Q&A for 2Q of FY2016.3

We also consider this term's performance to be quite good, but as pointed out, the increase in the au churn rate is not praiseworthy. The increase in the au churn rate, first of all, is due to the outflow of users seeking lower cost alternatives from MVNOs. Taking this into account, we will be reinforcing our efforts in UQ mobile, our MVNO business, in order to recoup some of the users switching over to MVNOs. We will also step up our retention efforts, including au Smart Support. The other reason lies in the MNO market's increased sales competition in the second quarter. We will strive to constrain the au churn rate.

We feel that the younger generations with high data use on page 8 has switched over to smartphones thanks to the introduction of Super Kakeho. As it is only recently that the Super Kakeho has become available to our customers, the situation is unclear; however, we take it as a positive sign that feature phone users who feel that 2,700 yen is costly are switching over to smartphones with the fixed voice rate lowered to 1,700 yen. As for products and services targeting senior and junior users, as shown on page 9, particularly senior users are steadily switching over to smartphones, which demonstrates that we have taken appropriate measures. On the other hand, there are points made by the Task Force that more can be done for the customers. New measures will be reviewed based on Task Force discussions.

We consider it too early to detail the next medium-term plan. We kindly ask you to wait for the full-year business results announcement next year. Smartphone penetration is still on the rise, and we expect that the income from data communication charges will also increase organically. Capital investment is steady, so expenses can be cut down to a certain extent. We seek to build up profits from our customer base. As a driving force to make this a reality, KDDI is promoting au WALLET at a significant cost while also creating platforms that can produce content-based revenue, such as the au Smart Pass, in order to establish a profit making foundation. Our third approach is to build up earnings in the global consumer business, starting with our business in Myanmar. For detailed guidance, we ask you to wait until May 2016.

We received this question as a preemptory query for the full-year business results announcement next year. In order to maintain its position as a growing enterprise, KDDI intends to continue investment. For information on the shareholder return policy, we hope you will look forward to our full-year business results announcement for the next term when we are renewing it as one of our agenda items.

As mentioned, the ARPU has dropped in Myanmar, a phenomenon observed when the mobile device penetration improved in other countries. Despite the decreased ARPU, the sales figures, profits, and the number of subscriptions are increasing at a better rate than our initial plan forecast. Other businesses, such as our ICT business, including data centers, are steadily growing.

Considering the expanding capital investment and increasingly competitive market on top of the drop in ARPU, we think it is unlikely that the operating income is going to grow during the second half at the same pace as the first half.

Because it was launched in mid-September, it had almost no negative effect on the 2Q business results. Its visibility among customers is increasing, and because the decreased revenue from price drop is compensated by the up-selling effect of the switchover from feature phones to smartphones, we assume that there will not be a significant decrease in revenues. We believe that we can provide details in the 3Q business results announcement.

We cannot provide details while discussions are ongoing in the Task Force, but we can say that there is no major adverse impact. As the starting figures may not be stable and reliable, we consider it better to observe the figures over a more extended period.

While we cannot comment on the specific level of capital investment planned for the near future, we can say that it is decreasing due to the completion of the LTE coverage for the mobile business and that we have shifted to the quality improvement phase. Capital investment in common facilities are also decreasing for fixed lines. While the higher FTTH customer base growth vis-à-vis the plan has had some impact on capital investment, we expect the capital investment to remain steady at the current level. We cannot say whether it is going to be around 500 billion yen for the whole term because we are currently reviewing the medium-term plan for the next term. However, we can tell you that we are trying to control depreciation as well as OPEX.

We do not expect capital investment to go over 600 billion yen as of this term. It will be in our future agenda to discuss how much we should cut down.

Revenue growth progress is sound, and there are no apparent concerns. In spite of this, we decided not to raise the forecast this time as we were not sure of the Task Force's conclusions.

Yes, only if necessary.

First of all, the reason for fixed telecommunications having good results is due to the commencement of NTT's Hikari collaboration model, which weakened our competitors' selling offensive. This has caused a drop in the churn out of fixed line subscriptions. Mobile business is also steady, bolstered by the following two factors. First, the competitors starting bundle services en masse has raised people's awareness of bundled services. As you may understand from the pricing plans, KDDI's pricing plans feature higher discounts compared to competitors, in addition to being easy to understand, which also created a positive effect. The second reason is that the number of subscriptions per household, bolstered by the trend toward an increase in multi-device support, is growing steadier than expected, and actually recorded an average of 2 mobile lines per household, which exceeds our initial goal.

As we have mentioned in the 1Q business results announcement, the new pricing plans are generating a huge negative effect on the corporate market, but we are managing well with the cost control. The new pricing plans will continue to affect corporate businesses with high MOU; it is too soon to change our strategic course at this time, and therefore, we have not revised our full-year forecast. KDDI is not only selling mobile telecommunications services in the corporate market for profit improvement, but also selling global services, continuing low-key cross-selling and up-selling efforts.

The revenue from au WALLET Market is produced according to the amount spent and the number of times used by a person. The actual income is slightly below our planned figures. We have focused on increasing on the number of au WALLET cards issued, and now we are going to promote the au WALLET Market. As the au WALLET Market is a key business on which our future growth depends, we will strive to establish a foundation for profit growth. We have just embarked on this business, so while we are aware of some of the issues, we are not concerned yet.

The current number of users is not drastically lower than what our plan was hoping to see, but we recognize that increasing the number of users is one of the issues that need to be addressed.

KDDI will be working on the electric power business and should be ready to talk about it next April. We have not yet announced any specific information, including pricing plans. We ask for your patience on this matter. Apparently, it will have a preventive effect to reduce au churn rate.

We are considering approaches to accelerate marketing. Since marketing acceleration will contribute to an increase in the number of IDs in our IDxARPA strategy, we do not see any notable adverse impact. We cannot make a clear forecast of how much the new pricing plans can penetrate the customer base.

The selection rate is gradually increasing. Our active promotion will not rapidly raise the customers' selection rate. The selection rate of the new pricing plans is getting higher, and particularly Super Kakeho is having a positive effect, and we are in agreement, including the sales function, to press the accelerator.