Q&A for 1Q of FY2016.3

In short, it is because the previously disclosed ARPU kept steady. In combination with the growing number of tablet-based subscriptions, this has pushed up ARPA. While the figures are stronger than planned, as various events are planned for the 2Q, we are not expecting a better performance for this term as a whole as of this time.

Growths in tablets and routers are more relevant to ARPA than the new smartphone.

SIM cards are gaining prevalence more quickly than we predicted; previously the supply and demand balance of SIM cards was not good, with one SIM card priced at ¥40,000 to ¥50,000, but now all companies are providing SIM cards for around ¥150 per card, which is boosting subscriptions. We cannot give the specific figures as this is a joint business with MPT, but we can say that the ARPU is comparable to other companies and that we have more subscribers than our competitors. However, the competitive environment is getting increasingly harsh, with competitors expanding their area coverage, we will also accelerate investments in order to expand our area coverage to 70% by March 31, 2016. For this reason, our annual operating income in the global segment will not simply be a quadruple of the 1Q performance.

We are earnestly working on it. KDDI has offline goods sales experience with mobile handset accessories, and unlike in e-commerce, there is an advantage of the shop staff being able to make recommendations to visiting customers. We firmly believe that the actual products can earn their appreciation.
In online sales, the subsidization of LUXA has brought together young members who are experts at e-commerce. We are planning for an announcement soon; we have heard that LUXA is enjoying improvements in product procurement and in other domains from this tie-up with KDDI. We believe that our customers will be happy with our products sold on the new site.

The settlement period of Myanmar business is 3 months ahead of Japan (the 1Q is January to March 2015). We admit that there has been price reduction, but it has no impact on the 1Q settlement. The 2Q ARPU may be impacted by the price reduction, and we are aiming for a further increase in the number of subscribers. The point at which it will be reflected in our income is, now that this is a joint business, when customers use the SIM cards. Previously, when it was solely handled by MPT, income was recognized at the time of SIM card sales.

We understand this question to be referring to the 50 billion yen year-on-year drop in the 1Q free cash flow. While EBITDA shows a year-on-year increase, tax payment increased about 34 billion yen. In addition, we had a drop in installment receivables from mobile handsets and a carryover of significant debt from the end of the last term. The combination of the above resulted in the increase of payments in the 1Q.

It is according to plan, and there is no change in our free cash flow plan.

We understand that this question is about the composition of ARPA. While we have mentioned an increase in tablets symbolically, tablet-based subscriptions are not showing significant growth as measured by their proportion of ARPA; however, we are expecting future growth. As the 1Q ARPA growth factor, ARPU from general handsets is well-controlled, enabling a pure add-on of increased revenue from tablets and routers.

The new price plan was introduced in August 2014, which means that the 3Q and subsequent quarters will not be impacted by the new price with regard to the year-on-year comparison. While the high data service plan contract rate experienced a temporary drop amongst the tiered plans, the foothold is now stable and as a result is suppressing the impact of the reduction in voice services.
On the other hand, in the Business Services segment where voice call charges are dominant, the prominent reduction in voice-related revenue associated with the transition to the new price plan is having a great impact. We predict that there will be impact due to the expected increase in subscribers throughout the term.

The stagnation of added value ARPA is caused by the discontinuation of some collaborative services for feature phones at the end of last term. We will be dropping non-profitable collaborative projects. The smartphone users' utilization is steadily expanding.

The next medium-term management plan is currently under internal review and will be announced at next year's final settlement, which will cover both the business and shareholder return aspects.

The business operation in Myanmar is a joint operation where three companies, namely MPT, Sumitomo Corporation, and KDDI mutually invest resources and split the revenue earned through business. However, new capital investments are to be made by our local subsidiary (KSGM); new capital will be lease receivables that are not recorded as depreciation. First, there will be expenditure in cash flow, but it should be all recoverable. The mechanism allows for continuing expansion in the number of subscribers and ARPU, ensuring profits, provided that costs are well-controlled.

Based on IFRS, they are recorded as lease receivables. Those cashed out are recovered by means of lease fees.

The breakdown of +10.6 billion yen in ‘Other’ in the Personal Services segment is as follows: +4 billion yen of fixed line communications fee revenue, +3.9 billion yen of handset sales gross margin, and +2.7 billion yen from others. ‘Other’ in general is the total increase in earnings in segments other than Personal Services.

The timing of capital investment in Myanmar initially planned to take place during this term is going to be front-loaded; there will be no increase in the amount.

The Monthly Discount is also well-controlled, added to that there was an increase in data-based ARPU deriving from the migration from feature phone to smartphone while voice-based ARPU did not drop as much as expected.

We acknowledge that competition has intensified during this term's 1Q compared to last term's 1Q. Nevertheless, we have managed to comprehensively reduce the sales cost in all realms, including commissions, Monthly Discount, and point service, by making full use of a variety of operations.

Sales growth was not favorable due to the impact of reduced voice-based service income as a result of introducing the new price plan in our mobile device business. On the other hand, earnings were good in the 1Q by virtue of satisfactory cost control. Considering the likelihood of the impact of the new price continuing for some time into the future, we would like to simply reiterate our initial expectation regarding the level of earnings for this term.

The users in question are the feature phone users who are not eligible for the au Smart Value plan and some smartphone users. We have only begun reaching out to feature phone users, not to mention that we are advancing with our shift-to-smartphone promotion. We are on the mark regarding market demand. To smartphone customers who are not subscribed to the Smart Value plan, we are approaching them with direct mail and telemarketing. We believe that there is still room to increase the number of subscriptions.

Our subsidiary, KVE (KDDI VALUE ENABLER), is an MVNO. The number of subscriptions has not been published yet, and we will just say that it is in the incubation phase. We are going to work toward increasing the number of subscriptions.

We count by aggregation based on account holders' names and addresses. Because we count in units of account holders, we cannot count by identifying the actual user on an individual device basis. For example, if four devices are used by each individual member of a family of four, but they are all subscribed under the father's name, the number of mobile devices per person for the father, who is the subscriber, will be four.