XTKS:9437 NTT DoCoMo Inc Annual Report 20-F Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

As filed with the Securities and Exchange Commission on July 5, 2012

 

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 1-31221

 

 

Kabushiki Kaisha NTT DOCOMO

(Exact name of registrant as specified in its charter)

NTT DOCOMO, INC.

(Translation of registrant’s name into English)

 

 

 

Japan  

Sanno Park Tower

11-1, Nagata-cho 2-chome

Chiyoda-ku, Tokyo 100-6150

Japan

(Jurisdiction of incorporation or organization)   (Address of principal executive offices)

 

 

Yuko Nakamura or Ayano Tamada, Investor Relations

TEL: +81-3-5156-1111 / FAX: +81-3-5156-0271

Sanno Park Tower, 2-11-1 Nagata-cho, Chiyoda-ku, Tokyo 100-6150 Japan

(Name, Telephone, E-mail and /or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Name of each exchange on which registered

Common Stock*   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

 

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

 

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of March 31, 2012, 41,467,601 shares of common stock were outstanding, comprised of 41,232,107 shares and 23,549,400 ADSs (equivalent to 235,494 shares).

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    x            Accelerated filer    ¨            Non-accelerated filer    ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  x International Financial Reporting Standards as issued by the International Accounting Standards Board    ¨    Other    ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨            Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

* Not for trading, but only in connection with the listing of the American Depositary Shares.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
  PART I   

Item 1.

  Identity of Directors, Senior Management and Advisers      3   

Item 2.

  Offer Statistics and Expected Timetable      3   

Item 3.

  Key Information      3   

Item 4.

  Information on the Company      16   

Item 4A.

  Unresolved Staff Comments      43   

Item 5.

  Operating and Financial Review and Prospects      43   

Item 6.

  Directors, Senior Management and Employees      73   

Item 7.

  Major Shareholders and Related Party Transactions      82   

Item 8.

  Financial Information      83   

Item 9.

  The Offer and Listing      84   

Item 10.

  Additional Information      86   

Item 11.

  Quantitative and Qualitative Disclosures about Market Risk      99   

Item 12.

  Description of Securities Other Than Equity Securities      100   
  PART II   

Item 13.

  Defaults, Dividend Arrearages and Delinquencies      102   

Item 14.

  Material Modifications to the Rights of Security Holders and Use of Proceeds      102   

Item 15.

  Controls and Procedures      102   

Item 16A.

  Audit Committee Financial Expert      102   

Item 16B.

  Code of Ethics      103   

Item 16C.

  Principal Accountant Fees and Services      103   

Item 16D.

  Exemptions from the Listing Standards for Audit Committees      104   

Item 16E.

  Purchases of Equity Securities by Issuer and Affiliated Purchasers      105   

Item 16F.

  Change in Registrant’s Certifying Accountant      105   

Item 16G.

  Corporate Governance      105   

Item 16H.

  Mine Safety Disclosure      106   

Item 17.

  Financial Statements      106   

Item 18.

  Financial Statements      106   

Item 19.

  Exhibits      107   


Table of Contents

Special Note Regarding Forward-looking Statements

This annual report contains forward-looking statements such as forecasts of results of operations, management strategies, objectives and plans, forecasts of operational data such as the expected number of subscription, and the expected dividend payments. All forward-looking statements that are not historical facts are based on management’s current plans, expectations, assumptions and estimates based on the information currently available. Some of the projected numbers in this report were derived using certain assumptions that are indispensable for making such projections in addition to historical facts. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those contained in or suggested by any forward-looking statement. Potential risks and uncertainties include, without limitation, the following:

 

1. Changes in the business environment in the telecommunications industry, such as intensifying competition from other service providers, businesses or other technologies caused by Mobile Number Portability, development of appealing new handsets, new market entrants and other factors, or the expansion of the areas of competition could limit our acquisition of new subscriptions and retention of existing subscriptions, or may lead to ARPU diminishing at a greater than expected rate or an increase in our costs and expenses.

 

2. Current and new services, usage patterns, and sales schemes introduced by our corporate group may not develop as planned, which could affect our financial condition and limit our growth.

 

3. The introduction or change of various laws or regulations inside and outside of Japan, or the application of such laws and regulations to our corporate group, could restrict our business operations, which may adversely affect our financial condition and results of operations.

 

4. Limitations in the amount of frequency spectrum or facilities made available to us could negatively affect our ability to maintain and improve our service quality and level of customer satisfaction and could increase our costs.

 

5. Other mobile service providers in the world may not adopt the technologies and the frequency bands that are compatible with those used by our corporate group’s mobile communications system on a continuing basis, which could affect our ability to sufficiently offer international services.

 

6. Our domestic and international investments, alliances and collaborations may not produce the returns or provide the opportunities we expect.

 

7. Malfunctions, defects or imperfection in our products and services or those of other parties may give rise to problems.

 

8. Social problems that could be caused by misuse or misunderstanding of our products and services may adversely affect our credibility or corporate image.

 

9. Inadequate handling of confidential business information including personal information by our corporate group, contractors and others, may adversely affect our credibility or corporate image.

 

10. Owners of intellectual property rights that are essential for our business execution may not grant us the right to license or otherwise use such intellectual property rights on acceptable terms or at all, which may limit our ability to offer certain technologies, products and/or services, and we may also be held liable for damage compensation if we infringe the intellectual property rights of others.

 

11. Events and incidents caused by natural disasters, social infrastructure paralysis such as power shortages, proliferation of harmful substances, terror or other destructive acts, the malfunctioning of equipment, software bugs, deliberate incidents induced by computer viruses, cyber attacks, equipment misconfiguration, hacking, unauthorized access and other problems could cause failure in our networks, distribution channels, and/or other factors necessary for the provision of service, disrupting our ability to offer services to our subscribers and such incidents may adversely affect our credibility or corporate image, or lead to a reduction of revenues and/or increase of costs.

 

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12. Concerns about adverse health effects arising from wireless telecommunication may spread and consequently adversely affect our financial condition and results of operations.

 

13. Our parent company, NIPPON TELEGRAPH AND TELEPHONE CORPORATION (NTT), could exercise influence that may not be in the interests of our other shareholders.

Our actual results could be materially different from and worse than as described in the forward-looking statements. Important risks and factors that could have a material impact on our actual results are set forth in Item 3.D. and elsewhere in this annual report.

 

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PART I

As used in this annual report, references to “DOCOMO,” “the Company,” “we,” “our,” “our group” and “us” are to NTT DOCOMO, INC. and its subsidiaries except as the context otherwise requires.

“The year ended March 31, 2012” refers to our fiscal year ended March 31, 2012, and other fiscal years are referred to in a corresponding manner.

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

 

A. Selected Financial Data

The following tables include selected historical financial data as of and for each of the years ended March 31, 2008 through 2012. The data in the table is derived from our audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated balance sheets for the years ended March 31, 2011 and 2012, the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years ended March 31, 2010 through 2012, and Notes thereto appear elsewhere in this annual report.

 

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Selected Financial Data

 

    Millions of yen, except per share data  
    As of and for the year ended March 31,  
    2008     2009     2010     2011     2012  

Income Statement Data

         

Operating revenues:

         

Wireless services

  ¥ 4,165,234      ¥ 3,841,082      ¥ 3,776,909      ¥ 3,746,869      ¥ 3,741,114   

Equipment sales

    546,593        606,898        507,495        477,404        498,889   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    4,711,827        4,447,980        4,284,404        4,224,273        4,240,003   

Operating expenses

    3,903,515        3,617,021        3,450,159        3,379,544        3,365,543   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    808,312        830,959        834,245        844,729        874,460   

Other income (expense)

    (7,624     (50,486     1,912        (9,391     2,498   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity in net income (losses) of affiliates

    800,688        780,473        836,157        835,338        876,958   

Income taxes

    322,955        308,400        338,197        337,837        402,534   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before equity in net income (losses) of affiliates

    477,733        472,073        497,960        497,501        474,424   

Equity in net income (losses) of affiliates, net of applicable taxes (1)(2)

    13,553        (672     (852     (5,508     (13,472

Net Income

    491,286        471,401        497,108        491,993        460,952   

Less: Net (income) loss attributable to noncontrolling interests

    (84     472        (2,327     (1,508     2,960   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to NTT DOCOMO, INC.

  ¥ 491,202      ¥ 471,873      ¥ 494,781      ¥ 490,485      ¥ 463,912   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per Share Data

         

Basic and diluted earnings per share attributable to NTT DOCOMO, INC.

  ¥ 11,391      ¥ 11,172      ¥ 11,864      ¥ 11,797      ¥ 11,187   

Dividends declared and paid per share

  ¥ 4,400      ¥ 4,800      ¥ 5,000      ¥ 5,200      ¥ 5,400   

Dividends declared and paid per share (3)

  $ 44.07      $ 48.41      $ 53.53      $ 62.83      $ 65.53   

Weighted average common shares Outstanding—Basic and Diluted (shares)

      43,120,586          42,238,715          41,705,738          41,576,859          41,467,601   

Balance Sheet Data

         

Working capital (4)

  ¥ 533,465      ¥ 679,293      ¥ 872,816      ¥ 1,032,131      ¥ 1,204,258   

Total property, plant and equipment, net

    2,834,607        2,691,485        2,607,590        2,523,319        2,536,297   

Total assets

    6,210,834        6,488,220        6,756,775        6,791,593        6,948,082   

Total debt (5)

    478,464        639,233        610,347        428,378        256,680   

Total liabilities

    1,933,050        2,144,912        2,094,329        1,913,999        1,839,311   

Common stock

    949,680        949,680        949,680        949,680        949,680   

Total NTT DOCOMO, INC. shareholders’ equity

    4,276,496        4,341,585        4,635,877        4,850,436        5,062,527   

Total Equity

    4,277,784        4,343,308        4,662,446        4,877,594        5,108,771   

Other Financial Data

         

Depreciation and amortization expenses and loss on sale or disposal of property, plant and equipment

    830,784        847,463        733,881        720,999        708,838   

Net cash provided by operating activities

    1,560,140        1,173,677        1,182,818        1,287,037        1,110,559   

Net cash used in investing activities

    (758,849     (1,030,983     (1,163,926     (455,370     (974,585

Net cash used in financing activities

    (497,475     (182,441     (260,945     (421,969     (378,616

Margins (percent of operating revenues):

         

Operating income margin

    17.2     18.7     19.5     20.0     20.6

Net income margin

    10.4     10.6     11.5     11.6     10.9

 

(1) Includes impairment of investments in affiliates. See Note 5 of Notes to Consolidated Financial Statements.
(2) Net of applicable taxes of ¥(9,257) million, ¥567 million, ¥1,270 million, ¥5,031 million and ¥10,736 million in the years ended March 31, 2008, 2009, 2010, 2011 and 2012 respectively.
(3) The dividends per share were translated into U.S. dollars at the relevant record date.
(4) Working capital was computed by subtracting total current liabilities from total current assets.
(5) Total debt includes total short-term debt (including commercial paper and current portion of long-term debt) and long-term debt.

 

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Exchange Rate Data

The following table shows the exchange rates for Japanese yen per $1.00 based upon the noon buying rate in New York City for cash transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York:

 

Fiscal Year ended March 31,

   High      Low      Average *      Period-end  

2008

     123.39         99.85         113.61         99.85   

2009

     108.69         89.83         100.85         99.15   

2010

     98.76         86.12         92.49         93.40   

2011

     94.24         80.48         85.00         82.76   

2012

     82.41         76.34         78.86         82.41   

Calendar Year 2011

                           

December

     78.13         76.98         77.80         76.98   

Calendar Year 2012

                           

January

     78.13         76.28         76.96         76.34   

February

     81.10         76.11         78.47         81.10   

March

     83.78         80.86         82.47         82.41   

April

     82.62         79.81         81.25         79.81   

May

     80.36         78.29         79.67         78.29   

June (through June 8, 2012)

     79.67         78.21         78.89         79.47   

 

* For fiscal years, calculated from the average of the exchange rates on the last day of each month during the period. For calendar year months, calculated based on the average of daily closing exchange rates.

 

B. Capitalization and Indebtedness

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

Not applicable.

 

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D. Risk Factors

Risks Relating to Our Business

This annual report contains forward-looking statements such as forecasts of results of operations, management strategies, objectives and plans, forecasts of operational data such as the expected number of subscription, and the expected dividend payments. All forward-looking statements that are not historical facts are based on management’s current plans, expectations, assumptions and estimates based on the information currently available. Some of the projected numbers in this report were derived using certain assumptions that are indispensable for making such projections in addition to historical facts. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those contained in or suggested by any forward-looking statement. Potential risks and uncertainties include, without limitation, the following:

Changes in the business environment in the telecommunications industry, such as intensifying competition from other service providers, businesses or other technologies caused by Mobile Number Portability, development of appealing new handsets, new market entrants and other factors, or the expansion of the areas of competition could limit our acquisition of new subscriptions and retention of existing subscriptions, or may lead to ARPU diminishing at a greater than expected rate or an increase in our costs and expenses.

Market changes, such as the introduction of Mobile Number Portability (“MNP”), the development of appealing handsets, and the emergence of new service providers, are resulting in increasing competition from other service providers in the telecommunications industry. For example, other mobile service providers have introduced handsets that keep up with the needs and desires of customers, including handsets that support high-speed services and music/video playback, new services such as music and video distribution services, and flat-rate services for voice communications and e-mail, as well as installment sales methods for devices. There are also providers that offer services related to the convergence of fixed and mobile services, such as aggregated point programs, services offering free calls between fixed-line and mobile phones and discounts for combining fixed line and mobile services, and if services that are highly convenient for customers are offered in the future, the Company, which is subject to regulatory constraints, may be limited in its ability to respond in a timely and suitable manner. Furthermore, if other providers offer handsets that are more appealing than our own handset lineup, we may be unable to respond in a timely and suitable manner. At the same time, competition may increase, resulting from the introduction of other new services and technologies, especially low-priced and flat-rate services, such as fixed-line or mobile IP phones (including services used by applications that run on our smartphones and tablets), high-speed broadband Internet service, digital broadcasting, public wireless LAN, and so on or convergence of these services.

In addition to competition from other service providers and technologies in the telecommunications industry, there are other factors increasing competition among mobile network operators, such as saturation in the Japanese mobile communications market, changes to business and market structures due to the expansion of the areas of competition arising from the entry of competitors in the market, including MVNOs* and competitors from other industries, changes in the regulatory environment, and increased rate competition. With the use of open platform devices like smartphones and tablets becoming increasingly widespread, many businesses and others have entered the competition in service offerings on mobile phones, and it is possible that those businesses, etc. may eventually launch services that are more convenient for customers, and further intensify rate competition.

Under these circumstances, the number of net new subscriptions we acquire may continue to decline in the future and may not reach the number we expect. Also, in addition to difficulty acquiring new subscriptions, we may not be able to maintain existing subscriptions at expected levels due to increased competition. Furthermore, in order to capture new subscriptions and maintain existing subscriptions, there could be a greater-than-expected decline in ARPU and/or greater-than-expected costs. In this fierce market environment, in order to provide advanced services and increase convenience to our customers, we have made various rate revisions. For example,

 

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in March 2011 we introduced “Pake-hodai FLAT” and “Pake-hodai double 2,” our new packet flat-rate services suitable for customers who use a rich variety of content on devices like smartphones and tablets; and in November 2011 we introduced the “Xi Kake-hodai” flat-rate domestic voice service among our subscribers and the “Xi Pake-hodai FLAT” and “Xi Pake-hodai double” packet flat-rate services for “Xi” subscribers. However, we cannot be certain that these measures will enable us to acquire new and maintain existing subscriptions. Also, although we forecast some decline in ARPU as a result of these rate revisions, if the subscription ratio for various discount services or the trend in migration to flat-rate services are not in line with our expectations, our ARPU may decrease more than our forecast. Furthermore, if market growth slows or the market shrinks, ARPU may decrease even more than our forecast and we may not be able to capture new subscriptions or maintain the existing number of subscriptions at the level we expect. These foregoing factors may have a material adverse effect on our financial condition and operating results.

 

* Abbreviation of Mobile Virtual Network Operator. A business that borrows the wireless communication infrastructure of other companies to provide services.

Current and new services, usage patterns, and sales schemes introduced by our corporate group may not develop as planned, which could affect our financial condition and limit our growth.

We view increases in revenue as an important factor to our future growth, for instance, the increasing of revenues by promoting the use of i-mode services, smartphone services such as sp-mode, dmenu, dmarket and mobile services such as i-concier, and encouraging the more widespread use of FOMA and Xi services, as well as the expansion of their associated data communications. Also important is increasing revenues through initiatives that create new value by converging mobile services and various businesses and services such as media/content, finance/payment, commerce, medical/healthcare, Machine-to-Machine (“M2M”) and environment/ecology with the aim of transforming into an “integrated services company placing mobile at the core.” However, a number of uncertainties may arise to prevent the development of these services and constrain our growth.

Furthermore, if market growth slows or the market shrinks, the services, forms of usage, and sales methods provided by us may not develop sufficiently, which could affect our financial conditions and limit our growth. In particular, we cannot be certain as to whether or not the following can be achieved:

 

   

To develop the cooperative relationships as anticipated with the partners needed to provide the services and/or forms of usage that we offer, with the software vendors who provide the operating systems and applications necessary to promote the use of smartphone and other services, with content providers, and with stores that have installed equipment capable of handling e-wallet transactions;

 

   

To provide planned new services and forms of usage as scheduled and keep costs needed for the deployment and expansion of such services within budget;

 

   

The services, forms of usage, and installment sales and other methods that we offer and plan to offer will be attractive to current and potential subscribers and there will be sufficient demand for such services;

 

   

Manufacturers and content providers will steadily create and offer products including FOMA and Xi handsets, handsets compatible with services we provide, software such as the operating systems and applications necessary to encourage the use of smartphone services, as well as content in a timely fashion and at appropriate prices;

 

   

Our current and future mobile services and data communication services, including i-mode services, smartphone services such as sp-mode, dmenu, and dmarket, i-concier, and initiatives for new market creation through the convergence with various businesses, including financial and payment services such as DCMX, media/content services like NOTTV, commerce businesses run by OAK LAWN MARKETING, INC. and Radishbo-ya Co., Ltd. will be attractive to existing and potential subscribers and achieve continued or new growth;

 

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Demand in the market for mobile handset functionality will be as we envision, and as a result, our handset procurement costs will be reduced, which will enable us to offer our handsets at appropriate prices; and

 

   

To expand services with improved data communication speed enabled by LTE* and other technology as planned.

If the development of our new services or forms of use is limited, it may have a material adverse effect on our financial condition and results of operations.

 

* Abbreviation of Long Term Evolution. A mobile communications protocol with specifications formulated by the 3rd Generation Partnership Project.

The introduction or change of various laws or regulations inside and outside of Japan, or the application of such laws and regulations to our corporate group, could restrict our business operations, which may adversely affect our financial condition and results of operations.

The Japanese telecommunications industry has been undergoing regulatory reform in many areas, including rate regulation. Because we operate on radio spectrum allocated by the Japanese government, the mobile telecommunications industry in which we operate is particularly affected by the regulatory environment. Furthermore, in some cases, our group is subject to special regulations that are not imposed on other providers. Various governmental bodies have been recommending or considering changes that could affect the mobile telecommunications industry, and there may be continued reforms, including the introduction or revision of laws, regulations, or systems that could have an adverse effect on us. These include:

 

   

Regulations to accelerate competition in the handset area, such as SIM* unlocking regulations;

 

   

Revision of the spectrum allocation system, such as reallocation of spectrum and introduction of an auction system (Government agencies are internally acting/examining the measures necessary to implement a spectrum auction system, such as presenting a bill to amend a portion of the Radio Act in 2012.);

 

   

Measures to open up some segments of telecommunication platform functions such as authentication and payment collection to other corporations;

 

   

Rules that could require us to open functions regarding our services, such as i-mode and sp-mode services, to platform providers, Internet service providers, content providers, etc.;

 

   

Regulations to prohibit or restrict certain content, transactions or mobile Internet services such as i-mode or sp-mode;

 

   

Measures which would introduce new costs such as the designation of mobile phone communication as a universal service and other changes to the current universal service fund system;

 

   

Fair competition measures to promote new entry by MVNOs;

 

   

Introduction of new measures to promote competition based on a review of the designated telecommunications facilities system (dominant carrier regulation);

 

   

Review of the structure of the NIPPON TELEGRAPH AND TELEPHONE CORPORATION (“NTT”) group, which includes our group; and

 

   

Other measures, including competition safeguard measures directed toward us, NTT East and NTT West or the revision of the rules of access charge between operators to enhance competition, that would restrict our business operations in the telecommunications industry.

In addition to the above proposed changes that may impact the mobile communications business, we may be impacted by a variety of laws, regulations, and systems inside and outside of Japan. For example, in response to an increase in the number of subscriptions or in the traffic volume per subscriber, we have proceeded with the

 

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enhancement of our telecommunications facilities in order to ensure and improve our service quality. As a result, we are using an increasing amount of electricity. Moreover, we are implementing measures directed towards reducing greenhouse gas emissions, including deployment of low-power consumption devices and efficient power generators. However, with the implementation of regulations and other measures aimed at reducing greenhouse gas emissions, our cost burdens may increase, and this may have an adverse effect on our financial condition and results of operations. In July 2010 the Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law in the U.S. Based on this, the US Securities and Exchange Commission is slated to establish rules requiring listed companies that use minerals in their products to disclose whether such minerals come from the Democratic Republic of the Congo and adjoining countries. The implementation of these rules could have an adverse effect on our financial condition and operating results in the form of higher costs arising from expense of conducting the research needed for regulatory compliance or from an increase in the prices of materials that use such minerals.

