Q&A for 2Q of FY2015.3

Terminal sales were down in 1Q in comparison with strong results in 4Q, but in 2Q these sales were in line with the previous year's figures. Trendwise, in October terminal sales were up year on year, and we expect terminal sales for the full fiscal year to be around the same level as in the preceding fiscal year.

Smartphones are an extremely important factor behind a rise in ARPU. Smartphone sale were below expectations only in April and May; overall they are robust. Absent the negative effects of a new rate plan, we believe the strong ARPU figures for the first half reflect solid smartphone sales.

A large percentage of customers selecting the new rate plan choose 5GB or more, which is why the negative impact of the new rate plan has been limited.
We do not disclose the percentage of customers opting for new and old rate plans. In general, younger customers tend to prefer data use over telephone communications. Other customers use the telephone frequently but data rarely. We believe that the current selection of new verses old rate plans represents a smooth meshing of these needs, which is why there has been little downward impact on ARPU. The average monthly data volume for LTE smartphone customers exceeds 3GB, and subscribers to 5GB or higher plans is at 44%. In our view, these figures suggest that the plans are operating well.

In line with the three-year medium-term plan we announced last spring, we are moving forward with a view to achieving double-digit increases in operating income. We are now exactly halfway through this period. From the perspective of our progress in the first half, it is true that we have some leeway. Another factor to keep in mind is the startup of "au WALLET" and business in Myanmar, aimed at achieving further growth going forward. Our current operating performance takes into account the costs for these businesses. We will continue to weigh the numerous options we have going forward, while monitoring competitors' movements. We remain dedicated to reaching the target we have committed to.

We hope the situation does not evolve into a cash-back war, but we will respond according to the competitive environment.

In the prepaid business, "au WALLET" is taking off at a good clip, and progress is favorable. We have our sights set on cultivating this into a major O2O platform. We recently announced moving into the credit card area. We believe that this move will prompt upselling and impact future revenues and income. Although we are not disclosing "au WALLET" usage amounts, we can say that use is exceeding our expectations, and we believe the future is bright. We are moving into the position between credit card and small settlement amounts, and we aim to achieve a circulation level of ¥1 trillion.

We will hold off on disclosing any such figure until usage trends become clearer.

As of September, SIM card sales exceeded 1 million, which surpassed our expectations. Different from Japan, in the Myanmar market it will be some time before we see cancellations, so sales figures correspond directly to subscription numbers. Total subscriptions exceeded 8 million as of September 30, and we aim to accelerate the pace. Also, ARPU is not declining, so we believe we are off to an extremely solid start. Still, we have two competitors, so we refrain from discussing future ARPU directions.

Competitors are establishing networks. We understand that our competitors are also enjoying robust SIM card sales, but at the moment we have the competitive edge in terms of network configuration. In the secondary market, our SIM cards sell for a higher price than those of our competitors. We see this as evidence that subscribers evaluate us highly.

We have a certain level of net additions, but the conventional market for MNP net additions centered on smartphones is shrinking. We are filling in that gap with tablets. Performance in tablets is higher than our expectations, so we are not pessimistic about the outcome. We are particularly focused on whether ARPU will turn downward, but this is not the case at present.
If growth in au ARPU levels off, this should be accompanied by an increase in value ARPU. From that point onward, O2O and other rational business categories should provide support. Global services will also contribute. The combination of several revenue-boosting businesses of this nature should allow us to maintain top-line growth.

We expect to make any performance revisions after the end of the 3Q. We believe that our first-half performance should provide some degree of assurance to investors.
Going forward, we will concentrate on growing our operations. We will communicate any news we may have after closing the 3Q figures.

As networks faster, customers use more data. We believe that the rise points to an organic increase in traffic, and that there are no special factors at play. Viewed in the other direction, the issue is about how to ensure adequate network capacity. Our approach to support the traffic increase is twofold: to use carrier aggregation and other methods to configure highly efficient networks and to use additional UQ WiMAX 2+ x 20MHz bandwidth. If all goes as planned, we will see an increase in the percentage of subscriptions to the "new tiered data flat rate plan," our plan offering higher data volumes, which will boost revenue further. At present, we do not view the increase in data volumes as a negative.

We do not have any breaking news to announce at the moment.

"au Smart Value" penetration among au HIKARI customers is up to 58%, but the rate is not yet that high for cable customers. This is partly because we did not target mainstay television customers with discounts. We have expanded the scope because, going forward, we are aiming to increase penetration among television customers before competitors begin offering set discounts on mobile and optical fiber. This spring, we expanded the scope to include TV + Internet, and penetration is moving ahead steadily in this area. In October, J:COM expanded the scope to include TV + telephone. We believe that boosting "au Smart Value" penetration will enable us to respond sufficiently to changes in the competitive environment.

In the Business Services segment, the "Maitsuki Discount (Monthly Discount)" unit price was at a high level in the first half of the previous fiscal year, so in the second half of the fiscal year we introduced measures to restrain the monthly discount portion. As a result, in the first half of the current fiscal year it became more difficult to generate profits than in the first half of the previous year. Also, unit terminal sales were up year on year, which pushed up total selling costs. This was another factor holding down income.

Usage characteristics for corporate mobile service customers are opposite those in the consumer segment. Voice volumes are high and data volumes are low, so the new rate plan has a negative impact on profits. At the same time, because smartphone penetration is still low, we believe ARPU will recover going forward, according with the increase of the smartphone penetration. For the current fiscal year, in the Business Services segment it may be difficult to reach the level of operating income we had initially forecast, but in the second half we expect to remain on a par with last fiscal year.