Q&A for 3Q of FY2014.3

I would like for you to understand that management has made a firm commitment to achieving ¥660.0 billion. Our target profit increase is in line with the figures we announced in our medium-term plan at the beginning of the fiscal year, but these will depend on the ultimate figure for the current fiscal year. With regard to the payout ratio, in line with the guidelines we indicated at the beginning of the fiscal year, our target is 30% or more.

Smartphone penetration is currently at around 44%; ultimately, we expect this figure to reach approximately 80%. In general, the speed of penetration tends to slow during the transition from early adopters to the late majority. We are currently seeing this scenario in the shift to smartphones, so at this stage there is nothing to worry about. We plan to stay focused on offering attractive handsets.

As we near the upcoming fiscal year, we plan to acquire more subscribers as long as we do not go below our guideline operating income level of ¥660.0 billion. We intend to promote this acquisition, while holding acquisition expenses down to an appropriate level.

As this fiscal year is the first year of our medium-term plan announced at the beginning of the year, we have determined that our first course of action-which we just decided in 3Q-would be to reward shareholders by augmenting dividends. While keeping the remaining two years of the medium-term plan in our sights, we intend to conduct operations in a way that will maintain the balance sheets at an appropriate level.

Smartphone penetration is currently running at about half its ultimate threshold value, which we believe to be around 80%. From here on out, growth will depend on either attracting new subscribers or boosting per-subscriber ARPU. Under these circumstances, our focus will need to be on accumulating devices that have a relatively high ARPU, such as tablets and routers. As part of our aim to boost the penetration of smart devices, last year we introduced "Data Share" as a new rate plan. We also introduced "au Smart Value mine," which offers a set discount if customers purchase a +WiMAX router along with a smartphone. Our spring model launch event the other day focused on "phablets," which are devices sized between smartphones and tablets. Through this initiative, we aim to see whether phablets will gain ground with Japanese customers. In the past, the Japanese market has been somewhat resistant to tablets, but now they are gaining acceptance. We will pursue routes such as these to boost ARPU, and we are working to align our strategies with overall market directions. We will need a bit more time to determine what KPIs we should share publicly.

We cannot say anything definite about our medium-term vision on this front, but so far we are not off to a bad start. We will need to monitor the trends for a while longer.
Page 15 of the presentation materials explains that value ARPU for smartphone users is ¥470. Looking only at "au Smart Pass" members, however, the value ARPU figure is as high as ¥720(Note). We view this result as evidence that we are seeing positive effects from value ARPU as well as au ARPU.

• Note)

  The figure has been revised from that announced on January 30, 2014.
  ¥780->¥720

As shown in page 17 of the presentation materials, which provides an outlook for future operations, we plan to differentiate ourselves in the individual areas of network, handsets, fees, services and support. Taken as a whole, we expect to maintain a position of comparative superiority.
As to further strategies, we will announce these when the time is right.

Our management direction is to achieve ongoing 10% profit growth over a three-year period. The only question is as to how we will achieve this. We already have our sights set squarely on 10% profit growth next fiscal year, but achieving the 10% profit growth in the fiscal year after that will require some additional preparation. We also need to lay the groundwork for growth beyond that point. This is the sense in which we are pursuing double-digit profit growth over three fiscal years as part of our medium-term plan.

The main reason in the Business Services segment is that we have pursued a fairly aggressive sales forecast with regard to this fiscal year's nationwide expansion of "MATOMETE OFFICE," and we are having to absorb the acquisition costs that accompany this revenue increase.
There are no particular items of note in the Value Services or Global Services segments.

Holding down the "Maitsuki Discount" was behind the upward revision in our ARPU forecast for the current fiscal year. The main reason for this was that data ARPU was higher than we had initially projected. We are currently drawing up plans for the next fiscal year and incorporating various risk factors. However, we are not looking at raising the "Maitsuki Discount" and lowering commissions to generate temporary profits. While we cannot say for certain that we will be able to maintain the discount at its current level, we do intend to contain it.
Taking the total acquisition cost to be the temporary cost of sales commissions plus the monthly "Maitsuki Discount" amount times 24 months, in 3Q we held this figure down by ¥3,600 compared with the same period of the preceding fiscal year. We are keeping this operation so that we do not leave such burdens behind to be handled next fiscal year.

We are currently in the process of drawing up this plan, but we do not expect to see any major fluctuation in unit smartphone sales. At present, the main trend in smartphone sales is for a shift from 3G to LTE. We expect this to be the case next fiscal year, as well, with the rate of smartphone-to-smartphone model changes increasing to some degree.

Other companies are trialing services in the Chubu and Tohoku areas, but at the moment these are having essentially no impact on our operations. We believe that we enjoy a first-mover advantage in bundled mobile and fixed-line communication services, so we intend to stand back and see how things develop. With regard to the relaxing of regulations, we believe that a time will come when we will have the opportunity to explain our stance; we would ask you to wait until then. "au Smart Value" functions most effectively at a given market size and an appropriate time, and selling mobile and fixed-line communications as a set is an operation that requires some experience. While we recognize that "au Smart Value" will not be effective forever, we believe its effectiveness will continue for some time.