Further still, in order to ensure new sources of revenue, we are pursuing initiatives to create new value through the convergence of mobile services with various services and industries, including media/content, finance/payment, commerce, medical/healthcare, M2M, environment/ecology and other fields through equity participation and partnerships. Therefore, we are vulnerable to impacts from laws, regulations and systems specific to new services, operations and areas of business, in addition to the laws, regulations and systems applicable to the mobile communications business. If such laws, regulations, or systems are implemented, they may work as constraints on our group's business operations, and this may have an adverse effect on our group’s financial condition and corporate performance.

It is difficult to predict with certainty if any proposed changes impacting the mobile telecommunications business, or if any other relevant laws, regulations or systems will be drafted, and if they are implemented, the extent to which our business will be affected. However, if any one or more of the above proposed changes impacting the mobile telecommunications business occurs, or if laws, regulations or systems are introduced, reformed, or become applicable to us, we may experience constraints on the provision of our mobile communication services, which may have an adverse effect on our financial condition and results of operations.

 

* Abbreviation of Subscriber Identity Module. An IC card inserted into a handset on which subscriber information is recorded, used to identify user.

Limitations in the amount of frequency spectrum or facilities made available to us could negatively affect our ability to maintain and improve our service quality and level of customer satisfaction and could increase our costs.

One of the principal limitations on a mobile communication network’s capacity is the available radio frequency spectrum we can use. There are limitations in the spectrum and facilities available to us to provide our services. As a result, in certain parts of metropolitan Tokyo and Osaka, such as areas near major train stations, our mobile communication network operates at or near the maximum capacity of its available spectrum during peak periods, which may cause reduced service quality.

With the number of subscriptions and traffic volume per subscriber increasing, our service quality may decline if we cannot obtain the necessary allocation of spectrum from the Japanese government for the smooth operation of our business.

Although we are working to improve the efficiency of our spectrum use through technology such as LTE, including migration to LTE and other measures and to acquire additional spectrum, we may be unable to avoid a reduced quality of services.

In addition, due to the limited processing capacity of our base stations, switching facilities, and other equipment necessary for providing services, the quality of the services we provide may also decrease during peak usage periods if our subscription base dramatically increases or the volume of content such as images and music provided through our networks significantly expands. Also, in relation to our FOMA and Xi services, due to the

 

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proliferation of smartphones and tablets as well as data communication devices for PCs, the growth in the number of service subscribers and subscriber traffic volume could sharply exceed our expectations. Furthermore, some of the software that runs on smartphones and tablets could result in greater use of control signals (the signals exchanged between devices and the network) in order to establish and terminate communications, and could therefore put a greater-than-anticipated burden on our facilities. If it becomes impossible to process such traffic using our existing equipment, service quality may deteriorate and the cost of investing in equipment to address these issues could increase.

If we are not able to address such problems sufficiently and in a timely manner, our ability to provide mobile communication services could be constrained and we could lose subscribers to our competitors; while at the same time, the cost of investing in equipment to address these issues could increase, and this could materially affect our financial condition and results of operations.

In the fiscal year ended March 2012 there were a series of service interruptions that arose due to failures in communications equipment such as the sp-mode system and packet switching equipment that were primarily caused by a rapid increase in data communications traffic and in the volume of control signals that accompanied the spread of smartphones. In light of this series of disruptions, we took measures to prevent a reoccurrence and conducted a thorough inspection of our communications network equipment. Along with verifying that our communications network is now stable, we are also working to address the increase in control signals and strengthen the foundation of our network to accommodate future smartphone traffic. However, should the number of subscribers, the volume of subscriber traffic, or the volume of control signals exhibit greater-than-anticipated growth in the future, or should there be other unforeseen circumstances, service quality could deteriorate, resulting in an adverse effect on our financial condition and operating results.

Other mobile service providers in the world may not adopt the technologies and the frequency bands that are compatible with those used by our corporate group’s mobile communications system on a continuing basis, which could affect our ability to sufficiently offer international services.

We are able to offer global roaming services on a worldwide basis on the condition that a sufficient number of other mobile service providers have adopted technologies and frequency bands that are compatible with those we use on our mobile communications systems. We expect that our overseas affiliates, strategic partners and many other mobile service providers will continue to use the technologies and the frequency bands that are compatible with ours, but there is no guarantee of this in the future.

If a sufficient number of mobile service providers do not adopt the technologies and the frequency bands that are compatible with ours, if mobile service providers switch to other technologies or frequency bands, or if there is a delay in the introduction and expansion of compatible technologies and frequency bands, we may not be able to offer international roaming or other services as expected, and we may not be able to offer our subscribers the convenience of overseas services.

Also, we cannot be sure that handset manufacturers or manufacturers of network equipment will be able to appropriately and promptly adjust their products if we need to change the handsets or network we currently use due to a change in the standard technology we adopt, resulting from the activities of standards organizations.

If such technologies and frequency bands compatible with those we have adopted do not develop as we expect and if we are not able to maintain or improve the quality of our overseas services, our financial condition and results of operations may be adversely affected.

Our domestic and international investments, alliances and collaborations may not produce the returns or provide the opportunities we expect.

One of the major components of our strategy is to increase our corporate value through domestic and overseas investments, alliances and collaborations. We have entered into alliances and collaborations with other

 

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companies and organizations overseas which we believe can assist us in achieving this objective. We are also promoting this strategy by investing in, entering into alliances with, and collaborating with domestic companies and investing in new business areas.

However, there can be no assurance that we will be able to maintain or enhance the value or performance of the past or future investments or joint ventures established, or that we will receive the returns or benefits we expect from these investments, alliances and collaborations. Our investments in new business areas outside of the mobile telecommunication business, such as broadcasting and home shopping, may be accompanied by uncertain factors beyond our expectations, as we have little experience in such new areas of business.

In recent years, the companies in which we have invested have experienced a variety of negative impacts, including severe competition, increased debt burdens, worldwide economic recession, significant change in share prices and financial difficulties. To the extent that these investments are accounted for by the equity method and to the extent that the investee companies have net losses, our financial results will be adversely affected by our pro rata portion of these losses. If there is a loss in the value of our investment in any investee company and such loss in value is other than a temporary decline, we may be required to adjust the book value and recognize an impairment loss for such investment. Also, a business combination or other similar transaction involving any of our investee companies could require us to realize impairment loss for any decline in the value of investment in such investee company. In either event, our financial condition or results of operations could be materially adversely affected.

Malfunctions, defects or imperfection in our products and services or those of other parties may give rise to problems.

Various functions are mounted on the mobile handsets we provide. Additionally, a large number of vendors, including our partners and other companies, provide services via the mobile handsets that we provide. If any problems arise due to the imperfection in a product or service provided by the Company or by another vendor such as technological problems in the handsets provided by us or by outside vendors or in software or systems, or if any other failures, defects, or losses arise, such problems could diminish our credibility or corporate image, lead to an increase in cancellations of subscriptions, or result in an increase in expenses for indemnity payments to subscribers, and our financial condition or results of operations may be affected. Furthermore in an effort to ensure new sources of revenue, we are pursuing initiatives to create new value through the convergence of mobile service with various other services and industries, including media/content, finance/payment, commerce, medical/healthcare, M2M and environment/ecology. Should problems arise due to the imperfection in such products or services, they could diminish our credibility or corporate image and our financial condition, or results of operations may be affected. Certain events may lead to a decrease in our credibility and corporate image, an increase in cancellations of subscriptions or increased costs. The following are possible examples of such events:

 

   

Malfunctions, defects or breakdowns in any of the various functions built into our handsets;

 

   

Malfunctions, defects, or failures in the software and systems necessary for the services we provide;

 

   

Malfunctions, defects, or failures in handsets or services originating from imperfection in services of other parties;

 

   

Leaks or losses of information, e-money, reward points, or content due to malfunctions, defects, or failures in handsets, software, or systems or imperfection in services of other parties;

 

   

Improper use of information, e-money, credit functions and reward points by third parties due to a loss or theft of handsets;

 

   

Improper access or misuse of customer information/data stored on handsets or servers, such as usage histories and balances, by a third party;

 

   

Inadequate and inappropriate management of e-money, credit functions, reward points, or other data by companies with which we make alliances or collaborate; or

 

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Harm or losses to customers due to imperfection in products or services offered as part of our effort to create new value, such as defective or flawed products or services offered through an e-commerce business such as a home shopping service.

Social problems that could be caused by misuse or misunderstanding of our products and services may adversely affect our credibility or corporate image.

We may face an increase in cancellations of subscriber contracts and difficulty in acquiring new subscriptions due to decreased credibility of our products and services and damaged corporate image caused by inappropriate use of our products and services by subscribers.

For example, there are cases of unsolicited bulk e-mails sent through our e-mail services, including i-mode mail, SMS and sp-mode mail. Despite our extensive efforts to address this issue caused by unsolicited bulk e-mails including notifying our subscribers via various brochures, providing unsolicited bulk e-mail filtering functions with our handsets and suspending our services to companies which distribute large amounts of such unsolicited bulk e-mails, the problem has not yet been rooted out. If our subscribers receive a large amount of unsolicited e-mail, it may cause a decrease in customer satisfaction and may damage our corporate image, leading to a reduction in the number of i-mode or sp-mode subscriptions.

Mobile phones have been used in crimes such as billing fraud. To combat these misuses of our services, and because voice-enabled pre-paid mobile phones are easier to use in criminal activities, we have introduced various measures such as stricter identification confirmation at points of purchase and terminated service for voice-enabled pre-paid mobile phones as of March 31, 2012. However, in the event that criminal usage increases, mobile phones may be regarded by society as a problem, which may lead to an increase in the cancellation of contracts.

In addition, problems arose from the fact that subscribers were charged fees for packet communication at higher levels than they were aware of as a result of using mobile phones without fully recognizing the increased volume and frequency of the use of packet communications as our handsets and services became more sophisticated. There have also been problems with high charges due to excessive use of paid content services and problems with accidents being caused by the use of mobile phones while operating automobiles and bicycles. Further, there are a variety of issues concerning the possession of mobile phones by children in elementary and junior high schools and discussions concerning whether our access restriction service to harmful web sites (“filtering service”), which applies generally to subscribers under 20 years of age in accordance with the Act on Establishment of Enhanced Environment for Youth’s Safe and Secure Internet Use, is sufficient and accurate. These issues may similarly damage our corporate image.

We believe that we have properly addressed the social issues involving mobile phones. However, it is uncertain whether we will be able to continue to respond appropriately to those issues in the future. Should we fail to do so, we may experience an increase in the cancellation of existing subscriber contracts or fail to acquire new subscribers as expected, and this may affect our financial condition and results of operations.

Inadequate handling of confidential business information including personal information by our corporate group, contractors and others, may adversely affect our credibility or corporate image.

We possess information on numerous subscribers in telecommunications, credit, catalog sales and other businesses, and to appropriately and promptly address the Law Concerning the Protection of Personal Information, we have put in place comprehensive company-wide security management that includes thorough management of confidential information such as personal information, employee education, supervision of subcontractors and the strengthening technological security.

 

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However, in the event an information leak occurs despite these security measures, our credibility and corporate image may be significantly damaged and we may experience an increase in cancellation of subscriber contracts, an increase in indemnity costs and slower increase in additional subscriptions, and our financial condition and results of operations may be adversely affected.

Owners of intellectual property rights that are essential for our business execution may not grant us the right to license or otherwise use such intellectual property rights on acceptable terms or at all, which may limit our ability to offer certain technologies, products and/or services, and we may also be held liable for damage compensation if we infringe the intellectual property rights of others.

For us and our business partners to carry out our business, it is necessary to obtain licenses and other rights to use the intellectual property rights of third parties. Currently, we are obtaining licenses from the holders of the rights concerned by concluding license agreements. We will obtain the licenses from the holders of the rights concerned if others have the rights to intellectual property necessary for us to operate our business in the future. However, if we cannot come to an agreement with the holders of the rights concerned or a mutual agreement concerning the granted rights cannot be maintained afterwards, there is a possibility that we or our business partners might not be able to provide our specific technologies, products or services. Also, if we receive claims of violation of intellectual property rights from others, we may be required to expend considerable time and expense to reach a resolution. If such claims are acknowledged, we may be liable to pay damages for infringement of the rights concerned, which may adversely affect our financial condition and results of operations.

Events and incidents caused by natural disasters, social infrastructure paralysis such as power shortages, proliferation of harmful substances, terror or other destructive acts, the malfunctioning of equipment, software bugs, deliberate incidents induced by computer viruses, cyber attacks, equipment misconfiguration, hacking, unauthorized access and other problems could cause failure in our networks, distribution channels, and/or other factors necessary for the provision of service, disrupting our ability to offer services to our subscribers, and such incidents may adversely affect our credibility or corporate image, or lead to a reduction of revenues and/or increase of costs.

We have built a nationwide network, including base stations, antennas, switching centers and transmission lines, and provide mobile communication service using this network. In order to operate our network systems in a safe and stable manner, we have various measures in place, such as duplicative systems. However, despite these measures, our system could fail for various reasons, including malfunctioning of system hardware and software, natural disasters such as earthquakes, tsunamis, typhoons and floods, paralysis of social infrastructure, such as power shortages, terrorism, and similar events and incidents, and the inability to sufficiently operate and maintain network facilities due to, for example, the proliferation of harmful substances or the spread of an epidemic. These system failures can require an extended time for repair and, as a result, may lead to decreased revenues and significant cost burdens, and our financial condition and results of operations may be adversely affected.

There have been instances in which tens of millions of computers worldwide were infected by viruses through fixed line Internet connections. As smartphones become more widespread, however, a growing number of viruses are also targeting mobile handsets. Similar incidents could occur on our networks, handsets, or other equipment. If such a virus entered our network or handsets through such means as hacking, unauthorized access, or otherwise, or if there was a cyber attack, our system could fail, the services we provide could become unusable service quality could be impacted and/or confidential information could be leaked. In such an instance, the credibility of our network, handsets and other equipment and customer satisfaction could decrease significantly. Although we have enhanced security measures including systems to block unauthorized access, remote downloading for mobile phones, and the provision of “DOCOMO Anshin Scan,” an antivirus solution for smartphones in order to provide for unexpected events, such precautions may not make our system fully prepared for every contingency. Moreover, software bugs, incorrect equipment settings, and human errors that are not the result of malfeasance could also result in system failures, diminished service quality, or leaks of confidential information.

 

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In addition, events or incidents caused by natural disasters, social infrastructure paralysis, proliferation of harmful substances, spread of an epidemic, or any other event could force our offices or critical business partners, including sales agencies, to suffer constraints on business operations or to temporarily close their offices or stores. In such a case, we would lose the opportunity to sell or provide goods and services and also may not be able to respond appropriately to subscription applications and requests from subscribers, such as after-sales service requests.

If we are unable to properly respond to any such events, our credibility or corporate image may decrease, and we may experience a decrease in revenues as well as significant cost burdens, and if market growth slows or the market shrinks due to any such event, ARPU may decrease below our forecast, or we may not be able to gain new subscriptions or maintain the existing number of subscriptions at the level we expect. All of these factors may affect our financial condition and results of operations.

Concerns about adverse health effects arising from wireless telecommunications may spread and consequently adversely affect our financial condition and results of operations.

Reports by the World Health Organization (WHO), other organizations and various media sources have suggested that radio wave emissions from mobile handsets and other wireless telecommunications devices may interfere with various electronic medical devices including hearing aids and pacemakers or may adversely affect the health of their users and others by causing cancer or vision loss. The actual or perceived risk of wireless telecommunication devices to the health of users could adversely affect our corporate image, financial condition and results of operations through increased cancellation by existing subscribers, reduced subscriber growth, reduced usage per subscriber and introduction of new regulations, restrictions, or litigation. The perceived risk of wireless telecommunications devices may have been elevated by certain telecommunications carriers and handset manufactures affixing labels to their handsets showing levels of radio wave emissions or warnings about possible health risks. Research and studies are ongoing and we are actively attempting to confirm the safety of wireless telecommunication, but there can be no assurance that further research and studies will demonstrate that there is no interrelation between radio wave emissions and health problems.

Furthermore, although the radio wave emissions of our cellular handsets and base stations comply with the electromagnetic safety guidelines of Japan and guidelines by the International Commission on Non-Ionizing Radiation Protection, which are regarded as an international safety standard, the Electromagnetic Compatibility Conference Japan has confirmed that some electronic medical devices are affected by the electromagnetic interference from cellular phones as well as other portable radio transmitters. As a result, Japan has adopted a policy to restrict the use of cellular services inside medical facilities. We are working to ensure that our subscribers are aware of these restrictions when using cellular phones. There is a possibility that modifications to regulations and new regulations or restrictions could limit our ability to expand our market or our subscription base or otherwise adversely affect us.

Our parent company, NIPPON TELEGRAPH AND TELEPHONE CORPORATION (NTT), could exercise influence that may not be in the interests of our other shareholders.

As of March 31, 2012, NTT owned 66.65% of our outstanding voting shares. While being subject to the conditions for fair competition established by the Ministry of Posts and Telecommunications (“MPT,” currently the Ministry of Internal Affairs and Communications, or “MIC”) in April 1992, NTT retains the right to control our management as a majority shareholder, including the right to appoint directors. Currently, although we conduct our day-to-day operations independently of NTT and its other subsidiaries, certain important matters are discussed with, or reported to, NTT. As such, NTT could take actions that are in its best interests but may not be in the interests of our other shareholders.

 

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Risks Relating to the Shares and the ADSs

Future sales of our shares by NTT or by us may adversely affect the trading price of our shares and ADSs.

As of March 31, 2012, NTT owned 66.65% of our outstanding voting shares. Under Japanese law, NTT, like any other shareholder, generally is able to dispose of our shares freely on the Tokyo Stock Exchange or otherwise. Additionally, our board of directors is authorized to issue 144,480,000 additional shares generally without any shareholder approval. The sale or issuance or the potential for sale or issuance of such shares could have an adverse impact on the market price of our shares.

There are restrictions on your ability to withdraw shares from the depositary receipt facility.

Each ADS represents the right to receive 1/100th of a share of common stock. Therefore, pursuant to the terms of the deposit agreement with our depositary, The Bank of New York Mellon, in order to withdraw any shares, a holder of ADSs must surrender for cancellation and withdrawal of shares, ADRs evidencing 100 ADSs or any integral multiple thereof. Each ADR will bear a legend to that effect. As a result, holders of ADSs will be unable to withdraw fractions of shares from the depositary or receive any cash settlement in lieu of withdrawal of fractions of shares. In addition, although the ADSs themselves may be transferred in any lots pursuant to the deposit agreement, the ability to trade the underlying shares may be limited.

Holders of ADRs have fewer rights than shareholders and have to act through the depositary to exercise those rights.

Holders of ADRs do not have the same rights as shareholders and accordingly cannot exercise rights of shareholders against us. The Bank of New York Mellon, as depositary, through its custodian agent, is the registered shareholder of the deposited shares underlying the ADSs, and therefore only it can exercise the rights of shareholders in connection with the deposited shares. In certain cases, we may not ask The Bank of New York Mellon to ask holders of ADSs for instructions as to how they wish their shares voted. Even if we ask The Bank of New York Mellon to ask holders of ADSs for such instructions, it may not be possible for The Bank of New York Mellon to obtain these instructions from ADS holders in time for The Bank of New York Mellon to vote in accordance with such instructions. The Bank of New York Mellon is only obliged to try, as far as practical, and subject to Japanese law and our Articles of Incorporation, to vote or have its agents vote the deposited shares as holders of ADSs instruct. In your capacity as an ADS holder, you will not be able to bring a derivative action, examine the accounting books and records of the Company, or exercise appraisal rights.

U.S. investors may have difficulty in serving process or enforcing a judgment against us or our directors, executive officers or corporate auditors.

We are a limited liability, joint stock corporation incorporated under the laws of Japan. Most of our directors, executive officers and corporate auditors reside in Japan. All or substantially all of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgments obtained in U.S. Courts predicated upon the civil liability provisions of the Federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions or in actions for enforcement of judgment of U.S. courts, of liabilities predicated solely upon the federal securities laws of the United States.

Rights of shareholders under Japanese law may be different from rights of shareholders in jurisdictions within the United States.

Our Articles of Incorporation, Regulations of the Board of Directors and the Corporation Law of Japan (Kaishaho) govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and liabilities, and shareholders’ rights under Japanese law may be different from those that would apply to a company incorporated in a jurisdiction within the United

 

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States. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in a jurisdiction within the United States.

Our shareholders of record on a record date may not receive the dividend they anticipate.

The customary dividend payout practice and relevant regulatory regime of publicly listed companies in Japan may differ from that followed in foreign markets. Our dividend payout practice is no exception. While we may announce forecasts of year-end and interim dividends prior to the record date, these forecasts are not legally binding. The actual payment of year-end dividends requires a resolution of our shareholders. If the shareholders adopt such a resolution, the year-end dividend payment is made to shareholders as of the applicable record date, which is currently specified as March 31 by our Articles of Incorporation. However, such a resolution of our shareholders is usually made at an ordinary general meeting of shareholders held in June. The payment of interim dividends requires a resolution of our board of directors. If the board adopts such a resolution, the dividend payment is made to shareholders as of the applicable record date, which is currently specified as September 30 by our Articles of Incorporation. However, the board usually does not adopt a resolution with respect to an interim dividend until September 30.

Shareholders of record as of an applicable record date may sell shares after the record date in anticipation of receiving a certain dividend payment based on the previously announced forecasts. However, since these forecasts are not legally binding and resolutions to pay dividends are usually not adopted until after the record date, our shareholders of record on record dates for year-end or interim dividends may not receive the dividend they anticipate.

Item 4. Information on the Company

 

A. History and Development of the Company

We are a joint stock corporation under the Corporation Law of Japan. We were incorporated and registered in August 1991 under the name of NTT Mobile Communications Planning Co., Ltd., and, in April 1992, we were renamed NTT Mobile Communications Network, Inc. We changed our name to NTT DoCoMo, Inc. on April 1, 2000 (NTT DOCOMO, INC. since June 2010). Our corporate head office is at Sanno Park Tower, 11-1, Nagata-cho 2-chome, Chiyoda-ku, Tokyo 100-6150, Japan. Our telephone number is 81-3-5156-1111. We have no agent in the United States in connection with this annual report.

