen of our own shares.
We will aim to achieve the medium-term targets by pursuing 5G and growth fields.

Questioner 1

  • QIn the three months of the second quarter, the operating profit from the Life Design Domain was 60 billion yen, a significant leap from 48 billion yen from the second quarter of the previous fiscal year. What pushed up the profit? And please explain future prospects, citing concrete examples in services.

    The energy business was a significant contributor. More customers are using it, resulting in more revenue and income. Our added-value service au Smart Pass is also growing. Members of au Smart Pass Premium account for 67% of au Smart Pass members, up 12 points year on year, which is another contributing factor. Furthermore, transaction volume of settlement/loan reached over 4 trillion yen in the first half of the fiscal year. Repair and warranty services are also growing. In this way, almost all services are growing.
    With respect to future prospects, we would like to maintain in the second half of the year these good results from the first half. The targets set at the beginning of the fiscal year are most likely easy to achieve.

  • QUQ mobile has announced a 20GB plan but the stock market is concerned about further push from the government. President Takahashi, can you please comment on this issue?

    The Ministry of Internal Affairs and Communications has released an action plan, which states the prices should be level with those abroad. I thought for some time about how to meet the action plan. I considered that it would be difficult to cater to diverse customers with just one brand, and I opted for a multi-brand strategy instead of taking a main and sub brand strategy. The au brand will specialize in 5G with unlimited data usage, and will also be bundled with more services. Meanwhile, UQ mobile is simple and easy to understand. That is why I reached the conclusion that it is best to create a plan that matches international standards with UQ mobile. Customers look at UQ mobile positively because the plans are very easy to understand at 1,980 yen and 2,980 yen, and this was another reason why I decided to use UQ mobile here.
    With respect to developments after we announced the price plans, I watched the press conference by the Minister of Internal Affairs and Communications and felt that our prices announced ahead of others were seen positively. The minister also commented that providers had gone to great lengths to offer a whole range of prices, similar to Adjust Plans and MVNO with KDDI, and that this offers a chance for users to reevaluate their plan. I feel our plans have been accepted this time and are suitable with respect to global standards as well.
    I can understand that customers may be concerned about NTT Docomo's plans because NTT Docomo is in the middle of a TOB and it is uncertain what steps the company will take. However, in my own opinion, NTT Docomo's pricing strategy and KDDI's strategy are two different things, unlike how the situation was before. We offer a wide range of prices to diverse customers under a different strategy from NTT Docomo. So, even if NTT Docomo launches a 20GB plan from its main brand we will not instantly follow in their footsteps with au. Right now it is not just about prices, so we should pay attention to every aspect and be ready.

Questioner 2

  • QI would like to talk about the impact of the 20GB plan. I believe there are two main points here: not all au customers need unlimited plans so some au customers will switch to it, and UQ mobile can meanwhile gain new customers because of improved competitiveness. On the whole, how do you see the migration from au to UQ mobile and UQ mobile acquiring new users?

    The new UQ mobile prices are simple and easy to understand. Obviously, we need to bear in mind that some au customers will switch to such plans. Meanwhile, as you have just said, while we try to acquire new customers, some UQ mobile SUMAHO Plan S and SUMAHO Plan R users may switch to SUMAHO Plan V. For au, 5G is the main product so we are considering services that will be attractive for 5G users such as au Wide Student Discount, thereby aiming for up-sells from UQ mobile and MVNO. We will look at the balance of matters as a whole and aim to raise ARPU as a Group.

  • QHow will the devices, services, network speed and stores change with UQ mobile from October? And will the new MVNO be exceptionally low-price?

    From October 1 onward, UQ mobile employees became KDDI employees. They are highly motivated as UQ mobile is now positioned as another main brand.
    With respect to services, we want to promote the two main brands, with au focusing on 5G and unlimited plans that users can use comfortably, while UQ mobile will appeal to customers as a simple and reasonably priced brand. There is a difference between these services as UQ mobile is 4G. I feel that we have also set up suitably different pricing structures for the two brands, with au being unlimited and UQ mobile otherwise. With respect to models, au features models like iPhone 12 and iPhone 12 Pro as you are aware, and UQ mobile offers reasonably priced models. However other value-added services are made available for both as much as possible for user friendliness. The same goes for the support structure. There is a difference between au and UQ mobile in terms of networks, pricing and devices, but we would like to make everything else available in both brands as much as we can so that customers can enjoy convenience.
    With respect to UQ mobile stores, we want to increase the number of UQ spots from the current figure of 190. There are 22 KDDI-owned stores across Japan, and they have started offering the UQ mobile as well. We need to think about how to move forward from there. Mass retailers have both au and UQ sales staff and we are training them so that they will be able to talk about both, to improve efficiency.
    We have not thought about pricing for the new DX brand yet, but as you can see with Circles Life, it is not just a reasonably priced MVNO. Circles Life is working in NPS management and has recorded ARPU to a considerable degree by offering services to digital natives. We are thinking about creating affordable plans, but they will not be simply low-priced services.

Questioner 3

Questioner 4

Questioner 5

Questioner 6

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