Our parent company is NIPPON TELEGRAPH AND TELEPHONE CORPORATION (“NTT”), the holding company of NTT group. NTT group is one of the world’s leading telecommunications operators. We were incorporated as a subsidiary of NTT in August 1991 and took over NTT’s wireless telecommunication operations in July 1992. In July 1993, in accordance with the agreement between NTT and the Ministry of Posts and Telecommunications (“MPT”) (currently the Ministry of Internal Affairs and Communications, “MIC,”) we transferred wireless telecommunication operations (other than those in the Kanto-Koshinetsu region which remained with us) to our 8 regional subsidiaries. However, the other 8 regional subsidiaries were merged into our company as the surviving company in July 2008.

For a discussion of recent and current capital expenditures, please see “Capital Expenditures” in Item 5.B. We have had no recent significant divestitures or any significant divestitures currently being made.

 

B. Business Overview

1. Business Overview

We are a mobile telecommunications carrier belonging to the NTT group, for which NIPPON TELEGRAPH AND TELEPHONE CORPORATION (“NTT”) serves as the holding company. We currently provide mobile telephone services over our LTE and W-CDMA networks.* We have approximately 60,129 thousand subscribers and a domestic market share of 46.9%.

 

* We terminated PDC service on March 31, 2012.

 

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Together with our 127 subsidiaries and 32 affiliates, we conduct business as the NTT DOCOMO group. Our subsidiaries and affiliates as of March 31, 2012 are listed below.

 

Name

   Percentage
Voting
Interest
 

Service Subsidiaries *: 25

  

DOCOMO Business Net Inc.

     100%   

DOCOMO Engineering Chugoku Inc.

     100%   

DOCOMO Engineering Hokkaido Inc.

     100%   

DOCOMO Engineering Hokuriku Inc.

     100%   

DOCOMO Engineering Inc.

     100%   

DOCOMO Engineering Kansai Inc.

     100%   

DOCOMO Engineering Kyushu Inc.

     100%   

DOCOMO Engineering Shikoku Inc.

     100%   

DOCOMO Engineering Tohoku Inc.

     100%   

DOCOMO Engineering Tokai Inc.

     100%   

DOCOMO I Kyushu Inc.

     100%   

DOCOMO Mobile Inc.

     100%   

DOCOMO Mobile Media Kansai Inc.

     100%   

DOCOMO Service Chugoku Inc.

     100%   

DOCOMO Service Hokkaido Inc.

     100%   

DOCOMO Service Hokuriku Inc.

     100%   

DOCOMO Service Inc.

     100%   

DOCOMO Service Kansai Inc.

     100%   

DOCOMO Service Kyushu Inc.

     100%   

DOCOMO Service Shikoku Inc.

     100%   

DOCOMO Service Tohoku Inc.

     100%   

DOCOMO Service Tokai Inc.

     100%   

DOCOMO Support Inc.

     100%   

DOCOMO Systems, Inc.

     100%   

DOCOMO Technology, Inc.

     100%   

Other Subsidiaries: 102

  

DOCOMO Capital, Inc.

     100%   

DOCOMO.COM, INC.

     100%   

DOCOMO Communications Laboratories Europe GmbH

     100%   

DOCOMO Innovations, Inc.

     100%   

DOCOMO interTouch Pte. Ltd.

     100%   

DOCOMO PACIFIC, INC.

     100%   

D2 Communications Inc. **

     51.0%   

mmbi, Inc.

     60.5%   

net mobile AG

     87.1%   

NTT DOCOMO USA, Inc.

     100%   

OAK LAWN MARKETING, INC.

     51.0%   

PacketVideo Corporation

     100%   

Radishbo-ya Co., Ltd.

     74.6%   

and other subsidiaries

  

Affiliates: 32

  

Avex Broadcasting & Communications Inc.

     30.0%   

FeliCa Networks, Inc.

     38.0%   

Hutchison Telephone Company Ltd.

     24.1%   

Nippon Telecommunications Network Co., Ltd.

     37.4%   

NTT Resonant Inc.

     33.3%   

Philippine Long Distance Telephone Company

     14.5%   

Sumitomo Mitsui Card Company, Limited.

     34.0%   

Robi Axiata Limited

     30.0%   

Tower Records Japan Inc.

     42.1%   

Tata Teleservices Limited

     26.5%   

and other affiliates

  

 

* These service subsidiaries provide operational services such as engineering and support services to NTT DOCOMO, INC.
** D2 Communications Inc. has changed their company name to D2C Inc. on June 1, 2012.

 

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Our segments are reported with two segments: mobile phone business and all other businesses. Operating revenues from the mobile phone business include those from wireless services and those from equipment sales for mobile devices. Combined, this accounted for the greater part of our operating revenues for the fiscal year ended March 31, 2012. With regard to all other businesses, major examples of operating revenues sources are credit services, as well as sales by our subsidiaries, including home shopping services, Internet access services for hotel facilities, and mobile advertising. We operate our business mainly in Japan, and do not generally experience significant seasonality.

Breakdown of Operating Revenues

 

     Millions of yen  
     Year ended March 31,  
     2010      2011      2012  

Mobile phone business

     4,167,704         4,090,659         4,110,585   

All other businesses

     116,700         133,614         129,418   

For more details of our business segment information, please see “Operating and Financial Review and Prospects” in Item 5.

 

 

Business Strategy

Since we announced our new medium-term action plan, “DOCOMO’s Change and Challenge to Achieve New Growth” in October 2008, we have been carrying out actions to improve customer satisfaction, an endeavor that earned us the No. 1 ranking for a second straight year in the consumer satisfaction study conducted by J.D. Power Asia Pacific for the fiscal year ended March 31, 2012.

In our effort to continue to grow in the future, we are encouraging the transition to smartphones, appealing customers to sign up for second subscriptions for mobile broadband devices and tablets, and ensuring the smooth introduction of LTE services to expand use of data services. At the same time, we are also aiming to develop our business by cultivating new business areas so as to transform into an “integrated services company placing mobile at the core” as set out in our corporate vision for 2020, “Pursuing Smart Innovation: HEART” (announced in July 2010).

As a firm step towards realizing this corporate vision for 2020, in November 2011 we developed our Medium-Term Vision 2015 “Shaping a Smart Life.” Along with pursuing further advances in our mobile devices, particularly smartphones and services, we are working to create new value through the convergence of various services and industries in business domains in which there are substantial synergies with mobile services. Using “docomo cloud” to accelerate these efforts, we are pursuing a variety of initiatives aimed at moving even closer to the realization of this smart life by making everyday life and business more safe and secure as well as convenient and efficient.

2. Networks

We currently provide our services mainly on LTE and W-CDMA networks.

 

 

LTE

In December 2010, we launched a new service called Xi, which applies LTE (Long Term Evolution) technology, on our 3.9G network for data communications devices, in November 2011 we expanded the Xi service to smartphones, and in December 2011 we began offering higher speeds (75 Mbps) in some outdoor areas. In terms of service area, we achieved 100% population coverage in all ordinance-designated cities nationwide* at the end of March 2012.

 

* population coverage in ordinance-designated cities is calculated based on the availability of service at the location of city office of ordinary-designated cities or ward office in the case of 23 special ward of Tokyo.

 

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Featuring high speed, high capacity and low latency, LTE also excels in frequency use efficiency and delivers a faster and more comfortable mobile environment. As we are expanding its service area while overlapping it with the W-CDMA network, customers are able to use the W-CDMA network outside the LTE area. In this way we are able to provide area coverage which does not compromise our customers’ convenience.

 

 

W-CDMA

We offer FOMA services based on W-CDMA technology on our 3G network. After working on expanding population coverage of the FOMA high speed areas, we achieved 100% coverage in December 2008. To improve the quality of our network, we are actively working to improve and expand our facilities in order to be able to offer a user environment that is amenable to rich content, such as video, as well as to accommodate the increase in communications volume that has accompanied the spread of smartphones.

 

 

PDC

Our mova services based on PDC technology on our 2G network was terminated in March 2012, after we moved ahead on the migration of our customers from our PDC network to our W-CDMA network.

 

 

Spectrum Use Status

The Ministry of Internal Affairs and Communications (“MIC”) has allocated a total bandwidth of 365MHz as radio frequencies available for use for 3.9G/3G networks (2GHz, 1.7GHz, 1.5GHz, 900MHz, 800MHz and 2GHzTDD). Of this, we use 3 frequency bands—2GHz, 800MHz and 1.7GHz—to operate our networks.

3.9G network:

Of the 20MHz×2 allocated in the 2GHz band, we use 5MHz×2 (10MHz×2 in some locations)* in major cities nationwide for use in the 3.9G network.

3G network:

We use 20MHz×2 (for uplink and downlink)* in the 2GHz band across Japan. In the 800MHz band, which is in the process of reallocation, we currently use up to 15Hz×2 in regions where interference with existing systems can be avoided. Further, in the 1.7GHz spectrum, we use 20MHz×2 in the Kanto, Kansai, and Tokai areas.

Although having been using 8MHz×2 in the 800MHz band for the 2G network, we terminated its utilization with spectrum reallocation

For a discussion of recent spectrum allocation, please see “10. Regulations” in Item 4.B.

 

  * The use of bandwidth of 20MHz in the 2GHz spectrum is shared between our 3.9G network and 3G network.

We are moving ahead with utilizing common antennas and transmission lines for our LTE and W-CDMA networks in our efforts to reduce network costs. Furthermore, in order to establish and maintain our high-quality network economically and efficiently, we purchase high-quality network equipment at low cost from suppliers inside and outside Japan in accordance with our procurement policies, which emphasize openness and fairness.

3. Mobile Services

We currently offer voice, data, and other value-added services through our Xi (LTE) and FOMA (W-CDMA) services. We began providing data services for tablets and mobile data cards through our Xi service in December 2010, and we began offering voice and data service for smartphones in November 2011. In order to concentrate our business resources in our Xi service and FOMA service, we terminated our mova (PDC) service on March 31, 2012.

 

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Voice Services

We offer voice services and a range of value-added service options such as a voice mail service. Most subscribers subscribe on a postpaid basis.

 

 

Data Communication Services for Handsets

The smartphone market is growing worldwide, and demand for smartphones is also rising rapidly in Japan’s mobile phone market. We launched 34 smartphones during the fiscal year ended March 2012 and worked to expand smartphone penetration. As the transition to open platforms proceeds with smartphones becoming more prevalent, a major challenge for us will be differentiating ourselves from other providers by offering unique functions and value-added services. We are working to offer the kind of features and value-added services that we have developed through our i-mode service so that we can avoid becoming merely a “dumb pipe” (when telecommunications carriers simply serve as a connection between users and external content providers without providing any additional value), which is a concern for many carriers.

ISP: sp-mode and i-mode

In addition to the i-mode service that we were already offering for feature phones, in September 2010 we began offering “sp-mode” ISP service for smartphones. Through this service, users can connect to the internet, access portals and DOCOMO-operated content markets, use email with a DOCOMO address (@docomo.ne.jp), use content payment services, and access public wireless LANs.

Portal: dmenu and iMenu

The iMenu for feature phones is the portal that first appears when the device connects to i-mode. To make i-mode even more convenient to use, we are working to improve the user interface of the iMenu and enhance the search feature. In November 2011 we launched the dmenu portal for smartphones. The dmenu portal is a way for smartphone users to find fun and useful services and content. When a user shifts from a feature phone to a smartphone model, he or she can continue to use the same content without any special settings (may not work with some content.)

DOCOMO-operated content market: dmarket

We offer content and applications to our smartphone and feature phone users through dmarket. At dmarket, we sell content and applications which are specially selected for Japanese users, through the 3 genres of stores (Video, Music and Book stores) and introduce users to popular Google Play applications.

Additionally, in the year ended March 31, 2012 we have been working to improve usability for smartphone users by offering services on smartphones those are popular on i-mode, including:

i-channel:

A service that automatically displays the latest information such as news, weather, entertainment, sports, horoscopes, and more. Since June 2011 this service can be used on smartphones.

i-concier:

A service that supports users’ daily lives according to their lifestyle. An auto-GPS function delivers information useful for daily life in accordance with the time and user’s location. Since March 2012 this service can be used on smartphones.

Additionally, we are currently working to develop the following new value-added services for smartphones:

Voice agent: We began offering in March 2012 the “Shabette Concier” voice agent application free of charge, which allows users to use voice recognition to perform searches and operate their smart phones.

 

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Memory Collection: We began offering on a trial basis in December 2011 our cloud-based “Memory Collection” service, which automatically sorts photos and videos stored on smartphones. After this trial, we are scheduled to launch “Photo Collection” as a commercial service in August 2012.

Translation phone: We developed a translation phone service for real-time interpretation by utilizing the call audio and executing advanced processing such as voice recognition, translation, and voice synthesis over the DOCOMO network, thereby performing high-speed processing without relying on the processing capability of the mobile handset, and we conducted a trial of this service from November 2011 to March 2012.

 

 

Data Communication Services for PCs and other devices

We offer a series of data communication services for PCs, tablets and other devices. Considering that they lead to a broader market representing demand for second device purchases, we are working on the enrichment of our product lineup and sales promotion. In the fiscal year ended March 31, 2012, we expanded the availability of devices that support our data communications services. In addition to our sales of USB-type, Express card-type, and Wi-Fi routers, the PlayStation®Vita portable game console from Sony Computer Entertainment Inc. comes equipped with our UIM card.

We also offer an ISP service called “mopera U,” which provides an Internet connection for data communication services. In addition to providing easy access to the Internet by connecting a docomo data communications device and PC, the “mopera U” service offers an Internet connection and mail service, from mobile to broadband, under a single contract.

We are currently working towards converging mobile service with various tools and equipment, to drive M2M business, and we currently offer the communication module services below.

Digital photo delivery service for digital photo frames:

This is a service that enables photos and videos to be displayed in a digital photo frame from a remote location simply by sending an email with an attached photo or video from a mobile phone or PC to our digital photo frame that uses the Ubiquitous Module.

Driver navigation service:

This is a service that provides drivers with real-time information such as traffic reports, parking availability and gasoline prices, through portable navigation devices (PND) equipped with an embedded communications module.

Communication module services for corporate customers:

For corporate customers, we offer a series of mobile communication module services, such as a vehicle management system using a built-in module, a wireless credit card settlement system and a telemetering system to enable automatic stock checks between vending machines and the center.

 

 

Public wireless LAN service “docomo Wi-Fi”

We offer a public wireless LAN service called “docomo Wi-Fi” for high speed, high capacity Internet access at the maximum speed of 54 Mbps. It is available with the sp-mode or mopera U and also for customers without a mobile phone contract with us by subscribing to it at docomo Shops. As of March 31, 2012, we have approximately 8,400 access points and are expanding service areas in line with our customers’ needs.

 

 

Other Principal Services

International Calling Service and International Roaming Service

As of March 31, 2012, our international calling service is a service that allows customers to make international phone calls to 241 countries and regions from their mobile phones. In addition, with our international roaming service, customers are able to use the DOCOMO mobile phones that they use in

 

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Japan, with the same phone numbers and i-mode mail addresses, in the service areas of overseas mobile network operators with which we have partnerships. As of March 31, 2012, our customers are able to make and receive voice calls in 219 countries and regions and use packet communications in 194 countries and regions with our roaming services.

Services for Corporate Customers

We are focusing on suggesting attractive solutions and expanding our B-to-B-to-C business, including offering network services for corporate customers that deliver high-security access to an internal system from outside the office and that allow mobile phones to be used as internal lines in FOMA service areas nationwide by linking to corporate PBXs.

We are also offering cloud services with smartphone support to corporate users:

Mobile Groupware:

A service that allows the use of functions such as email, scheduling, document management, and daily sales reports etc., with smartphones and PCs.

Smartphone Remote Control Service:

A service that allows company administered smartphones to be operated remotely through a dedicated website. Each device can be set and controlled, including remote locking and data elimination in the event of a loss, or restricting device usages to prevent improper use.

Secure Mobile Desktop:

A cloud-based virtual desktop service that allows customers to use the desktop environment at a DOCOMO data center from their device.

Satellite Mobile Communication Services

We provide satellite mobile communication services for communications in case of emergencies, in mountainous areas and aboard ships. The service area covers the entire territory of Japan and its surrounding waters for roughly up to 200 nautical miles from Japan’s coastline.

Credit Settlement Services

Many of our mobile phones come equipped with the “Osaifu-Keitai” (Mobile Wallet) function, which uses cards with contactless IC chips. We offer credit settlement services utilizing this function.

iD:

“iD” is a settlement platform that enables a user, simply by holding the “Osaifu-Keitai” or plastic card over a specialized terminal, to make a speedy credit settlement. We are expanding the participation of member stores in “iD” by working to cultivate member stores so that customers can use “iD” at stores that are deeply connected to their everyday lives.

DCMX:

“DCMX” is DOCOMO’s credit service. In the fiscal year ended March 31, 2012, the number of members increased as we worked to promote the service and conducted various campaigns to promote the acquisition of new members and encourage usage.

4. Tariffs

Our cellular services revenues are generated primarily from fixed basic monthly charges, voice usage charges for outgoing calls (in Japan the caller is usually charged), revenues from incoming calls, charges for data communication services and charges for optional value-added services and features. We set our own rates in accordance with the Telecommunications Business Act and guidelines set by the Japanese government, which currently allow mobile network operators to set their own tariffs without approval.

 

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Currently, monthly charges paid by our cellular subscribers who uses our handsets with voice communication subscriptions consist mainly of (i) a fixed basic monthly charge based upon the “plan” chosen, (ii) voice call charges which vary with airtime, billing plan, etc., (iii) data communication charges, (iv) a mobile ISP charge, and (v) other additional monthly service charges for miscellaneous value-added services. Monthly charges paid by our subscribers who use data communication dedicated plans, including tablets users, consist mainly of (iii) data communication charges, (iv) a mobile ISP charge, and (v) other additional monthly service charges for miscellaneous value-added services.

The details of the charges in connection with items (i) to (iii) are discussed below.

 

 

Basic Monthly Charges

We offer a variety of basic plans tailored to our customers’ usage patterns under our FOMA (W-CDMA) service. Generally, the basic monthly charges for FOMA plans include a set amount of free minutes. With respect to the basic monthly charges for our Xi (LTE) service, with the introduction of smartphones for use with our Xi service in November 2011, we began offering rate plans for Xi under which, unlike FOMA, the basic monthly charge does not include any free minutes. Our customers, however, have so far reacted favorably to plans combining this with the flat-rate service for domestic voice calls.

 

 

Voice Call Charges

The voice charges for FOMA service are calculated based on the usage under the rate plan selected by the customer. With the introduction of smartphones for use with our Xi (LTE) service in November 2011, in addition to pay-as-you-go billing, we began offering flat-rate service for domestic voice calls. This fixed-rate service allows our subscribers to make an unlimited number of domestic calls for a set fee.

 

 

Data Communication Charges

Except for prepaid plans, the charges for data communications are levied based on the volume of data that is sent and received. We have 2 types of rate plans for our data services: pay-as-you-go services with no maximum charges and flat-rate services. As of March 31, 2012, 68.7% of total subscribers (excluding prepaid data plans) were on flat-rate plans. Most of the flat-rate plans for data services that we offer are either two-tiered plans or completely flat-rate plans. Under a two-tiered flat-rate plan, charges begin a set minimum and then users are billed each month depending on usage up to a certain maximum amount, after which data use becomes unlimited. Under our Xi flat-rate plan, once data usage exceed 7GB, users can either pay an additional set fee for each 2GB of data, or transmission speed is lowered to 128kbps until the end of that month. However, because of the limited initial service area, we are conducting a campaign to promote the spread of the Xi service under which these restrictions will not apply until September 30, 2012, and monthly usage charges have also been discounted by a set amount.

5. Products

We purchase products from vendors and then sell them to our sales agencies who sell these products to our subscribers. With feature phones, our approach is to draw up specifications covering every layer of the device, from hardware to the OS and applications, and create handsets optimal for the provision of our services. With smartphones, however, our fundamental principle in development is to focus on developing the applications essential to making our services possible, while utilizing hardware and operating systems in popular use worldwide. This stance has also allowed us to shorten the product development term and made it easier to introduce products from foreign vendors to the domestic market. As a result, this trend is leading to a more robust lineup of our products and lower procurement prices.

In order to respond to growing user needs in an expanding smartphone market, in the fiscal year ended March 31, 2012, we expanded and improved our lineup of smartphones. In the past, our product lineup consisted of the “docomo smartphone” category and 5 series of feature phones. In the fall of 2011, we completely

 

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overhauled this lineup. Our devices are now aligned into 5 categories/series. For smartphones, there is the approachable “docomo with series” and the cutting-edge “docomo NEXT series.” For feature phones, there is the “docomo STYLE series,” which targets a broad market, and the “docomo rakuraku phone series,” aimed at seniors. Finally, we have added a “docomo tablet” category. By doing this, we have created an environment in which it is easier for our customers to choose the right smartphone as our smartphone lineup becomes bigger and better.

We have a diverse lineup of handsets and devices including smartphones, feature phones and data communication devices; in the fiscal year ended March 31, 2012, we introduced 34 smartphone models, 6 tablet models, 22 feature phone models and 6 data communication device models, and sold approximately 22,089 thousand units. Sales of each type of device are discussed below.

 

 

Smartphones

In the fiscal year ended March 31, 2012, along with expanding and improving our lineup of smartphones, in November 2011 we began selling 4 models of LTE smartphones, giving smartphone sales a boost. As a result, in the fiscal year ended March 31, 2012 smartphone sales increased by 6,298 thousand units from the previous year to 8,818 thousand units, accounting for approximately 40% of all sales in the fiscal year ended March 31, 2012. We have been actively bringing highly popular global models into the Japanese market, such as the XperiaTM series and the GALAXY series. We have greatly expanded our lineup of smartphones with the latest value-added features. These include smartphones with features that users have enjoyed on our feature phones, including “Osaifu-Keitai” (Mobile Wallet), “One-Seg” (mobile TV), waterproof and infrared capabilities, as well as 3D liquid crystal displays and an imaging engine for better video viewing.

 

 

Tablets

In the fiscal year ended March 31, 2012 we offered 6 tablet models, including 2 LTE tablets that we began selling in October 2011. We are working to boost use of these devices by offering applications that work on tablets as well as handsets.

 

 

Feature Phones

In the fiscal year ended March 31, 2012 we focused on the diversity of our feature phone offerings, and our lineup included models with high-performance camera features and models developed in collaboration with famous brands.

 

 

Data Communications Products

Data Cards

We offer a wide range of data cards, including USB data cards and ExpressCards. We have also begun selling data communications devices for LTE service.

Mobile Wi-Fi Routers

In the fiscal year ended March 31, 2011, we began selling mobile Wi-Fi routers, and in the fiscal year ended March 31, 2012 we began selling devices that work with our LTE service. The mobile Wi-Fi router allows customers to connect devices with Wi-Fi capabilities such as handheld gaming consoles and tablets to the Internet anywhere on our W-CDMA or LTE network in addition to public wireless LAN coverage areas.

Digital Photo Frames

We offer a module-embedded digital photo frame with communication functions whereby photos and videos that subscribers have attached to e-mail or photos posted to a dedicated site can be received by e-mail and displayed.

 

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Modules

“FOMA Ubiquitous Modules” are used for managing taxi and bus operations, monitoring and controlling power and gas facility devices, distributing content to information posting systems, managing inventory for vending machines and managing payment with mobile devices.

6. Sales and Marketing

 

 

Sales Channels

We sell our products and services through a vast sales network covering the entire country. The shops, which deal with our products and services, are operated by various distributors, and as of March 31, 2012, there were 2,395 docomo Shops nationwide. In addition to docomo Shops, there are general distributors that handle the products and services of multiple operators such as mass merchandisers of consumer electronics and other stores that also sell our products. As of March 31, 2012, the number of such shops was approximately 5,400 (excluding docomo Shops).

 

 

Sales Methods

We purchase mobile devices from manufacturers and then wholesale these to our sales agents. With the aims of gaining and keeping customers and encouraging the spread of our services through new contracts and handset upgrades, we pay these sales agents commissions that are linked to their sales.

In November 2007, we started offering “Value Course” as a new handset purchase method. The “Value Course” offers lower basic monthly charges than the conventional model; instead, customers pay the initial handset purchase costs on their own. Nowadays most customers who purchase new handsets choose the “Value Course.”

We introduced the “Monthly Support” program in March 2011. Under this program, customers with new smartphones and tablets are given certain levels of discounts, which vary by model, on their monthly bills for up to 24 months. This has given us the flexibility to address the expansion of the smartphone market without experiencing a temporary increase in commission fees to our agents when the market expands. It has also allowed us to create an environment in which customers can easily obtain smartphones.

 

 

Customer Support

Customer Loyalty Program

As part of our efforts to provide enhanced customer services, we offer a customer loyalty program called “docomo Premier Club.” This reward program consists of a point accumulation service, complimentary services and after-sales services; depending on their monthly mobile phone usage, subscribers earn points, which can be applied to purchasing handsets, or exchanged for travel tickets, restaurant vouchers, etc.

By joining this program, members are entitled to services such as:

 

   

free repair services for 3 years from handset purchase (not applicable to damages resulting from customers’ negligence)

 

   

a discount on a battery pack or charger adapter with the use of the same FOMA handset for at least one year

 

   

a cap on repair charges for non-insured phones at ¥5,250 (including tax) for 3 years from handset purchase (not applicable to damages resulting from water intrusion, complete loss, etc.)

In October 2010, we partially revised our “Premier Club” services to adjust to changes in the mobile phone usage patterns of customers, such as the increase in the length of the mobile phone replacement cycle. We

 

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announced the extension of the effective period of “docomo Points” and widened the scope of their application, and at the same time we implemented changes in the “docomo Point” award scale. We also reviewed the monthly fee for the “Mobile Phone Protection & Delivery Service”, made changes to charges when the protection service is used, and also announced a revision in the period of application of the “Repair Cost Support.” While our customers have been stretching out phone replacements longer since we adopted a new sales model, in the fiscal year ended March 2012, the length of time between phone replacement began decreasing due to the increase in mobile phone replacements as smartphones became more widespread.

As described below, we have continually worked to strengthen our after-sales support with the aim of further improving customer satisfaction:

 

   

“Smartphone Anshin Remote Support” service to provide customers with professional assistance concerning the operation or settings of smartphones or tablet devices from our call center staff who can monitor the handset operations from a remote location.

 

   

Field staff dispatched in principle within 48 hours of request for quality surveys or coverage improvement.

 

   

“Mobile Phone Checking Service,” which provides free basic after-care, including checkups, minor repairs and cleaning at docomo Shops.

 

   

“Mobile Phone Protection & Delivery Service,” which covers handset issues such as loss, water exposure and total damage. With a simple telephone call, a replacement handset of the same model and color as the original one (refurbished handset* and new battery pack) is delivered directly to the customer.

 

* Refurbished products are handsets collected from customers that have been repaired, had their external covers replaced, undergone quality checks, and then reset to the same state as a new product.

 

 

Customer Satisfaction

We have moved ahead with our business transformation programs from a customer-oriented perspective in accordance with our “Change and Challenge” action plan, uniting the forces of the entire corporate group and ensuring a thoroughly hands-on approach to serving customers. We have consistently listened to the voices of our customers through various channels such as docomo Shops and call centers, and responded to them in a steadfast manner. As a result, we were awarded with the following appraisals from external institutions:

 

   

No.1 ranking for 2 straight years in “2011 Japan Mobile Phone Service Study,”*1 a consumer satisfaction study by J.D. Power Asia Pacific.

 

   

No.1 ranking for 3 straight years in “2011 Japan Business Mobile Phone Service Study”*2 conducted by J.D. Power Asia Pacific.

 

   

No.1 ranking for 4 straight years in “mobile data devices customer satisfaction survey”*3 by Nikkei BP Consulting.

 

*1:

J. D. Power Asia Pacific 2010-2011 Japan Mobile Phone Service StudiesSM. 2011 study results were based on responses obtained from 31,200 mobile phone users residing in Japan during August 2011. http://www.jdpower.co.jp/

*2:

J. D. Power Asia Pacific 2009-2011 Japan Business Mobile Phone Service StudiesSM. 2011 study results were based on 3,214 responses from individuals responsible for supervising or deciding upon telephone services at 2,466 businesses with 100 or more employees. (Each respondent evaluated up to two mobile telephone providers.)

*3: Nikkei BP Consulting “4th Mobile data devices customer satisfaction survey,” a customer satisfaction survey on mobile data communications services (3G, LTE, WiMAX) of mobile operators conducted in March 2012.
     http://consult.nikkeibp.co.jp/consult/news/2012/0423md/

 

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7. Collaboration with alliance partners

 

 

Initiatives for New Market Creation

With a view to becoming an “Integrated Service Company placing mobile at the core,” we aim to drive innovation through convergence with various industries and services by collaborating with alliance partners, especially in fields that offer great synergy with our mobile business. We aim to create new value in a wide range of business domains, as described below. In addition, please refer the list in Item 4.B-1 “Business Overview,” which contains the name and voting interest of our subsidiaries and affiliates as of March 31, 2012.

 

 

Media/ Content Business

We are developing businesses that bring together a variety of media content with mobile communications. We will accelerate these efforts by expanding the content market through the development of services for smartphones and by teaming up with companies in new business domains.

 

   

In December 2011, along with leading Japanese broadcasting companies, we made an additional investment in our subsidiary mmbi, Inc., which brought our total investment in the company to approximately 30 billion yen and our shareholding interest to 60.45%. In April 2012 mmbi began operating “NOTTV,” the first-ever broadcasting station in Japan specifically for smartphones. The company provides interactive programs through 3 real-time channels and through stored-content services. Going forward, it is also slated to offer digital content other than video content such as e-books.

 

 

Finance/ Payment Business

We are developing finance and payment businesses, utilizing the unique properties of mobile communications and credit functionality. As the market for mobile e-commerce expands, we are investing in this area with the aim of spreading the use of iD and DCMX.

 

   

Working in collaboration with affiliate Sumitomo Mitsui Card Co., Ltd., we operate the “iD” payment platform that uses a contactless chip embedded in mobile phones. We also provide the DCMX credit payment service that operates on the “iD” platform.

 

   

In cooperation with Tokio Marine & Nichido Fire Insurance Co., Ltd. in July 2011 we began offering “docomo medical insurance,” a medical insurance plan for “docomo Premier Club,” to which users can easily subscribe from a mobile phone.

 

 

E-Commerce Business

We are pursuing e-commerce businesses that take advantage of the characteristics of mobile communications.

 

   

Our subsidiary OAK LAWN MARKETING, INC. operates a home shopping business that uses TV as its primary media.

 

   

In March 2012 we conducted a public tender offer in which we acquired Radishbo-ya Co., Ltd. for approximately 5.3 billion yen, converting it into a subsidiary with a 71.6% shareholding stake. The company operates a membership-based home-delivery service for organic and low-pesticide produce and additive-free foods. We expect to realize synergies by combining its activities with our own products and services.

 

   

In April 2012 we established DOCOMO Insight Marketing, Inc. (in which we have a 51.0% interest) with the aim of developing a new mobile research and market support business that takes advantage of smartphones. It also brings together the customer base of “docomo Premier Club” members with the expertise of Intage, Inc. on data analysis and product commercialization.

 

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In June 2012, we announced that we will acquire an additional 8.1% stake in Tower Records Japan Inc., which will raise our total ownership in Tower Records Japan to 50.3%. Following the acquisition, Tower Records Japan will become our consolidated subsidiary.

 

 

Medical/ Healthcare Business

We are developing medical/healthcare businesses, utilizing the unique properties of mobile communications.

 

   

In the fiscal year ended March 31, 2012 we rolled out “docomo Healthcare,” a service that helps people manage their health and prevent disease. Additionally, in December 2011, we have reached a basic agreement with Omron Healthcare Co., Ltd. to form a business alliance with the aim of offering better health and medical support services, by utilizing both parties’ assets and health management service platform.

 

 

M2M Business

We are involved in businesses that combine various types of equipment (machines) with mobile communications. This includes putting communications modules into automobiles, information services for car navigation devices, and game consoles.

 

   

In December 2011 we began offering a dedicated prepaid data service for PlayStation®Vita, handheld gaming consoles from Sony Computer Entertainment Inc.

 

   

We joined forces with PIONEER CORPORATION to make “docomo Drive Net™” driver information system work on smartphones, and in April 2011 we began offering this service. In conjunction with this in September 2011, we began selling our “Drive Net Cradle 01,” which turns a smartphone into a full-fledged car navigation system.

 

   

In December 2011 we invested approximately 1.1 billion yen in Eye-Fi, Inc. to integrate our mobile personal cloud system and other related services with Eye-Fi’s cloud service and multiplatform system for photo and video uploading, which uses Wi-Fi memory cards in digital cameras.

 

 

Aggregation/ Platform Business

We are engaged in various services aggregation businesses that we are developing globally.

 

   

In August 2011, for approximately 1.5 billion yen, we have acquired a roughly 25% interest in VMG Media Joint Stock Company, Vietnam’s largest mobile content provider which offers both content and content platforms, with the aim of advancing our value-added services and platform business overseas.

 

   

In September 2011 we made an additional investment of approximately 2.7 billion yen in net mobile AG, which operates a mobile content delivery platform in Germany. The subsidiary used the funds from this investment to become the largest shareholder in Bankverein Werther AG*, a German bank. It intends to use the bank’s services and core systems as a foundation to expand its own service area in financial services and payments.

 

  * The company name is scheduled to be changed to net-m privatbank 1891 AG in July 2012.

 

   

In May 2012, we announced that we intend to acquire all shares in Buongiorno S.p.A., one of the largest providers of mobile internet content and applications in Europe. The tender offer will be conducted by our German subsidiary, DOCOMO Deutschland GmbH. Leveraging Buongiorno’s global customer base that allows it to reach customers in 57 countries, we intend to strengthen the foundation of our mobile platform businesses overseas. The maximum amount that the tender can reach is approximately 24 billion yen.

 

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Environment/ Ecology Business

We are developing energy/ecology related businesses that take advantage of mobile communications.

 

   

The fiscal year ended March 31, 2012 we launched a community bicycle pilot program in cooperation with the city of Yokohama. With partner companies, we have also jointly developed a general purpose bicycle sharing system that is easy to sign up for, as well as smartphone bicycling applications. Partner companies are currently offering these to customers.

 

 

Safety/ Security Business

We are developing safety/security related businesses in order for our customers to use mobile phones with safety and greater security.

 

   

In addition to our existing service for feature phones of safely storing the phone book data, schedule and other items from our customers’ mobile phones, from March 2012 we extended the service to smartphones.

 

   

Using McAfee, Inc. products, from July 2011 we began offering DOCOMO Anshin Scan, a free of charge antivirus solution for smartphones.

 

 

Global Expansion

We make investments in and/or form partnerships with mobile operators and service providers providing mobile phone related services with the long-term aim of securing growth and revenue opportunities and strengthening our global competitiveness.

In regards to investments in mobile operators, in order to capture growth in overseas markets, we aim to achieve financial returns by supporting the businesses of our investment partners and to achieve synergies with our partners, including joint development of handsets, joint procurement, provision of new services etc. In addition to these investments in mobile operators, we will also focus our efforts on building platforms with the aim of expanding our business globally as an integrated service company.

8. Research and Development

In our base located in the Yokosuka Research Park, we engage in research and development of basic technology, mobile communication systems and a wide variety of new products and services. As part of our ongoing research and development and in order to continue to improve our products, networks and services, each of our research and development departments collaborates with product development staff at other operating divisions. We are also working with major manufacturers of our products and network equipment.

In order to address technology innovations overseas, we have established research centers in the U.S., Germany and China. We also set up DOCOMO Capital, Inc. for the purpose of investing in ventures that boast advanced and innovative technology that can be applied to mobile communication services.

Furthermore, we also conduct research with various universities inside and outside of Japan. In the collaborative research field, we have been involved in technological exchange in connection with not only 3G research and development but also 4G mobile communication systems and other advanced technology research.

Recent development results are as follows:

 

 

Development of Mobile Devices and Services

 

   

We commercially released 40 smartphone and tablet models including 4 smartphones and 3 tablets supporting Xi. Furthermore, we developed applications for Android OS devices to enable the content and services provided on i-mode handsets in the past to be provided on smartphones.

 

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In addition to developing common software for Android smartphones supporting the new service “Mobacas,” combining communications and broadcasting, we commercially released a smartphone model and a tablet model running the software and supporting Mobacas.

 

   

We developed the “Disaster Voice Messaging service” enabling customers to leave messages about their wellbeing for family and friends using packet communications, with which it is easier to connect than with voice calls in the event of a disaster.

 

   

We developed translation phone service that allows translation during real-time communications by utilizing the call audio and executing advanced processing such as voice recognition, translation, and voice synthesis over the DOCOMO network, thereby performing high-speed processing without relying on the processing capability of the mobile handset.

 

   

We developed a voice agent feature, “Shabette Concier,” that enables users to easily use a variety of services and functions provided by the Company simply by speaking into a smartphone.

 

 

Development of Technology for Commercialization

 

   

We worked to develop the network cloud infrastructure so that we can execute advanced information and telecommunications processing over the network and quickly realize the kind of non-handset-dependent services that can only be offered by a carrier.

 

   

With regard to the development of an environmentally friendly green base station that is resistant to disasters, we began the development of a green power controller for providing optimal control of solar panels, lithium ion batteries and commercial electric power. Outdoor trials of the green base station equipment (within the DOCOMO R&D Center) have begun, with the aim of conducting commercial trials in the fiscal year ending March 31, 2013.

 

   

We worked to develop a jacket-type ultra-quick charge battery that can be fully charged in about 10 minutes, which is just 1/10 or 1/15 the amount of time needed to charge a conventional smartphone.

 

   

We worked to develop “interchangeable sensor jackets” that augment the functionality of smartphones by allowing users to attach and detach a variety of custom jackets that incorporate sensors and other hardware.

 

 

Efforts Relating to Future Technologies

 

   

In our research of the LTE-Advanced 4G mobile communication standard, we have continued to conduct transmission experiments using trial base stations in the Yokosuka and Sagamihara areas.

 

   

We engaged in research on High Efficiency Video Coding (HEVC), the next-generation video coding standard that will efficiently compress high quality video, and we play a leading role in the international standardization activity of HEVC, which offers more than 50% greater data compression than the existing standard.

 

   

We conducted research on the platform technologies for network virtualization for flexibly supporting future network formats such as M2M that efficiently and economically handle the enormous and increasing volume of traffic of smartphone communications in the event of a disaster.

9. Competition

 

 

Trends of Cellular Subscribers

As of March 31, 2012 we had 60,129 thousand cellular subscribers, an increase of 2,120 thousand from the end of the previous fiscal year. Although there were certain compulsory cancellations due to the termination of mova service on March 31, 2012, we were able to keep our churn rate of 0.60% at a low level for the fiscal year ended March 31, 2012. The rate of increase of cellular subscribers in Japan was 4.4% in the fiscal year ended March 31, 2010, 6.6% in the fiscal year ended March 31, 2011 and 7.3% in the fiscal year ended March 31, 2012.

 

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Although future growth of new subscribers for conventional voice use is expected to be limited as the penetration rate rises and the population declines, increases in the number of subscribers due to the development of new markets such as smartphones, tablets, data cards, portable game consoles and embedded communication modules have contributed to an increase in the number of new subscribers.

We are working to bolster our overall competitiveness and counter other carriers by: 1) keeping cancellation rates low by working to enhance customer satisfaction by offering them “safety and security”; 2) stimulating demand for second devices with an appealing lineup that especially showcases smartphones; 3) providing a high-quality network and high-speed LTE service; 4) offering competitive pricing on tariff plans and devices; and 5) providing added value by introducing new services such as cloud services.

The number of cellular subscriptions for the fiscal years ended March 31, 2010, 2011 and 2012 are as follows:

 

     Thousands  
     Year ended March 31,  
     2010     2011     2012  

Cellular subscriptions (1)

     56,082        58,010        60,129   

Xi (LTE) subscriptions

            26        2,225   

FOMA (W-CDMA) subscriptions (1)

     53,203        56,746        57,905   

mova (PDC) subscriptions (1)

     2,879        1,239          

i-mode subscriptions

     48,992        48,141        42,321   

sp-mode subscriptions

            2,095        9,586   

Estimated market share of total subscriptions

     50.0     48.5     46.9

Subscription growth rate

     2.7     3.4     3.7

Average monthly churn rate (1) (2)

     0.46     0.47     0.60

 

(1) The number of cellular subscriptions includes FOMA, mova, and communication module services subscriptions. We terminated mova services on March 31, 2012.
(2)

In general, the term “churn rate” is defined as the percentage of customers who disconnect their service relative to the total subscription base. Our measurement of churn rates includes voluntary terminations in connection with handset upgrades or changes. The average monthly churn rate for each fiscal year is calculated by adding the number of cellular subscriber contract terminations in each month of that fiscal year and dividing that number by sum of the active cellular subscriptions* from April to March.

  * active cellular subscriptions = (number of subscriptions at the end of previous month + number of subscriptions at the end of current month) / 2

 

 

Competition in the Mobile Telecommunication Market

As Japan’s mobile phone market has continued to mature in line with the rise in the cellular penetration rate, competition among operators remains intense in such areas as acquisition of subscribers and further improvement of service offerings. There are presently 4 mobile network operators in Japan: DOCOMO, KDDI CORPORATION and its subsidiaries (“KDDI group”), SOFTBANK MOBILE Corp. (“SOFTBANK MOBILE”), and EMOBILE Ltd. (“EMOBILE”). As of March 31, 2012, we had a market share of 46.9%, the KDDI group had a market share of 27.4%, SOFTBANK MOBILE had a market share of 22.6% and EMOBILE had a market share of 3.1%.

Although the Japanese mobile communication market is expected to see limited growth in the number of new subscribers for conventional voice use, increased use of smartphones and the spread of flat-rate packet services and high-speed data communication services have led to increasing use of data communication and the creation of new market opportunities, such as content and applications for mobile phones. Mobile network operators including DOCOMO are competing to maintain and obtain subscribers, and to secure earnings by expanding product lineups featuring various user interfaces and functions, implementing new billing measures, promoting product sales, providing high added-value and high-speed communication services, improving network quality, and expanding area coverage.

 

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In recent years, and as smartphones have become more popular, there has been a growing movement among competitors to bundle mobile phone services with fixed-line communication services. In the future, as the spread of services converging fixed-line and mobile communications accelerates with the penetration of smartphones, there is a possibility that there will be greater demand for services that seamlessly link fixed-line and mobile networks and for devices which are able to connect to both fixed-line and mobile networks.

Furthermore, competition in the network layer has intensified due to the increasing number of new MVNOs, with foreign companies also among them, in addition to existing mobile phone network operators. The arrival of global players, including Apple Inc., Google Inc., and Amazon.com, Inc., has also accelerated the shift from the vertical integration model led by existing mobile phone network operators to a model of horizontal division, and has given vigor to a new vertical integration model in which the key is the terminal layer as well as content, application, platform and other upper layers.

 

 

Trends of MVNOs

An MVNO is a mobile virtual network operator that (1) uses the mobile communication services provided by a mobile network operator (“MNO”) or connects with an MNO to provide mobile communications services, and (2) does not build or operate its own radio stations to provide such mobile communications services.

The MVNO system was introduced so that by means of MVNOs utilizing the wireless network of an MNO to provide a diverse range of services, a diverse range of business models that are designed to meet the needs of users appear, thereby benefiting users through the provision of diverse and low-cost services in the mobile communications market. Another goal of the system is to ensure the fair and efficient use of radio waves.

In the saturated mobile phone market, the entry of MVNOs can be expected to lead the creation of new services. We are looking to build win-win relationships with MVNOs, and are taking a proactive approach to connection and collaboration with MVNOs.

10. Regulations

The MIC is the primary regulatory body with responsibility for the telecommunications industry in Japan. We and other mobile telecommunication service providers are regulated by the MIC primarily under the Telecommunications Business Act. We and other mobile telecommunication service providers are also subject to the Radio Act. We, however, are not subject to regulation under the Law Concerning Nippon Telegraph and Telephone Corporation, Etc.

 

 

The Telecommunications Business Act

Under the Telecommunications Business Act, we are subject to a registration requirement as telecommunications operators.

The following table summarizes some of the major current regulatory requirements applicable to telecommunications carriers under the Telecommunications Business Act:

 

    

Regulation

a.    Tariff settings, service offerings, etc.

  

Unregulated in principle (excluding universal service and certain designated telecommunication services).

 

Accountability to users concerning outline of terms and conditions of telecommunications service and proper and swift processing of complaints and inquiries from the users are required.

 

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Regulation

b.    Business improvement order

   The Minister of MIC may order a telecommunications carrier to improve business activities to protect the interests of the public and users with regard to the secrecy of communications, unreasonably discriminatory treatment, ensuring important communications, tariff and other service conditions, etc.

c.    Interconnection

  

Obligation, in principle, for interconnection with other telecommunications carriers that propose interconnection.

 

In the event a telecommunications carrier does not accept entering into a consultation despite the other carrier’s proposal to enter into an agreement to interconnect telecommunications facilities or if said consultation fails to come to an agreement, except for certain cases, the Minister of MIC may order such telecommunications carrier to start or resume consultation.

 

 

The Radio Act

The Radio Act was established to promote public welfare by ensuring the equitable and efficient utilization of radio waves. There are certain important provisions of the Radio Act applicable to us and other mobile phone service providers.

The Act states that the MIC must, in order to ensure convenience for those planning to build base station equipment, draw up and make available to the public a list of the frequencies that are available for allocation. Anyone who wishes to build base station equipment must submit an application form to the Minister of MIC together with documents in which required matters are stated, including the purpose of and reason for building base station equipment, the location of the facilities and its frequencies, and acquire a license. The Act also states that any telecommunications carrier who has obtained a license should obtain approval from the Minister of MIC in advance of any operational changes, such as a change in recipients of communications or the location of the facilities, or the intention to start any construction to modify the facilities.

 

 

Major Regulations and Guidelines

Category II-designated telecommunications facility system

Our telecommunications facilities have been designated as Category II-designated telecommunications facilities. Consequently, in interconnection with other telecommunications carriers, we are obligated to specify in advance fees to be obtained and terms of connection, etc. in the form of articles of agreement, and report these to the Minister of MIC and make them public. No agreements pertaining to the interconnection between Category II-designated telecommunications facilities and other telecommunications carriers may be entered into or amended without complying with those articles of agreement.

In February 2012, a proposed MIC ordinance concerning the review of the criteria for designating Category II telecommunications facilities was unveiled. The criteria for designating Category II telecommunications facilities will be expanded to include those of carriers with a share of more than 10% (presently 25%), and as a result SOFTBANK MOBILE is expected to be designated as a carrier of a Category II telecommunications facility in addition to KDDI and Okinawa Cellular.

Method of Connection Charges Calculation

To ensure a fair environment for competition in the telecommunications market, the MIC has, for quite some time, taken the initiative to reconsider the nature of the connection rules. In March 2010, the MIC announced the “Guideline relating to operation of the Category II-designated telecommunications facility system” to clearly define a connection charges calculation method and other matters.

 

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The Guideline applies to telecommunications carriers that have Category II-designated telecommunications facilities (Category II-designated carriers) and to connection charges applicable in the fiscal year ended March 31, 2011 and later, and clearly defines a connection charges calculation method, including the requirement that carriers exclude, in principle, sales costs as well as a certain amount of capital expenses from costs of connection charges. Regarding fees charged to the connecting carrier as a result of interconnection (connection charges), we are obligated to charge an amount consisting of appropriate costs plus a reasonable margin and accordingly need to calculate such an amount by the method specified in the aforementioned Guideline, and submit the basis of the calculation to the MIC. We are also under an obligation to assemble and make public accounting information about the connection in accordance with the MIC Ordinance.

Regulations on the Prohibition of Anti-competitive Behavior

We are designated as a telecommunications carrier subject to the prohibition of anti-competitive behavior on the grounds that it is necessary to do so in consideration of the fact that our market share in terms of profits exceeds 25 percent, changes in this market share and other circumstances; and also, for the purpose of ensuring a fair environment of competition with other telecommunications carriers, we are accordingly prohibited from engaging in anti-competitive behavior such as:

 

   

Use of information of other mobile network operators obtained from such other mobile operators through interconnection for other purposes;

 

   

Unduly favorable treatment of specific telecommunication carriers; and

 

   

Undue discipline imposed on or interference with other carriers, manufacturers or suppliers of telecommunications equipment.

With the aim of clarifying regulations to ensure that regulations on the prohibition of anti-competitive behavior do not have an excessive chilling effect on applicable carriers, the Guidelines for Promoting Competition in the Telecommunications Sector were revised in April 2012, stating that the above unduly favorable treatment and undue discipline or interference are limited to the abuse of market dominance.

Obligation to provide MVNOs with telecommunications services

With a view toward a more dynamic mobile telecommunication market achieved by promoting new entry by MVNOs, the MIC has formulated “Guidelines regarding the application of the Telecommunications Business Act and the Radio Act to MVNO.” Under the Guidelines, whether wholesale telecommunications services are to be provided by a Mobile Network Operator (“MNO”) to an MVNO, or whether there will be an interconnection between an MNO and MVNO are matters, in principle, to be decided by consultations between the parties, and when an MNO has had a request for connection from an MVNO, unless it has grounds to refuse, it must comply with such request.

Tariff setting regarding Services from Fixed-line to Mobile Communications

The tariff setting of calls from fixed-line (subscriber telephones of NTT East/West) to mobile is determined by the price set by mobile network operators (receiving side), the prices set by NTT East/West (initiating side), and the relay selection carriers. The MIC made the following requests to mobile network operators in April 2012 based on the fact that the prices set by mobile network operators exceeded those set by NTT East/West to a certain degree over numerous time periods.

 

   

Endeavor to inform users of the differences in user pricing by price-setting carriers; and

 

   

Report the results of consideration of the necessary review conducted between related carriers concerning the current status of pricing.

 

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SIM Unlocking

While mobile network operators in the mobile phone market in Japan currently provide handsets and network services on the assumption that SIM locks are used, the MIC put together a guideline regarding SIM unlocking in June 2010. From the perspective of, for instance, ensuring further improvement of user convenience and enhanced international competitiveness of Japan’s ICT industry, operators are expected to proceed, on their own initiative, to implement SIM unlocking functions, starting with handsets possible to do so. However, in view of the fact that there are still issues left unaddressed, it has been decided that deliberations towards legislating this measure should be postponed for the time being.

In the meantime, in order to accommodate the wishes of customers to use our handsets with other companies’ SIM cards, we have a SIM unlocking function in all handsets launched on or after April 1, 2011, and accept customers’ requests for SIM unlocking.

Frequency Allocation

In November 2010, the working group established by the MIC to deliberate frequency allocation issues drafted policies concerning how frequencies should be reserved for wireless broadband. According to the report, the government’s basic policy is that frequencies above the 300MHz bandwidth should be secured by the year 2015 and those above the 1,500MHz bandwidth by the year 2020. With respect to the empty frequencies in the 700MHz band and the 900MHz band arising from the digitization of terrestrial television broadcasting and termination of 2G mobile phone services, the working group indicated a policy of allocating the use of the 700MHz band and the 900MHz band in ways that ensure consistency with how these frequencies are allocated in other countries. In conjunction with this, the frequencies used for non-mobile telephone services in these bands will be moved to other bands, and as a mechanism for promptly reorganizing frequencies, the system was adjusted so that the cost of this transition would be borne by the carriers to which frequencies would be newly allocated.

Under the guidelines announced in December 2011, the first allocation under this frequency reorganization mechanism was in the 900MHz band, and 2×15MHz of this band was to be allocated to a single carrier. 4 existing carriers, including us, submitted bids for this 900MHz band, and in February 2012, the MIC awarded this spectrum to SOFTBANK MOBILE. Meanwhile, the MIC released draft guidelines for allocating 2×10MHz in the 700MHz band to 3 carriers in April 2012. 3 existing carriers, including us, submitted bids for the 700MHz band in May 2012, and we have received the MIC’s approval for the allocation.

In order to ensure the transparency of the frequency allocation process, the MIC considered implementing the kind of spectrum auction that is used in various other countries, and the spectrum auction panel that it created released its final report in November 2011. The report proposes using spectrum auctions beginning with the 4G systems, and a bill to amend the Radio Act to make it possible to use auctions to allocate frequencies was submitted to the Diet for deliberation in March 2012.

Maintaining Communications Capabilities during Major Natural Disasters and other Emergency Situations

The Great East Japan Earthquake caused congestion and/or disconnection of communications in wide areas. Based on this fact, in April 2011 the MIC initiated a discussion of the following issues and a final report was compiled in December 2011: (i) alleviating congestion in emergency situation, (ii) minimizing disruption to communications in the event of damage to base stations and/or relay stations, (iii) implications of the recent disaster for future network infrastructure and (iv) implications of the recent disaster for future Internet usage.

In response to this report, the Company strengthened its efforts to implement “New Disaster Measures” in the fiscal year ended March 31, 2012. See Item 4.B-11 for details on the efforts made by the Company.

 

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11. Disaster Preparedness Measures Learning from the Experience of Great East Japan Earthquake

Following the Great East Japan Earthquake, we devoted ourselves toward the earliest possible recovery of damaged communication facilities. In April 2011, based on the lessons learned from the experience of the earthquake, we developed a wide range of new disaster preparedness measures and nearly completed their implementation by the end of February 2012. Meanwhile, we also reviewed our disaster response manual, including our business continuity plans (BCP), and verified procedures carefully such as the operational sequence of equipment newly installed for enhanced disaster preparedness and response to a large-scale service interruption.

 

 

Damage Restoration

Immediately after the March 2011 earthquake, we established a Disaster Countermeasures Office in the headquarters and the Tohoku Regional Office, and made an all-out effort toward early recovery of damaged communication facilities with the help of other NTT group companies and construction companies.

In concrete terms, as a stopgap measure immediately after the earthquake, we deployed approximately 30 units of mobile base stations and power supply vehicles and some 400 portable power generator units. We mobilized a total of some 4,000 people for the temporary repair of transmission lines and the recovery of power supply, and completed the implementation of tentative restoration measures for damaged facilities in the end of April 2011 and the full-scale repair by the end of September 2011.

 

 

Reconstruction Assistance

To provide assistance to the disaster-stricken areas, we launched the Charity Drive Website and collected some ¥1.0 billion in donations from our customers. Aside from this, the company made a corporate donation of ¥500 million. To set up an operational structure that will enable us to make prompt contributions to reconstruction activities in the stricken areas, we established the TOHOKU Reconstruction Support Office and implemented various measures, such as the introduction of an information delivery system for the affected areas as well as other services utilizing tablet devices.

 

 

New Disaster Preparedness Measures

Securing Communication for Key Areas and Facilities

Due to the direct damages inflicted by the enormous tremors of the Great East Japan Earthquake and the subsequent tsunami as well as the indirect damages caused by the stoppage of communication facilities resulting from the numerous hours of wide-area power outage and depletion of emergency backup batteries, our mobile communications services were disrupted in many areas. Learning from this experience, we installed large-zone base stations in 104 locations nationwide. This will ensure that areas normally serviced by multiple ordinary base stations can be covered by a single large base station, even if multiple conventional base stations become inoperable simultaneously.

In addition to the conventional countermeasures against possible power outages, through the installation of self-powered generation equipment, we furnished uninterruptible power supplies in a total of 721 locations across Japan, primarily at base stations covering important areas and facilities such as prefectural government offices. We installed large-capacity batteries in a total of 1,070 base stations across Japan to ensure the continuation of services for over 24 hours after any loss of commercial power.

Swift Response for Securing Communication to Disaster-Stricken Areas

In order to secure communication services in evacuation shelters and public organizations without delay after occurrence of a disaster, we have continually strived to increase the deployment of satellite mobile phones.

 

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For early recovery in areas with service disruption, we doubled the number of car-mount mobile base stations equipped with satellite entrance circuits to 19 units and deployed an additional 24 new portable-type units. This will allow us to provide network services through satellite entrance circuits even if our terrestrial cables or relay stations sustain damages. In addition, for immediate restoration of coverage, we introduced emergency microwave circuits in 100 transport sections across Japan.

Further Improvement of Customer Convenience during Disasters

We progressively introduced “Area Mail” capability in smartphones, which enables them to receive disaster and evacuation information, tsunami warnings and other information from national and local government by CBS (Cell Broadcast Service), and we revamped our online “Restoration Area Map” service by making functional enhancements for faster activation and improving its readability. In March 2012, we launched a “Disaster Voice Messaging Service” that allows users to record messages concerning their safety and then send them to friends and families in the event of a large-scale disaster. Meanwhile, to improve the usability of our “Disaster Message Board Service,” which has been activated for safety confirmation by users in disasters, we added new application software that provides voice instructions to make it easier for users to register or confirm safety information.

 

 

Electricity-saving Initiatives

In response to the shortage of electricity, we introduced a variety of power-saving initiatives at our offices, including R&D centers, during the period between July and September 2011.

Specifically, in an effort to reduce power consumption we turned off half the lights at the offices, moderated our air-conditioner temperature settings, promoted a “cool-biz” summer dress code (no neckties and jackets), introduced voluntary restraints on overtime work, mandated that all employees leave the office at a pre-designated time on certain days, and changed weekends to Mondays and Tuesdays instead of Saturdays and Sundays.

With the cooperation and understanding of customers, docomo Shops also strived to conserve electricity by reducing lighting, changing the air-conditioning temperature settings, and introducing the “cool-biz” dress code. The shops also promoted the conversion to energy-efficient LED lights.

Our group is committed to continuing its endeavors toward further energy conservation to protect the environment while doing its utmost to respond to societal demands.

 

 

Initiatives for Enhanced Disaster Preparedness

We will continue to work towards providing our customers with safety and peace of mind, through the new disaster preparedness measures, which have been generally completed by the end of February 2012, and improving reliability and stability of our communication network.

Dispersion of Essential Facilities

We will continue our efforts to complete the relocation of some of our important facilities that are currently concentrated in the Metropolitan area to the Kansai and Kyushu regions in light of the possibility of a major earthquake directly striking the Greater Tokyo area. Specifically, we will install a backup center of packet communication platform for our smartphones in Kyushu and a backup center for our customer information management system in Kansai.

Initiative for Green Base Stations

Taking advantage of “green” power-control technologies, we will move ahead with the development of disaster-resilient and environment-friendly next-generation green base stations. To this end, we plan to carry out

 

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studies on the use of eco-friendly electricity generation through combined use of solar and wind power as well as bio-fuel cells, and also look into methods to reduce peak power usage through the use of lithium-ion batteries.

Other Initiatives

We plan to conduct comprehensive disaster drills, communication trainings and other necessary preparatory exercises based on the revised disaster response manual. Also, as a designated public institution, we will strengthen our cooperation with the Self Defense Force and other relevant external entities.

12. Initiatives to improve network infrastructure for the prevention of interruption recurrences

Taking the occurrence of series of service interruptions and the administrative guidance from the Ministry of Internal Affairs and Communications (MIC) seriously, we established a Task Force for Improvement of Network Infrastructure headed by the president and CEO in December 2011 and initiated company-wide efforts to investigate the causes and prevent recurrence of problems, so as to regain the confidence of customers. In the end of March 2012, we submitted a report on extensive measures in response to the guidance issued by MIC.

Envisaging a sophisticated network infrastructure capable of accommodating 50 million smartphones, we will work towards achieving further improvements in reliability and scalability of communication equipment.

 

 

Overview of Series of Service Interruptions

Below summarizes the series of Service Interruptions:

 

Date of service interruption

  

Affected areas

  

Number of affected

users

  

Events reported

June 6, 2011

   Kanto-Koshinetsu    Approx. 1.50 million    Difficulty of establishing voice/packet connections on Xi, FOMA and mova networks

August 16, 2011

   Nationwide    Approx. 1.10 million    Difficulty of using packet service with sp-mode

December 20, 2011

   Kansai    Approx. 20,000    Mail address of some users replaced with address of other user when using sp-mode mail service

January 1, 2012

   Nationwide    Approx. 2.60 million    Difficulty of sending/receiving email with sp-mode mail service (Failure of receiving “undelivered message notice”)

January 25, 2012

   Tokyo    Approx. 2.52 million    Difficulty of delivering voice/packet connections on FOMA network

 

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Countermeasures against Service Interruptions

The Company’s maintenance and development-related departments conducted joint studies to determine the causes and evaluate the countermeasures for the facilities and equipment where service interruptions were reported. We completed the implementation of countermeasures listed below that were designed to, among other things, fix glitches, improve processing capabilities and reinforce the capacity of equipment:

 

Date of service interruption

  

Details of countermeasures

June 6, 2011

   Modification of software program to prevent congestion in service control equipment switches and other measures

August 16, 2011

   Capacity reinforcement and further processing capability enhancement of network authentication server equipment and other measures

December 20, 2011

   Reassessment of internal processing for user management servers, load reduction through revision of signal processing procedures, buffer size expansion of network authentication server and other measures

January 1, 2012

   Reassessment of internal processing for mail information server

January 25, 2012

   Comprehensive inspection of packet switching equipment processing capability and upgrade to new-version packet switching equipment after examination of signaling volume

 

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Additional Countermeasures to Prevent Future Interruptions

In order to prevent recurrence of similar issues, we have implemented countermeasures, including improving processing capabilities and procedures, re-examining construction procedures and other measures, and working to improve network infrastructure for the prevention of interruption recurrences and to achieve accident-free construction.

 

Areas of Improvement

  

Details of countermeasures

   Completion
(Expected) Date
Processing Capacity   Packet Switching Equipment    Installation of packet switching equipment based on results of processing capacity inspections    April 2012
     Enhanced processing capacity of a new version of packet switching equipment    August 2012
  sp-mode System    Introduction of newly developed mail information server    February 2012
     Improvement of software and installation of network equipment responding to the increasing number of smartphones    December 2012
  Traffic Overload    Rerouted processing away from malfunctioning channels    April 2012
     Rerouted processing when service control equipment switches to backup equipment    August 2012
  Increased Control Signal    Changes in radio connection procedures to allow the transmission of multiple applications with one wireless connection    December 2012

Processing Mode

   Changes in connection procedures of sp-mode and mopera (new procedures that do not cause IP address conflicts)    March 2012
   Introduction of function to prevent problems with user identification information during processing    January 2012

Quality of Software

   Maintenance of development documents and enforcement of tests    March 2012

Quality of Construction

   Classification of the importance of each construction project by the impact on customers, sharing information within company, ensuring recovery procedures for unforeseen circumstances during constructions    February 2012
  

 

Formulation of rules on construction time slot depending on the nature of constructions to minimize impact on customers

   February 2012

In addition to the above-mentioned countermeasures, we will continue to seek cooperation of application providers to reduce the load on network and engage in the relevant activities at GSMA* or other forums on an ongoing basis.

 

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In conjunction with these countermeasures, we have completed an inspection of our network infrastructure and operations covering 145 categories and comprising 256,966 items. As a result of these extensive companywide measures and inspections, we confirmed that our communication network can be operated stably. Going forward, we will continue to strengthen our network infrastructure to support growing smartphone traffic, including countermeasures for the increase of control signaling.

Further, we re-examined our construction plans and procedures, fully taking into account the impact on customers, and also improved the procedures for quickly and accurately informing customers about the operational status of our network. We will continue to devote our efforts to further enhancing the reliability of our communication network to allow customers to utilize our services free of any concerns.

 

* GSMA(GSM Association) : an industry association of mobile operators.

13. Relationship with NTT

NTT is our parent company and owned 66.65% of our voting rights as of March 31, 2012. The government of Japan, in the name of the Minister of Finance, owned 35.29% of the voting rights of NTT as of the same date. The government of Japan, acting through the MIC, also regulates the activities of NTT.

The NTT group is the largest provider of fixed-line and wireless voice, data, Internet and related telecommunications services in Japan and operates one of the largest telecommunications networks in the world. The NTT group’s main business is providing nationwide telecommunications services including voice communication services, data communication services, leased circuit services, system integration services and other services. As a holding company, NTT is directly responsible for the overall strategy of the NTT group. NTT is also responsible for basic research and development for its group companies.

Although NTT owned 66.65% of our voting rights as of March 31, 2012, we conduct our day-to-day business operations independently of NTT and its other subsidiaries. All transactions between us and each of NTT and its subsidiaries and affiliates are conducted on an arm’s length basis. In the year ended March 31, 2012, we had sales of ¥34,596 million to NTT and its subsidiaries and had cost of services, selling, general and administrative expenses and capital expenditures of ¥212,913 million, ¥121,389 million and ¥91,416 million, respectively, to NTT and its other subsidiaries, compared to sales of ¥38,336 million and cost of services, selling, general and administrative expenses and capital expenditures of ¥210,446 million, ¥113,023 million and ¥76,214 million, respectively, in the year ended March 31, 2011. We also had receivables of ¥9,947 million from NTT and its subsidiaries and payables of ¥78,595 million to NTT and its subsidiaries as of March 31, 2012, compared to ¥10,430 million and ¥70,542 million as of March 31, 2011.

In order to ensure fair competition in the mobile telecommunication business, the MPT (currently the MIC) in April 1992 established the following conditions of separation on NTT, which was then operating fixed line telephone services, and us, which remain applicable:

 

   

To the extent possible, we must establish transmission lines for our network independent of NTT. In the event that we use NTT transmission lines, the terms and conditions for such use shall be the same as those for our competitors.

 

   

NTT must not favor us in any transactions between NTT and us. The terms and conditions for our use of NTT utility poles, access to NTT’s network, access to NTT research and development and similar matters should be the same as for our competitors.

 

   

All former NTT employees transferred to us were required to be permanent employees, rather than being seconded from NTT.

 

   

We were to plan to have our shares listed and NTT’s ownership in us reduced approximately 5 years after incorporation.

 

   

We must not engage in joint procurement with NTT so as not to use NTT’s purchasing power with the objective of obtaining favorable treatment or pricing from its suppliers and manufacturers.

 

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At the time of separation from NTT, all trademarks and service marks for our products developed by NTT, other than the “NTT DoCoMo” trademark, the “DoCoMo” trademark and the “NTT DoCoMo” service mark, were assigned to us. If NTT’s ownership of our shares is substantially reduced, we may not be able to continue to use the trademarks and service marks that include “NTT.” Patents, utility model rights and design rights are shared equally with NTT. While certain rights to programs concerning wireless telecommunication systems were assigned by NTT to us, NTT owns the rights to other programs concerning wireless telecommunication systems and grants us licenses to use such rights. Since the separation, NTT and we have each retained rights resulting from our own research and development. When we desire to use NTT’s technology, we are required to pay royalties equal to those other wireless telecommunication companies would pay for the use of such technology, and such technology is available equally to us and our competitors. We are also required to pay NTT certain basic research and development fees.

Although we operate independently of NTT, the following matters, among other things, relating to us are discussed directly with or reported to NTT: matters that are required to be voted on at shareholders’ meetings, including amendments to the Articles of Incorporation, mergers and consolidations, assignments and transfers of business, election and removal of directors and corporate auditors, and appropriation of dividends from retained earnings; increases in share capital; investments, including international investments; loans and guarantees; and establishment of businesses plans. In addition, Mr. Hiroo Kusumoto, a full-time employee of NTT, serves part-time on our board of directors.

To date, with respect to the stake in us held by NTT, such documents as the Deregulation Committee 1998 report, the 2000 opinion of the Regulatory Reform Committee, and the government’s “Three-year Program for Promoting Regulatory Reform” of 2001 have concluded that, from the perspective of promoting completion among NTT group companies, efforts should be made to further lower the stake. NTT has declared its view that its ownership of our shares does not have any adverse effects on fair competition and that it intends to maintain its ownership stake in us at 51% or above. Further, the Japanese government has not decided what action, if any, it will take with respect to NTT’s ownership of our shares.

NTT has entered into agreements with each of DOCOMO, NTT East and NTT West and certain other subsidiaries that provide for NTT to receive compensation for performing basic research and development and for providing management and administrative services. NTT also receives dividends when dividends are declared by its subsidiaries, including DOCOMO.

14. Employees

As of March 31, 2012, DOCOMO and its subsidiaries had 23,289 employees representing a increase of 335 employees since March 31, 2011. As of March 31, 2011, 2010 and 2009 we had 22,954, 22,297 and 21,831 employees, respectively. The average number of temporary employees for the year ended March 31, 2012 was 8,955.

Of our 23,289 employees on March 31, 2012, approximately 2,268 were staff in departments such as human resources, general affairs, management planning, accounting and finance, while the rest were engaged in business operations, such as sales, research and development and related matters. Also, as of March 31, 2012, approximately 1,753 employees were working at overseas consolidated subsidiaries.

We consider our level of remuneration, non-wage benefits, including our employee share ownership program, working conditions and other allowances, including lump-sum payments and annuities to employees upon retirement, to be generally competitive with those offered in Japan by other large enterprises. We have an extensive training program for new employees. To increase incentives, the NTT group has implemented a bonus plan based on overall business performance and personal results. The general retirement age has been 60.

Most of our non-management employees are members of ALL NTT WORKERS UNION OF JAPAN. We consider our relationship with such unions to be excellent. We have never had a strike.

 

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15. Legal Proceedings

We have initiated normal actions relating to the collection of telecommunications charges and other legal proceedings in the ordinary course of business and are not involved in any litigation and have not been involved in other legal proceedings in the preceding 12 months from the date of this document that, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our financial position or profitability.

C.    Organizational Structure

As of March 31, 2012, NTT, our parent company, was our largest shareholder and owned 66.65% of our outstanding voting shares. We are the largest wireless telecommunication services provider in Japan based on the number of subscriptions.

There are no subsidiaries that are considered to be significant as of March 31, 2012.

D.    Property, Plant and Equipment

Our property includes buildings which contain wireless telecommunication equipment. As of March 31, 2012, we and our regional offices owned 3,687,160 square meters of land and 1,558,280 square meters of office space, buildings containing switching centers, company dormitories and warehouses throughout Japan. In addition, as of March 31, 2012, we leased 9,616,269 square meters of land mainly for base stations and transmission facilities.

We do not, directly or indirectly through a subsidiary, operate a coal or other mine subject to the U.S. Federal Mine Safety and Health Act of 1977.

Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements and the notes thereto included in this annual report.

This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this report.

We will discuss the following matters in this Item 5:

A. Operating Results

 

   

Overview

 

   

Trends in the Mobile Communications Industry in Japan

 

   

Operating Strategies

 

   

Operating Trends

 

   

Operating Results for the year ended March 31, 2012

 

   

Operating Results for the year ended March 31, 2011

 

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Segment Information

 

   

Recent Accounting Pronouncements Not Yet Adopted

 

   

Critical Accounting Policies

B. Liquidity and Capital Resources

 

   

Cash Requirements

 

   

Sources of Cash

C. Research and Development

D. Prospects for Business Trends and Financial Performance

E. Off-Balance Sheet Arrangements

F. Tabular Disclosure of Contractual Obligations

A. Operating Results

Overview

We are the largest cellular network operator in Japan providing a wide array of wireless communication services including cellular phone service. As of March 31, 2012, we had approximately 60.13 million subscriptions, which represented 46.9% of all cellular subscriptions in Japan. We earn revenues and generate cash primarily by offering a variety of wireless voice and data communication services and products. In cellular services, which account for the majority of our revenues, we provide voice communication services as well as data communication services via our nationwide packet communications network. In addition to cellular services, we presently provide credit services, home shopping services, internet access services for hotels and various other services.

During the fiscal year ended March 31, 2012, we worked particularly to expand subscribers’ packet usage. We promoted various initiatives to expand the user base of smartphones and PC data cards while enriching our content portfolio and taking other measures aimed at boosting users’ data usage. In particular, we aggressively promoted the sales of smartphones after significantly revamping our smartphone lineup through the introduction of two new product lines, “docomo with series” and “docomo NEXT series”, to make it easier for customers to choose the right model for their needs. We also launched the “dmarket” content market that is directly operated by us and the “dmenu” portal for smartphones, and implemented various initiatives aimed at improving our communication service quality and customer satisfaction on a continuing basis from the previous fiscal year.

In the period in and after June 2011, a series of service interruptions occurred in our communication network due to the surge in both data traffic and control signaling resulting from the rapid increase of smartphones, which caused malfunctions in our communication equipment. Despite our ongoing efforts to accommodate the growth of traffic, these accidents occurred as a result of a combination of multiple factors including, among other things, greater-than-expected network traffic and software glitches. In response to these problems, we established a Task Force for Improvement of Network Infrastructure to reinforce our operational structure so as to prevent recurrence of service interruptions, and we started implementing various other measures. The implementation of corrective measures for the causes of service interruptions was completed by February 29, 2012, and the additional measures to prevent recurrence of similar issues are expected to be completed before December 31, 2012.

The Great East Japan Earthquake in March 2011 caused damage to our communication and other facilities, resulting in disruption of services or other inconveniences to customers. By March 31, 2012, we nearly

 

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completed the repair of damaged facilities. The impact of the earthquake damage on our consolidated financial results for the fiscal years ended March 31, 2011 and 2012 was insignificant. However, based on the lessons learned from the experience of the earthquake, we implemented a wide range of new disaster preparedness measures comprising, among other things, measures for securing communication in key areas in the event of a disaster, measures for swift response to disaster-stricken areas, and measures for further improvement of customer convenience during disasters. We nearly completed the implementation of these new disaster preparedness measures by March 31, 2012.

For the year ended March 31, 2012, our operating revenues were ¥4,240.0 billion, an increase of ¥15.7 billion from the prior fiscal year due primarily to the increase in packet communication revenues and equipment sales revenues. Also, we continued our efforts to reduce cost on the expense side. As the result, we recognized operating income of ¥874.5 billion, achieving an increase of ¥29.7 billion from the prior fiscal year. Net income attributable to NTT DOCOMO, INC. decreased by ¥26.6 billion from the prior fiscal year to ¥463.9 billion mainly due to a decrease of the net deferred tax assets caused by the enactment of a tax reform to lower corporate tax rates going forward. Cash flows from operating activities were ¥1,110.6 billion, decreasing by ¥176.5 billion from the prior fiscal year mainly due to a decrease of revenues collections caused by bank closures at the end of the fiscal period and the decrease of cash collections in relation to subscribers’ handset purchases under the installment method. Capital expenditures increased by ¥58.4 billion from the prior fiscal year to ¥726.8 billion primarily due to the outlays for the repair of facilities damaged by the Great East Japan Earthquake and implementation of new disaster preparedness measures.

Trends in the Mobile Communications Industry in Japan

According to an announcement by the Telecommunications Carriers Association and cellular network operators, the mobile communications market in Japan saw an 8.67 million net increase in cellular subscriptions for the year ended March 31, 2012. The total number of cellular subscriptions in Japan grew to 128.20 million as of March 31, 2012, which represented a market penetration rate of approximately 100%.

The annual growth rate of cellular subscriptions was 4.4%, 6.6% and 7.3% for the years ended March 31, 2010, 2011 and 2012, respectively. The growth prospects of new subscriptions to voice-enabled devices is expected to be limited given the rise in the penetration rate and decrease in future population. The recent increase in the total number of new subscriptions has been driven mainly by the increase of subscriptions achieved through the development of new markets such as smartphones, tablet devices, PC data cards, portable gaming consoles and built-in communication modules.

As of March 31, 2012, cellular services were provided in Japan by four network operators including us and their group companies. In addition to providing cellular services, the network operators also develop mobile phones and other communications devices compatible with their communications services jointly with manufacturers, and subsequently sell them to agent resellers and other retailers for sale to subscribers. As for cellular services, third-generation mobile communications (3G) services have already been introduced by all network operators in Japan and in recent years have become the mainstream service for all operator groups. In December 2010, we launched Japan’s first commercial service using LTE (Long-Term Evolution), a technical standard developed as an extension to the 3G system under a new service brand called “Xi”. As of March 31, 2012, the total number of subscriptions to Xi service was 2.22 million, increasing sharply from 26,000 as of March 31, 2011. Meanwhile, the sales of smartphones have recorded a remarkable increase in recent years. We expect this trend of expanded smartphone sales will continue going forward. According to our forecast, the size of the smartphone market is likely to become larger than that of the existing feature phone market within the fiscal year ending March 31, 2013.

While the growth prospects for Japan’s mobile phone market may be limited in terms of the number of subscriptions to devices used primarily for voice communication, data usage has been increasing owing to the expanded uptake of smartphones and growing adoption of flat-rate billing plans for unlimited packet access and

 

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high-speed data services, and new market opportunities are beginning to emerge in such areas as content and applications for mobile devices. On the other hand, the societal demands on network operators to secure sufficient network capacity to accommodate the growing data traffic and construct a reliable network capable of providing stable communication services even in disasters have been mounting.

The network operators in Japan have been competing against one another to retain existing subscriptions, to acquire new subscriptions and to capture revenues from new markets by addressing the following issues:

 

   

Pricing strategy: Offering free voice calls among family members subscribing to the same operator, free voice calls among phones subscribed under the same corporate subscription account, introduction of new discount services conditioned upon long-term subscriptions, introduction of packet flat-rate services, and introduction of billing plans offering discounts to smartphone users, etc.;

 

   

Handset sales promotion: Introduction of installment payment scheme for the purchase of a handset, and mobile phone protection service for lost or damaged handsets and delivery of a replacement phone, etc.;

 

   

New service introduction: Electronic payment using mobile phones, music and video distribution, automatic information delivery tailored to user’s preference, location information service, electronic book service, cloud service, provision of applications for mobile phones, etc.;

 

   

Provision of attractive devices: Release of devices equipped with various features such as contactless IC (Integrated Circuit) chip, GPS-based positioning functions, security functions, or waterproof capabilities, devices furnished with stylish designs, slim and light-weight devices, and devices with long battery hours, etc.;

 

   

Networks: Improvement of communications quality, expansion of high-speed data service areas using HSPA and LTE, construction of a network capable of delivering stable communication services even in disasters, etc.; and

 

   

Alliances: Collaboration with external partners in other industries, such as retailers, financial institutions, content holders, and application providers, etc.

Changes in the Japanese regulatory environment in recent years have accelerated competition among cellular network operators. In October 2009, the Ministry of Internal Affairs and Communications (MIC) published a report entitled “Interconnection Rules in Response to Changes in the Telecommunications Market Environment.” The report recommended that (1) in terms of interconnection charges, appropriate rules should be established for interconnection charges and the same rules should be applied to all cellular network operators, and (2) in terms of establishing rules for roaming, each cellular network operator should construct its own telecommunication networks in principle, because spectrum is scarce but allocated to cellular network operators in the mobile telecommunication business. In the Japanese mobile phone market, operators have hitherto provided handsets and network services based on the premise of applying SIM lock to mobile devices. In April 2010, however, the MIC conducted a public hearing concerning the use of SIM locks in mobile devices, and established guidelines in June 2010 presenting a move toward disabling SIM locks through voluntary actions of network operators. In response to this move, we decided to install a feature that can disable the SIM locks in principle to all mobile devices we release after April 2011.

In Japan, radio spectrum has been used in accordance with the “spectrum utilization fee system,” under which mobile network operators or other parties operating a radio base station using the spectrum allocated by the government are charged fees for the use of such spectrum. In December 2010, the MIC’s Policy Making Platform, a task force for ICT policies in a global era, presented a direction to promptly start studies on the introduction of an auction system for allocation of radio spectrum. Further, following the cabinet approval of the “Draft Partial Amendments to the Radio Law,” relevant government entities have commenced studies for the introduction of a spectrum auction system.

 

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Further changes in the regulatory environment could significantly affect the revenue structures and business models of incumbent cellular network operators including us.

Innovations in internet technology may have a material impact on the mobile communications industry including ourselves. IP (Internet Protocol) telephony, which is a form of voice communications based on IP technology, has already become a popular means of communications in fixed-line services as a result of the broad penetration of local broadband access. If the application of IP telephony technology to mobile communications becomes widely accepted, it could cause a significant change in the revenue structure of the mobile communications industry. In recent years, the use of applications that enable voice communication over IP technology (VoIP) on smartphones has become popular. In addition, there are moves by some major cellular operators in overseas markets to introduce voice IP service over LTE networks (VoLTE). Hence, there is a possibility that the use of IP-based voice communication services may expand more extensively in mobile phones.

Meanwhile, progress has been made in the development of convergence services, combining fixed-line and mobile communications with rise in the penetration of mobile phones and broadband services. This concept of fixed-mobile convergence was previously limited only to the provision of single-bill service for both fixed and mobile services, or content/ e-mail address sharing between the two networks. In recent years, however, our competitors have been stepping up their efforts to offer converged fixed and mobile services as smartphone penetration rises. The use of such convergence services may accelerate more extensively in line with the further expansion of smartphone penetration, and the demand for seamless connectivity between fixed and mobile networks or composite devices supporting access to both fixed and mobile networks may increase in the future.

In the field of high-speed wireless networks, WiMAX was approved as a standard of the Institute of Electrical and Electronics Engineers in the United States. In Japan, WiMAX operators have successfully expanded their number of subscriptions to a certain size by March 31, 2012, following their launch of commercial services in July 2009.

Thus, we expect that the competitive environment for the mobile communications market will remain intense in the future due to market, regulatory and technology changes.

Operating Strategies

We believe that the cellular market in Japan has already entered a mature phase with its total cellular subscriptions exceeding 100 million in December 2007. In a mature market, it is necessary to attract subscribers of competitors because it is difficult to drive the acquisition of new subscribers by cultivating potential subscribers who have never owned a cellular phone. It is also indispensable to minimize the loss of subscriptions to competitors as a result of heated competition. As a market leader with the largest market share, we attach priority to the retention of existing subscriptions, and at the same time, we will aim to create new value in new business fields.

In April 2008, we announced “New DOCOMO Commitments,” our vision for transformation and, taking this opportunity, renewed our corporate brand logo. In July 2008, we reorganized our group structure by integrating our former eight regional subsidiaries for the purpose of improving customer services and enhancing the speed and effectiveness of our operations. In October 2008, we announced our medium-term business directions based on a new action plan, “DOCOMO’s Change and Challenge to Achieve New Growth,” to be implemented through March 2013. “DOCOMO’s Change” includes concrete actions to revisit every aspect of the business from the customers’ perspective, from customer relations to handsets and networks based on a thoroughly hands-on approach to serving customers at all levels of our group as pledged in our “New DOCOMO Commitments” proclamation. “DOCOMO’s Challenge” includes action plans to drive innovation in collaboration with a wide range of partners, committing us to take on the challenges of creating new value by leveraging the virtually unlimited potential of mobile phones by responding to further advancements and diversifications in the mobile market, where development of services that take advantage of unique mobile

 

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properties such as real time immediacy, personal authentication, and GPS capabilities in conjunction with the evolution of networks and handsets, as well as new services that transcend conventional boundaries through the increasing adoption of open-platform handsets and entry of new global players are taking place.

In November 2011, we announced our Medium-Term Vision 2015: “Shaping a Smart Life.” We formulated the vision to further accelerate the activities undertaken under our 2008 action plan “DOCOMO’s Change and Challenge to Achieve New Growth” as well as to establish clear steps and initiatives to be implemented for the transformation into an integrated service company, toward the realization our corporate vision 2020, “Pursuing Smart Innovation: HEART,” which we announced in July 2010.

Based on this Medium-Term Vision, while continually striving for improved customer satisfaction, we will propel the “evolution of mobile services” and “new value creation through convergence with industries and services” leveraging “docomo cloud” with the aim of offering enhanced safety and security and delivering more convenient and efficient solutions to people’s everyday lives and businesses, to fulfill smart lives.

<Initiatives for Evolution of Mobile Services>

We have hitherto worked toward the advancement of services and products offering a wide array of devices centered on smartphones. Going forward, toward further evolution of mobile services, we will continually endeavor to develop flexible and expandable services and content in an open environment, and improve their operability to ensure comfortable usage in pursuit of greater enjoyment and convenience for our customers.

In the area of devices, we will build attractive features into our products in an open environment to offer a lineup that can meet the individual needs of each customer. Specifically, we plan to introduce handsets furnished with waterproof casings, “Osaifu-Keitai” e-wallet and other functions highly sought by customers, models incorporating new functions or services like Xi or “NOTTV” multimedia broadcasting, and those supporting “emergency earthquake alert” or other safety/security-related features.

With respect to services, to provide customers with unprecedented levels of enjoyment and convenience, we will aim to realize multi-device environment, where users can utilize multiple devices with a single common ID, so that they can access various services with the optimal device depending on the circumstances or their preferences. At the same time, we will adopt new sensor technologies to store and process environmental data such as temperature, air pressure or radiation levels, thereby enabling delivery of new services.

On the other hand, as mobile devices and services become more sophisticated, it will be increasingly essential for us to provide customers with a stable communications environment. We plan to accommodate the growth of traffic by expanding our network capacity primarily using our Xi service, which features high-speed, large-capacity and low-latency transmission.

<New Value Creation through Convergence with Industries/Services>

As a telecommunications operator, we have traditionally pursued the potential of mobile communications. Going forward, however, we will drive innovation through the convergence of mobile with various other industries and services in collaboration with our alliance partners with the aim of creating new values and markets.

We plan to make strategic investments, pursuing majority investment opportunities in principle, in eight business areas that offer great synergies with our core mobile business, such as the media/content business which includes broadcasting and electronic publishing services and finance/payment business including credit or insurance services. Regarding our global business, we will continue to promote investments and alliances with overseas carriers, while actively developing platform business taking advantage of our expanding customer contacts.

 

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<docomo cloud>

We will devote ourselves to advance mobile services and create new value through the convergence with various industries and services leveraging three clouds: the personal cloud, which serves as the platform underpinning a wide range of services for consumers; the business cloud, which functions as the solutions platform that allows us to propose new business styles; and the network cloud, which offers added values that can only be provided by a telecommunications carrier through the advanced information/communication processing capabilities of its network.

Taking the aforementioned actions as well as pursuing further operational efficiency by particularly focusing on cost reduction in such areas as network-related costs and other general expenses, we aim for a further increase in operating income for the fiscal year ending March 31, 2013. We will also strive to further expand our business by cultivating new business opportunities as well as becoming an “integrated service company placing mobile at the core” which we envisioned in our new corporate vision, “Pursuing Smart Innovation: HEART.”

Operating Trends

This section describes our operating trends from the perspectives of revenues and expenses.

Revenues

Wireless Services

Wireless services revenues consist of “Cellular service revenues” and “Other revenues.” We earn our wireless services revenues primarily from basic monthly charges, calling charges for outgoing calls, packet communications charges, revenues from incoming calls including interconnection charges and charges for optional value-added services and features. Cellular services, which earn the majority of our overall revenues, consist of LTE-based Xi services, the third generation FOMA services, the second generation mova services and other services. We terminated mova services on March 31, 2012 to more efficiently concentrate our business resources.

 

  (a) Cellular services revenues

Cellular services revenues include voice revenues and packet communications revenues. Voice revenues are derived from a combination of basic monthly charges for service and additional calling charges billed by connection time. The main source of our packet communications revenues are currently i-mode revenues, but smartphones and other new data services have become the largest drivers behind their growth. The amount of packet communications revenues has been increasing in line with the spread of smartphones and tablet devices, because some of our existing mobile phone users subscribe to tablets or other products as a second mobile device exclusively for data communications and also because users’ data usage generally increases after they migrate from a conventional i-mode handset to a smartphone. The contribution of packet communications revenues to our wireless services revenues has increased every year and accounted for 49.3% of wireless service revenues for the year ended March 31, 2012, as compared to 45.2% and 42.1% for the years ended March 31, 2011 and 2010, respectively.

Cellular services revenues are impacted by the changes in the total number of subscriptions, pricing measures such as the discounts and billing plans offered to customers as well as users’ usage behavior. In particular, the levels of revenues generated by each subscription have become increasingly diverse in recent years, as a result of the spread of smartphones, which generally generate higher data usage compared to conventional mobile phones, and the rise in demand for more diversified devices and services such as tablets (no voice communications capability and high data usage), communication modules embedded in various equipment (no voice communications capability and low data usage), portable gaming consoles and other data-only devices (no voice communications capability and data services provided through prepaid data billing plans).

 

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As a result of our efforts to cultivate new market demands such as demand for tablet devices, our number of subscriptions has continued to increase, but the growth rate of conventional subscriptions that include voice service has been confined to a limited level. Our subscription churn rate, or contract termination rate, is an important performance indicator for us to achieve our important goal of retaining our current subscriptions. The churn has an impact on our number of subscriptions and in particular affects our number of net additional subscriptions for a given period. Efforts to reduce our churn rate through discount services and other customer incentive programs can increase our revenues by increasing our number of net additional subscriptions, but they can also have an adverse impact on our income by decreasing the average amount of revenues we are able to collect from each subscriber or by increasing our expenses. In order to keep our churn rate low, we have focused on subscriber retention by implementing certain measures including offering discounts for subscribers. During the fiscal year ended March 31, 2012, amid intensified competition resulting from our competitors’ intensified efforts to improve competitiveness in areas such as their handset lineup and network quality, we employed various measures aimed at improving customer satisfaction on a continuing basis from the previous fiscal year, including communications quality enhancement initiatives and revamping of after-sales support. To improve our communications quality, we offered a service in which we dispatch our field staff to customers’ premises within 48 hours, in principle, after setting up an appointment based on an inquiry from customers, and implemented various other measures aimed at enhancing our area coverage and network quality. To revamp our after-sales support, we continued to offer the “Mobile Phone Checking Service,” which provides users with free basic checkups and cleaning of handsets, and also continued the “Mobile Phone Protection & Delivery Service”, which is discussed later in the “(b) Other Revenues” section.

In view of the rise in demand for data services in recent years, we have significantly expanded our smartphone lineup and launched a content market “dmarket” that is directly operated by us, the “dmenu portal” for smartphones and the “docomo Anshin Scan” virus detection service for smartphones. In addition, we also started offering a number of services on smartphones that are popular in i-mode, such as “i-channel” and “i-concier.” With respect to Xi service, we progressively expanded its coverage, released Xi-enabled smartphone and tablet devices and launched the “Xi Talk 24” flat-rate voice plan offering 24-hour unlimited domestic voice calls to all of our users.

As a result of these endeavors, we were awarded the No. 1 ranking in the consumer satisfaction survey of an external research organization for two straight years. Our churn rate for the fiscal year ended March 31, 2012 was maintained at a low rate of 0.60%, though there was an increase from 0.47% for the previous fiscal year.

In 2007, we introduced a handset sales method called “Value Course.” “Value Course” is a sales method, in which the purchase of a handset is not discounted by a certain type of sales commission that had previously been paid to agent resellers, specifically designed for providing discounts on handset sales. As this handset sales method requires customers to pay full price to purchase a new handset, it awards the subscribers with a subscription to a billing plan with discounted basic monthly charges called “Value Plan.” The number of “Value Plan” subscriptions reached 45.21 million, or 75% of our total subscriptions, as of March 31, 2012. In 2011, we introduced the “Monthly Support” discount program that provides customers purchasing a smartphone or tablet, etc., under certain subscription conditions with prescribed amount of discounts, which vary by each model, on their monthly phone bill for up to 24 months. Because most of the customers purchasing a smartphone or tablet, etc., have opted to use “Monthly Support” discounts, the total number of “Monthly Support” subscriptions has been growing in line with the spread of smartphones and other applicable devices. Our voice revenues have been on a constant decline in recent years. This is due largely to the impact from the expanded uptake of the aforementioned “Value Plan” and “Monthly Support” program as well as the impact from the drop of billable MOU (Minutes of Use) resulting from the growing utilization of free calling allowances and changes in customer’s usage behavior such as increased utilization of data services. We expect the impact of “Monthly Support” discounts on our voice revenues will expand in the future as the number of smartphones and tablet devices sold increases.

 

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The revisions made to the calculation method of our interconnection fees (access charges) have also contributed to the decline in voice revenues. From the fiscal year ended March 31, 2011, our interconnection fees are calculated in accordance with the “Guidelines for the Operation of the Type II Specified Telecommunications Equipment Systems” published by the Ministry of Internal Affairs and Communications in March 2010.

For the fiscal year ended March 31, 2012, although we achieved an increase in packet communications revenues as a result of our intensive efforts to boost the usage of data services and strengthen the sales of smartphones and other devices, our total cellular service revenues continued to decline because the increase of data revenues fell short of completely offsetting the drop in voice revenues resulting from the expanded uptake of “Value Plan” and “Monthly Support” discounts and reduced billable MOU.

Raising packet communications revenues is one of the top priorities in our business strategy, and we have employed various measures aimed at expanding subscribers’ packet usage. Such measures include expanding user base of smartphones, PC data cards and mobile Wi-Fi routers, encouraging subscribers to join flat-rate packet billing plans, expansion of video usage, enrichment of everyday life-oriented content, improving the ease of use and convenience of our products. We will strive to retain our existing subscriber base by enhancing the level of customer satisfaction, and achieve growth by increasing our packet communications revenues.

Cellular services revenues are essentially a function of our number of active subscriptions multiplied by the average monthly revenue per unit (“ARPU”). ARPU is calculated by dividing various revenue items included in operating revenues from our wireless services, such as basic monthly charges, calling charges and packet communications charges from designated services, by the number of active subscriptions to the relevant services. We use ARPU as a performance indicator to measure average monthly revenues per subscription. Accordingly, the calculation of ARPU excludes revenues that are not representative of monthly average usage such as subscription activation fees. We believe that our ARPU figures calculated in this way provide certain level of useful information to analyze the trend of monthly average usage of our subscribers over time and the impact of changes in our billing arrangements. Our aggregate ARPU (Xi+FOMA+mova) has been on a constant decline, and the drop of voice ARPU, in particular, has accelerated in recent years, This is due to mainly to the impact from the expanded uptake of the aforementioned discount programs as well as the impact from the increase of data-only service subscriptions that do not accompany voice communication services. We expect the use of data-only devices will expand in the future, which will likely continue to put downward pressure on our voice ARPU.

 

  (b) Other Revenues

The primary items comprising other revenues include external sales revenues of consolidated subsidiaries, “Mobile Phone Protection & Delivery Service”-related revenues and credit services business revenues.

External Sales Revenues of Consolidated Subsidiaries

External sales revenues of consolidated subsidiaries include the revenues from home shopping service, Internet access service for hotel facilities and other services provided through our consolidated subsidiaries. In April 2009, as a step to invigorate the mobile e-commerce market that offers great potential for growth in the future, we entered the home shopping business by acquiring a majority stake in OAK LAWN MARKETING, INC., a leading TV shopping service provider in Japan.

“Mobile Phone Protection & Delivery Service”-related revenues

“Mobile Phone Protection & Delivery Service” is a service that covers handset issues such as loss and water exposure, and delivers a replacement handset of the same model and color as the original one directly to the customer with a simple telephone call for a monthly fee prescribed for each handset model (either ¥294 or ¥399). The monthly fees are set at a level close to the insurance premium born by us for the provision of service. As of March 31, 2012, the total number of subscriptions to “Mobile Phone Protection & Delivery Service” was 35.36 million.

 

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Credit Services Business Revenues

Following the launch of our credit brand “iD” in December 2005, we commenced a proprietary mobile credit payment service “DCMX” in April 2006. These services enable credit payment using mobile phones with the contactless IC chips embedded inside the handsets. With the combined subscriptions to “DCMX” service reaching 12.95 million and the number of “iD” reader terminals installed growing to 550,000 as of March 31, 2012, the total amount of credit transactions handled has also been rising.

Equipment Sales

We collaborate with handset manufacturers to develop handsets compatible with our cellular services, purchase the handsets from those handset manufacturers and then sell those handsets to agent resellers for sale to our subscribers.

As described in the section of Wireless Services above, we introduced a handset sales method, “Value Course,” in 2007. Payment in installments is made available for a subscriber to purchase a handset from agent resellers under this “Value Course” purchase scheme. If a subscriber chooses to pay in installments, under the agreement entered into among the subscriber, the agent reseller and us, we provide funds by paying for the purchased handset to the agent resellers and include the installment charge for the purchased handset in the monthly bill for network usage for the installment payment term. This agreement is separate from the telecommunications service contract entered into between the subscriber and us, or the equipment sales contract concluded between the agent reseller and subscriber. Because the revenues from equipment sales are recognized upon the delivery of handsets to agent resellers, cash collection of the installments receivable for the purchased handset from subscribers do not have an impact on any of our revenues, including equipment sales revenues.

Revenues from equipment sales, primarily sales of handsets and other telecommunications equipment to agent resellers, accounted for 11.8% of total operating revenues for the year ended March 31, 2012. We account for a portion of the sales commissions that we pay to agent resellers as a reduction in equipment sales revenues in accordance with U.S. GAAP. As a result, structurally, the cost of equipment sold has exceeded equipment sales revenues. Because we have reduced the amount of sales commissions following the introduction of “Value Course”, the amount of sales commissions deducted from equipment sales revenues decreased significantly, and the effects of the excess amount of cost of the equipment sold over equipment sales revenues has also weakened. During the year ended March 31, 2012, equipment sales revenues increased by ¥21.5 billion or 4.5% compared to the prior fiscal year due mainly to an increase in the total number of devices sold driven by the strong sales of smartphones.

Because impact from the trend of handset sales on our operating income is closely interrelated with the cost of handsets sold, please refer to the “Cost of Equipment Sold” section below.

Creation of New Revenues Sources

As the Japanese mobile phone market continues to mature, we will work to further reinforce our wireless communication business while securing new revenue sources by driving innovation through the convergence of mobile with various industries and services. Having identified the eight business fields of “media/content”, “commerce”, “finance/payment”, “medical/healthcare”, “environment/ecology”, “M2M”, “aggregation/platform” and “safety/security” as areas that can offer great synergies with our core mobile business, we plan to make strategic investments in these areas in principle by acquiring a majority stake in relevant companies. Principal actions undertaken in these new business fields are summarized below:

Media/Content Business

In December 2011, along with leading Japanese broadcasting companies, we made an additional investment in our subsidiary, mmbi, Inc., which brought our total investment in the company to ¥30.0 billion and our

 

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ownership to 60.5%. In April 2012, mmbi began operating NOTTV, the first-ever broadcasting station specifically for smartphones. The company provides interactive programs through three real-time channels and through stored-content services. Going forward, it plans to offer digital content other than video content such as e-books.

Commerce Business

In March 2012, we acquired common shares and stock acquisition rights equivalent to 71.6% of the total number of shares issued by Radishbo-ya Co., Ltd., a premium home delivery service provider of organic and preservative-free foods for ¥5.3 billion, aiming to swiftly establish the foundation for commerce business and to expand the membership-based home food delivery service market in Japan by combining it with mobile communications services. Following the acquisition, Radishbo-ya became our consolidated subsidiary.

In April 2012, we established a new joint venture company with Intage, Inc. The new joint venture, DOCOMO Insight Marketing, Inc., plans to launch a new type of mobile-based research and marketing support business leveraging smartphones and other mobile devices, by combining Intage’s data analysis and product development know-how with our DOCOMO Premier Club customer base of approximately 50 million. We are a 51.0% owner in this joint venture.

In June 2012, our board of directors approved the acquisition of an additional 8.1% stakes in Tower Records Japan Inc., which will raise our total ownership in Tower Records Japan to 50.3%. Following the acquisition, Tower Records Japan will become our consolidated subsidiary.

Medical/Healthcare Business

In December 2011, we started “docomo Healthcare” service, which provides users with support for health management and disease prevention through smartphones and other devices. In April 2012, we entered into a joint venture agreement with Omron Healthcare Co. Ltd., with a view to establishing a joint venture to develop and offer healthcare and medical support services by making use of “docomo Healthcare” and the health management service platform operated by Omron Healthcare. Our ownership in the new joint venture is expected to be 66%.

Aggregation/Platform Business

In November 2011, net mobile AG, our German-based subsidiary which operates platforms for mobile content distribution and billing services provided mainly to mobile operators in Europe, acquired Bankverein Werther AG, which holds licenses for banking business in Germany and credit card business in Europe. By acquiring Bankverein Werther’s service infrastructure and backbone system, net mobile aims to make functional enhancements to its distribution and billing platforms.

In May 2012, we announced that we intend to acquire all shares in Buongiorno S.p.A., one of the largest providers of mobile internet content and apps in Europe through a public tender offer. The tender offer will be conducted by our German subsidiary, DOCOMO Deutschland GmbH. Leveraging Buongiorno’s global customer base that allows it to reach customers in 57 countries, we intend to strengthen the foundation of our mobile platform businesses overseas. The maximum amount that the tender can reach is approximately €224 million or approximately ¥24 billion.

We will continue to strive to expand these new business fields going forward. We intend to pursue investments and alliances with the aim of strengthening our operations, without distinction as to core or new business, to expand our revenues and achieve sustained growth. We will continually seek opportunities of investment and alliance that will benefit our business management.

 

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Expenses

Cost of Services

Cost of services represents the expenses we incur directly in connection with providing our subscribers with wireless communication services and includes the cost for usage of other operators’ networks, maintenance of equipment or facilities, payroll for employees dedicated to the operations and maintenance of our wireless services, and insurance costs related to “Mobile Phone Protection & Delivery Service.” Cost of services accounted for 26.6% of our total operating expenses for the year ended March 31, 2012. Major components of cost of services include facility maintenance expenses, which are incurred to maintain our network facilities, and communication network charges, which we pay for the usage of other operators’ networks or for access charges, accounting for 36.8% and 23.6% of the total cost of services, respectively. The amount of our communication network charges is dependent on the rates set by other operators. Cost of services for the year ended March 31, 2012 decreased by ¥2.6 billion or 0.3% from the prior fiscal year to ¥893.9 billion. While communication network charges decreased compared to the prior fiscal year, other costs such as insurance costs increased. The insurance costs increased due to an increase of subscriptions for “Mobile Phone Protection & Delivery Service”.

Cost of Equipment Sold

Cost of equipment sold arises mainly from our procurement of handsets for sale to our new or current subscribers through agent resellers, which is basically dependent on the number of handsets sold to agent resellers and the purchase price per handset. Cost of equipment sold represented 20.7% of our operating expenses for the year ended March 31, 2012. The cost of equipment sold for the fiscal year ended March 31, 2012 increased by ¥32.2 billion, or 4.9%, compared to the prior fiscal year, primarily because the cost increase resulting from the growth in the total number of handsets sold was larger than the reduction in the per-unit cost of procurement achieved through an increase in the sales of low-price handsets featuring stylish designs and the rise in the proportion of globally marketed smartphones, which can be procured at relatively low costs due to their global reach, in our lineup of high-end models.

Depreciation and Amortization

Depreciation and amortization accounted for 20.3% of our operating expenses for the year ended March 31, 2012. In order to respond attentively to demand from our subscribers, we made capital investments primarily for the FOMA services network during the period through March 31, 2012. We also worked for the early restoration of communication facilities damaged by the Great East Japan Earthquake and implemented new disaster preparedness measures based on the lessons learned from the experience of the earthquake. The principal actions undertaken during the fiscal year ended March 31, 2012, included the following:

 

   

Further enhancement of FOMA network service area quality to respond attentively to customers’ requests;

 

   

Reinforcement of network facilities in response to the traffic growth resulting from the increased adoption of smartphones, etc.;

 

   

Roll-out of LTE-based Xi service areas;

 

   

Restoration of facilities damaged by the Great East Japan Earthquake; and

 

   

Implementation of new disaster preparedness measures, such as roll-out of large-zone base stations and introduction of uninterruptible power supply in selected base stations, etc.

We have been involved with cost saving efforts such as economized procurement, design and installment of low-cost devices and improvements in construction processes. Our annual capital expenditures have been declining after FOMA-related network investments peaked in the fiscal year ended March 31, 2007, which resulted in a decrease in depreciation and amortization expenses in the subsequent years. As a consequence, depreciation and amortization expenses for the fiscal year ended March 31, 2012 decreased by ¥8.3 billion, or 1.2% from the prior fiscal year to ¥684.8 billion. However, due to impacts from the outlays for the

 

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aforementioned disaster damage recovery and new disaster preparedness measures, and the additional investments for the improvement of network infrastructure aimed for stable network operations and further processing capacity enhancement, depreciation and amortization expenses for a few subsequent fiscal years are projected to be higher than the level for the fiscal year ended March 31, 2012.

For more details concerning our capital expenditures, please refer to “Capital Expenditures” in this Item 5.B.

Selling, General and Administrative Expenses

Selling, general and administrative expenses represented 32.4% of our total operating expenses for the year ended March 31, 2012. The primary components included in our selling, general and administrative expenses are expenses related to acquisition of new subscribers and retention of current subscribers, the most significant of which was commissions paid to agent resellers. While some of these commissions are linked to sales activities such as new subscriptions and handset upgrades, others result from non-sales activities such as processing of billing plan changes and handset repairs. In accordance with U.S. GAAP, in our accounting, a portion of the sales activities linked commissions paid to agent resellers is recognized as a deduction from equipment sales while the rest of commissions, both sales activities linked and non-sales activities linked, as selling, general and administrative expenses. The expenses incurred in relation to “docomo Points Service” customer loyalty program, handset repair and other after-sales support to customers are also included in selling, general and administrative expenses.

Our total selling, general and administrative expenses for the fiscal year ended March 31, 2012 declined compared to the prior fiscal year, due mainly to a reduction in “docomo Points Service” -related expenses resulting from the revisions made to the loyalty program in April 2011, and a decrease in after-sales support-related expenses resulting from the decline in the number of handsets submitted for repair in line with the increase of subscribers migrating to a smartphone, which offset the growth in commissions paid to agent resellers caused by an increase in the number of purchase orders processed due to expanded smartphone sales.

Operating Income

As described above, operating revenues for the year ended March 31, 2012 increased from the prior fiscal year because the increase in equipment sales revenues was greater than the decrease in wireless services revenues. On the other hand, operating expenses recorded a decrease from the prior fiscal year owing mainly to a reduction in network-related costs and our ongoing cost-cutting efforts, which more than offset the increase in cost of equipment sold. As a result, operating income recorded a year-on-year increase.

Other income and expenses, Equity in net income (losses) of affiliates

As part of our corporate strategy, we have made investments in foreign and domestic companies in businesses that complement our mobile communications business. In accordance with U.S. GAAP, the investment is accounted for under the equity method and recognized under “Investments in affiliates” in our consolidated balance sheets when we are able to exercise significant influence over the investee, but do not have a controlling financial interest. In accordance with equity method accounting, we include our equity in the net income or losses of affiliates in our consolidated statements of income. Where we do not have an ability to exercise significant influence over the investee, we include the investment at cost or fair value as “Marketable securities and other investments” in our consolidated balance sheets. Our results of operations can be affected by impairments of such investments and losses and gains on the sale of such investments. The impairment charges for “Marketable securities and other investments” and realized gains or losses from sales of “Investments in affiliates” and “Marketable securities and other investments” are recognized in “Other income and expenses,” whereas the impairment charges for “Investments in affiliates” are recognized in “Equity in net income (losses) of affiliates.” Please refer to “Critical Accounting Policies—Impairment of investments,” regarding our accounting policy for the impairment of investments.

 

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Operating Results for the year ended March 31, 2012

The following discussion includes analysis of our operating results for the year ended March 31, 2012. The tables below describe selected income statement data:

Breakdown of Financial Information

 

     Millions of yen  
     Years ended March 31  
     2011     2012     Increase
(Decrease)
    Change (%)  

Operating revenues:

        

Wireless services

   ¥   3,746,869      ¥   3,741,114      ¥     (5,755     (0.2)%   

Cellular services revenues

     3,407,145        3,385,737        (21,408     (0.6)%   

–Voice revenues (1)

     1,712,218        1,541,884        (170,334     (9.9)%   

Including: FOMA services

     1,658,863        1,518,328        (140,535     (8.5)%   

–Packet communications revenues

     1,694,927        1,843,853        148,926        8.8 %   

Including: FOMA services

     1,679,840        1,809,790        129,950        7.7 %   

Other revenues

     339,724        355,377        15,653        4.6 %   
  

 

 

   

 

 

   

 

 

   

 

 

 

Equipment sales

     477,404        498,889        21,485        4.5 %   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     4,224,273        4,240,003        15,730        0.4 %   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Cost of services

     896,502        893,943        (2,559     (0.3)%   

Cost of equipment sold

     662,829        695,008        32,179        4.9 %   

Depreciation and amortization

     693,063        684,783        (8,280     (1.2)%   

Selling, general and administrative

     1,127,150        1,091,809        (35,341     (3.1)%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     3,379,544        3,365,543        (14,001     (0.4)%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     844,729        874,460        29,731        3.5 %   

Other income (expense)

     (9,391     2,498        11,889          
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity in net income (losses) of affiliates

     835,338        876,958        41,620        5.0 %   

Income taxes

     337,837        402,534        64,697        19.2 %   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before equity in net income (losses) of affiliates

     497,501        474,424        (23,077     (4.6)%   

Equity in net income (losses) of affiliates (net of applicable taxes)

     (5,508     (13,472     (7,964     (144.6)%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     491,993        460,952        (31,041     (6.3)%   

Less: Net (income) loss attributable to noncontrolling interests

     (1,508     2,960        4,468          
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to NTT DOCOMO, INC.

   ¥ 490,485      ¥ 463,912      ¥ (26,573     (5.4)%   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Inclusive of circuit switched data communications

Analysis of operating results for the year ended March 31, 2012 and comparison with the prior fiscal year

Operating revenues for the fiscal year ended March 31, 2012, were ¥4,240.0 billion, an increase of ¥15.7 billion or 0.4% from ¥4,224.3 billion for the prior fiscal year. Wireless services revenues were ¥3,741.1 billion, decreasing by ¥5.8 billion or 0.2% compared to ¥3,746.9 billion for the prior fiscal year. Consequently, the contribution of wireless services revenues to our total operating revenues for the fiscal year ended March 31,

 

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2012 decreased to 88.2% from 88.7% for the prior fiscal year. The year-on-year decrease in wireless services revenues was primarily attributable to the drop of cellular services revenues, particularly voice revenues. The decline in cellular services revenues was the net result of the decrease in voice revenues (which dropped by ¥170.3 billion or 9.9% to ¥1,541.9 billion from ¥1,712.2 billion for the prior fiscal year), which was partially offset by the increase in packet revenues (which grew by ¥148.9 billion or 8.8% from ¥1,694.9 billion in the prior fiscal year to ¥1,843.9 billion). The primary factors behind the decline of voice revenues were the increase in the number of users subscribing to the “Value Plan” and “Monthly Support” discount program, and decline in billable MOU. Consequently, voice ARPU deceased by ¥330 or 13.0% from ¥2,530 for the prior fiscal year to ¥2,200. On the other hand, the increase in packet communication revenues was driven mainly by the expansion of data usage achieved by spreading the use of smartphones, acquiring new smartphone users and capturing new demands leveraging mobile Wi-Fi routers and tablet devices. Because smartphone users’ data usage is generally higher compared to that of conventional i-mode handset users, the increase in the number of subscribers migrating to a smartphone tends to result in an expansion of packet revenues. For the year ended March 31, 2012, we sold a total of 8.82 million smartphone units. As a result, our packet ARPU grew by ¥130 or 5.1% from ¥2,540 for the prior fiscal year to ¥2,670.

Equipment sales revenues increased by ¥21.5 billion or 4.5% to ¥498.9 billion for the year ended March 31, 2012 from ¥477.4 billion for the prior fiscal year, due mainly to an increase in the number of handsets sold.

Operating expenses decreased by ¥14.0 billion or 0.4% from ¥3,379.5 billion for the prior fiscal year to ¥3,365.5 billion for the fiscal year ended March 31, 2012. This was mainly attributable to a decreases in selling, general and administrative expenses of ¥35.3 billion or 3.1% from ¥1,127.2 billion for the prior fiscal year to ¥1,091.8 billion for the fiscal year ended March 31, 2012 resulting from the decline in customer service-related expenses, and a decrease in depreciation and amortization, which declined by ¥8.3 billion or 1.2% from ¥693.1 billion for the prior fiscal year to ¥684.8 billion for the fiscal year ended March 31, 2012, although cost of equipment sold increased by ¥32.2 billion or 4.9% to ¥695.0 billion from ¥662.8 billion for the prior fiscal year primarily as a result of an increase in the number of handsets sold.

As a result of the foregoing, operating income for the fiscal year ended March 31, 2012 increased by ¥29.7 billion or 3.5%, from ¥844.7 billion for the prior fiscal year to ¥874.5 billion. Accordingly, the operating income margin improved from 20.0% for the prior fiscal year to 20.6%. The increase in operating income margin was driven mainly by the reduction of network-related costs and other continuing cost-efficiency improvement efforts in areas including customer services as aforementioned.

Other income (expense) includes items such as interest expense, interest income, gains and losses on sale of “Marketable securities and other investments” and foreign exchange gains and losses. We recognized ¥2.5 billion as “other income, net” for the fiscal year ended March 31, 2012, increasing income by ¥11.9 billion compared to the prior fiscal year, during which we recognized “other expense, net” of ¥9.4 billion. This is mainly because we recognized other-than-temporary impairment charges for marketable securities and other investment in the prior fiscal year, while we recognized only minimal other-than-temporary impairment charges in the fiscal year ended March 31, 2012.

Income before income taxes and equity in net income (losses) of affiliates increased by ¥41.6 billion or 5.0% to ¥877.0 billion for the fiscal year ended March 31, 2012, from ¥835.3 billion for the prior fiscal year.

Income taxes were ¥402.5 billion for the year ended March 31, 2012 and ¥337.8 billion for the year ended March 31, 2011, representing effective income tax rates of approximately 45.9% and 40.4% for the fiscal years ended March 31, 2012 and March 31, 2011, respectively. The increase in effective tax rate for the year ended March 31, 2012 was mainly due to the changes in corporate tax rates resulting from the enactment of the act for partial amendment to the Japanese corporate tax law on November 30, 2011. The aggregate statutory income tax rate declined from 40.8% to 38.1% or 35.8% for deferred tax assets and liabilities resulting from temporary differences that were expected to be recovered or settled in the fiscal years ending

 

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March 31, 2013 and March 31, 2016 or thereafter. Due to the change in the enacted tax rates, net deferred tax assets existing at the enactment date decreased by ¥36.5 billion, and the impact was charged to income taxes expense.

We are subject to income taxes imposed by various taxing authorities in Japan, including corporate income tax, corporate enterprise tax, corporate inhabitant income taxes and special local corporation tax, which in the aggregate amounted to a statutory income tax rate of 40.8% for both fiscal years ended March 31, 2012 and March 31, 2011. The Japanese government introduced various special tax benefits, one of which enabled us to deduct from our taxable income a portion of investments in research and development (“R&D investment tax incentive”). The difference between our effective tax rate and statutory income tax rate for the year ended March 31, 2011 arose primarily from such special tax allowances, and for the year ended March 31, 2012, from the aforementioned change in corporate tax rate in relation to amendment of Japanese corporate tax law.

For equity in net losses of affiliates (net of applicable taxes), we recognized our equity in the net losses of our affiliates of ¥13.5 billion for the fiscal year ended March 31, 2012 and ¥5.5 billion for the fiscal year ended March 31, 2011. This was due to the increase of losses of some affiliates including Tata Teleservices Limited, offsetting against the increase in income of other affiliates, that were reflected in our consolidated results.

As a result of the foregoing, we reported ¥463.9 billion in net income attributable to NTT DOCOMO, INC., representing a decrease of ¥26.6 billion or 5.4% from ¥490.5 billion for the prior fiscal year.

The underlying operational data for the above-mentioned financial results for the fiscal years ended March 31, 2012 and 2011 are provided below:

Key Performance Indicators

 

     Years ended March 31  
     2011      2012      Increase
(Decrease)
    Change (%)  

Cellular

          

Subscriptions (thousands)

     58,010         60,129         2,120        3.7

Xi services (thousands)

     26         2,225         2,199          

FOMA services (thousands)

     56,746         57,905         1,159        2.0

mova services (thousands)

     1,239         0         (1,239     (100.0 )% 

packet flat-rate services (thousands)

     31,921         36,295         4,374        13.7

i-mode services (thousands)

     48,141         42,321         (5,819     (12.1 )% 

sp-mode services (thousands)

     2,095         9,586         7,492       357.7

Market Share (%) (1)(2)

     48.5         46.9         (1.6       

Aggregate ARPU (Xi+FOMA+mova) (yen/month/subscription) (3)

     5,070         4,870         (200     (3.9 )% 

Voice ARPU (yen/month/subscription) (4)

     2,530         2,200         (330     (13.0 )% 

Packet ARPU (yen/month/subscription)

     2,540         2,670         130        5.1

MOU (Xi+FOMA+mova) (minutes/month/subscription) (3)(5)

     134         126         (8     (6.0 )% 

Churn Rate (%) (2)

     0.47         0.60         0.13          

 

(1) Source for other cellular telecommunications operators: Data announced by Telecommunications Carriers Association and cellular network operators
(2) Data calculated including Communication Module Services subscriptions
(3) Data calculated excluding Communication Module Services-related revenues and subscriptions, and Phone Number Storage and Mail Address Storage services-related revenues and subscriptions
(4) Inclusive of circuit switched data communications
(5) MOU (Minutes of Use): Average communication time per month per subscription

 

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Definition of ARPU

 

Aggregate ARPU: 

  Voice ARPU + Packet ARPU

Voice ARPU:

  Voice ARPU Related Revenues (basic monthly usage charges, voice communication charges) / number of active subscriptions

Packet ARPU:

  Packet ARPU Related Revenues (basic monthly usage charges, packet communication charges) / number of active subscriptions

Number of active subscriptions used in ARPU calculations is as follows:

  FY Results: Sum of number of active subscriptions for each month* from April to March

*  Active subscriptions for each month = (number of subscriptions at the end of previous month + number of subscriptions at the end of current month) / 2

Operating Results for the year ended March 31, 2011

The following discussion includes analysis of our operating results for the year ended March 31, 2011. The tables below describe selected income statement data for the fiscal years ended March 31, 2011 and 2010:

Breakdown of Financial Information

 

     Millions of yen  
     Years ended March 31  
     2010     2011     Increase
(Decrease)
    Change (%)  

Operating revenues:

        

Wireless services

   ¥   3,776,909      ¥   3,746,869      ¥     (30,040     (0.8 )% 

Cellular services revenues

     3,499,452        3,407,145        (92,307     (2.6 )% 

–Voice revenues (1)

     1,910,499        1,712,218        (198,281     (10.4 )% 

Including: FOMA services

     1,785,518        1,658,863        (126,655     (7.1 )% 

–Packet communications revenues

     1,588,953        1,694,927        105,974        6.7  % 

Including: FOMA services

     1,558,284        1,679,840        121,556        7.8  % 

Other revenues

     277,457        339,724        62,267        22.4  % 
  

 

 

   

 

 

   

 

 

   

 

 

 

Equipment sales

     507,495        477,404        (30,091     (5.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     4,284,404        4,224,273        (60,131     (1.4 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Cost of services

     900,642        896,502        (4,140     (0.5 )% 

Cost of equipment sold

     698,495        662,829        (35,666     (5.1 )% 

Depreciation and amortization

     701,146        693,063        (8,083     (1.2 )% 

Selling, general and administrative

     1,149,876        1,127,150        (22,726     (2.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     3,450,159        3,379,544        (70,615     (2.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     834,245        844,729        10,484        1.3  % 

Other income (expense)

     1,912        (9,391     (11,303       
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity in net income (losses) of affiliates

     836,157        835,338        (819     (0.1 )% 

Income taxes

     338,197        337,837        (360     (0.1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before equity in net income (losses) of affiliates

     497,960        497,501        (459     (0.1 )% 

Equity in net income (losses) of affiliates
(net of applicable taxes)

     (852     (5,508     (4,656     (546.5 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     497,108        491,993        (5,115     (1.0 )% 

Less: Net (income) loss attributable to noncontrolling interests

     (2,327     (1,508     819        35.2  % 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to NTT DOCOMO, INC.

   ¥ 494,781      ¥ 490,485      ¥ (4,296     (0.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Inclusive of circuit switched data communications

 

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Analysis of operating results for the year ended March 31, 2011 and comparison with the prior fiscal year

Our operating revenues for the fiscal year ended March 31, 2011, were ¥4,224.3 billion, a decline of ¥60.1 billion or 1.4% from ¥4,284.4 billion for the prior fiscal year. Wireless services revenues were ¥3,746.9 billion, decreasing by ¥30.0 billion or 0.8% compared to ¥3,776.9 billion for the prior fiscal year. Consequently, the contribution of wireless services revenues to our total operating revenues for the fiscal year ended March 31, 2011 increased to 88.7% from 88.2% for the prior fiscal year. The year-on-year decrease in wireless services revenues was primarily attributable to the drop of cellular services revenues, particularly voice revenues. The decline in cellular services revenues was the net result of the decrease in voice revenues (which dropped by ¥198.3 billion or 10.4% to ¥1,712.2 billion from ¥1,910.5 billion for the prior fiscal year), which was partially offset by the increase in packet revenues (which grew by ¥106.0 billion or 6.7% from ¥1,589.0 billion in the prior fiscal year to ¥1,694.9 billion). Of the cellular services revenues, the revenues generated by FOMA voice services decreased by ¥126.7 billion or 7.1% from ¥1,785.5 billion for the prior fiscal year to ¥1,658.9 billion for the fiscal year ended March 31, 2011. On the other hand, the revenues generated by FOMA packet services increased to ¥1,679.8 billion, up ¥121.6 billion or 7.8%, from ¥1,558.3 billion for the prior fiscal year. The primary factors behind the decline in voice revenues were the increase in the number of users subscribing to the “Value Plan” and decline in billable MOU. This resulted in a decrease in voice ARPU of ¥370 or 12.8% from ¥2,900 for the prior fiscal year to ¥2,530. The main reasons for the increase in packet ARPU included the impact of expanded data usage resulting from our efforts for boosting the usage of i-mode service, migrating existing subscribers to smartphones and acquiring new smartphone subscriptions, and cultivating new demand for mobile Wi-Fi routers and tablet devices. Consequently, packet ARPU grew by ¥90 or 3.7% from ¥2,450 for the prior fiscal year to ¥2,540.

Equipment sales revenues decreased by ¥30.1 billion or 5.9% to ¥477.4 billion for the year ended March 31, 2011 from ¥507.5 billion for the prior fiscal year, due mainly to a reduction in the wholesale price per unit.

Operating expenses decreased by ¥70.6 billion or 2.0% from ¥3,450.2 billion for the prior fiscal year to ¥3,379.5 billion for the fiscal year ended March 31, 2011. This was mainly attributable to a decrease in cost of equipment sold, which dropped by ¥35.7 billion or 5.1% to ¥662.8 billion from ¥698.5 billion for the prior fiscal year as a result of a reduction in the handset procurement cost per unit; a reduction in selling, general and administrative expenses of ¥22.7 billion or 2.0% from ¥1,149.9 billion for the prior fiscal year to ¥1,127.2 billion for the fiscal year ended March 31, 2011 resulting from the decline in customer service-related expenses; and a decrease in depreciation and amortization, which declined by ¥8.1 billion or 1.2% from ¥701.1 billion for the prior fiscal year to ¥693.1 billion for the fiscal year ended March 31, 2011.

As a result of the foregoing, operating income for the fiscal year ended March 31, 2011 increased by ¥10.5 billion or 1.3%, from ¥834.2 billion for the prior fiscal year to ¥844.7 billion. Accordingly, the operating income margin improved from 19.5% for the prior fiscal year to 20.0%. The growth of operating income, despite a decrease in operating revenues, contributed to this improvement, which was attained by making up for the decline in operating revenues resulting mainly from the reduction of voice revenues by a reduction of network-related costs and other operating expenses.

Other income (expense) includes items such as interest income, interest expense, gains and losses on sale of “Marketable securities and other investments” and foreign exchange gains and losses. We recognized ¥9.4 billion as “other expense, net” for the fiscal year ended March 31, 2011, increasing by ¥11.3 billion compared to the prior fiscal year, during which we recognized “other income, net” of ¥1.9 billion. This is mainly because we recognized other-than-temporary impairment charges of ¥13.4 billion for marketable securities and other investment in the fiscal year ended March 31, 2011, while we recognized only minimal other-than-temporary impairment charges in the prior fiscal year ended March 31, 2010.

Income before income taxes and equity in net income (losses) of affiliates decreased by ¥0.8 billion or 0.1% to ¥835.3 billion for the fiscal year ended March 31, 2011, from ¥836.2 billion for the prior fiscal year.

Income taxes were ¥337.8 billion for the year ended March 31, 2011 and ¥338.2 billion for the year ended March 31, 2010, representing an effective income tax rate of approximately 40.4% for both fiscal years. We are

 

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subject to income taxes imposed by various taxing authorities in Japan, including corporate income tax, corporate enterprise tax, corporate inhabitant income taxes and special local corporation tax, which in the aggregate amounted to a statutory income tax rate of 40.8% for both fiscal years ended March 31, 2011 and March 31, 2010. The Japanese government introduced various special tax benefits, one of which enabled us to deduct from our taxable income a portion of investments in research and development (“R&D investment tax incentive”). The difference between our effective tax rate and statutory income tax rate for the years ended March 31, 2011 and 2010 arose primarily from such special tax allowances.

For equity in net losses of affiliates (net of applicable taxes), we recognized our equity in the net losses of our affiliates of ¥5.5 billion for the fiscal year ended March 31, 2011 and ¥0.9 billion for the fiscal year ended March 31, 2010.

As a result of the foregoing, we reported ¥490.5 billion in net income attributable to NTT DOCOMO, INC., representing a decrease of ¥4.3 billion or 0.9% from ¥494.8 billion for the prior fiscal year.

The underlying operational data for the above-mentioned financial results for the fiscal years ended March 31, 2011 and 2010 are provided below:

Key Performance Indicators

 

     Years ended March 31  
     2010      2011      Increase
(Decrease)
    Change (%)  

Cellular

          

Subscriptions (thousands)

     56,082         58,010         1,928        3.4

Xi services (thousands)

             26                  

FOMA services (thousands)

     53,203         56,746         3,542        6.7

mova services (thousands)

     2,879         1,239         (1,640     (57.0 )% 

packet flat-rate services(thousands)

     25,767         31,921         6,154        23.9

i-mode services (thousands)

     48,992         48,141         (851     (1.7 )% 

sp-mode services (thousands)

             2,095                  

Market Share (%) (1)(2)

     50.0         48.5         (1.5       

Aggregate ARPU (Xi+FOMA+mova) (yen/month/subscription) (3

     5,350         5,070         (280     (5.2 )% 

Voice ARPU (yen/month/subscription) (4)

     2,900         2,530         (370     (12.8 )% 

Packet ARPU (yen/month/subscription)

     2,450         2,540         90        3.7

MOU (Xi+FOMA+mova) (minutes/month/subscription) (3)(5)

     136         134         (2     (1.5 )% 

Churn Rate (%) (2)

     0.46         0.47         0.01          

 

(1) Source for other cellular telecommunications operators: Data announced by Telecommunications Carriers Association
(2) Data calculated including Communication Module Services subscriptions
(3) Data calculated excluding Communication Module Services-related revenues and subscriptions, and Phone Number Storage and Mail Address Storage services-related revenues and subscriptions
(4) Inclusive of circuit switched data communications
(5) MOU (Minutes of Use): Average communication time per month per subscription

 

Definition of ARPU

 

Aggregate ARPU: 

  Voice ARPU + Packet ARPU

Voice ARPU:

  Voice ARPU Related Revenues (basic monthly usage charges, voice communication charges) / number of active subscriptions

Packet ARPU:

  Packet ARPU Related Revenues (basic monthly usage charges, packet communication charges) / number of active subscriptions

Number of active subscriptions used in ARPU calculations is as follows:

  FY Results: Sum of number of active subscriptions for each month* from April to March

*   Active subscriptions for each month = (number of subscriptions at the end of previous month + number of subscriptions at the end of current month) / 2

 

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Segment Information

General

Our chief operating decision maker (“CODM”) is the board of directors. The CODM evaluates the performance and makes resource allocations of our segments based on the information derived from our internal management reports.

We have five operating segments, which consist of mobile phone business, credit services business, home shopping services business, internet connection services business for hotel facilities, and miscellaneous businesses.

Due to its quantitative significance, only the mobile phone business qualifies as a reportable segment and therefore is disclosed as such. The remaining four operating segments are each quantitatively insignificant and therefore combined and disclosed as “all other businesses.”

Mobile phone business

For the year ended March 31, 2012, operating revenues from our mobile phone business segment increased by ¥19.9 billion or 0.5% to ¥4,110.6 billion from ¥4,090.7 billion in the prior fiscal year. Cellular services revenues, which are revenues from voice and packet communications of mobile phone services, decreased by ¥21.4 billion or 0.6% to ¥3,385.7 billion for the year ended March 31, 2012 from ¥3,407.1 billion in the prior fiscal year. Equipment sales revenues increased by 21.5 billion or 4.5% to ¥498.9 billion for the year ended March 31, 2012 from ¥477.4 billion for the prior fiscal year due to an increase in the number of handsets sold. Revenues from our mobile phone business segment represented 96.9% and 96.8% of total operating revenues for the years ended March 31, 2012 and 2011, respectively. Operating expenses in our mobile phone business segment decreased by ¥9.7 billion or 0.3% to ¥3,224.2 billion from ¥3,233.9 billion in the prior fiscal year. This was mainly due to the reduction of network-related costs and other continuing cost-efficiency improvement efforts in areas including customer services. As a result, segment income from our mobile phone business increased by ¥29.6 billion or 3.5% to ¥886.3 billion compared to ¥856.7 billion in the prior fiscal year. Analysis of the changes in revenues and expenses of our mobile phone business segment is also presented in “Operating Trends” and “Operating Results for the Year Ended March 31, 2012,” which were discussed above.

All other businesses

Operating revenues from all other businesses decreased by ¥4.2 billion or 3.1% from ¥133.6 billion in the prior fiscal year to ¥129.4 billion for the year ended March 31, 2012, which represented 3.1% of total operating revenues. Operating expenses from all other businesses decreased by ¥4.3 billion or 3.0% from ¥145.6 billion in the prior fiscal year to ¥141.3 billion. The decrease in operating revenues was mainly due to the decrease in miscellaneous businesses and the decrease in operating expenses was mainly due to the reduction of costs related to our credit services business. Consequently, operating loss from all other businesses for the year ended March 31, 2012 slightly improved to ¥11.9 billion from ¥12.0 billion in the prior fiscal year.

Recent Accounting Pronouncements Not Yet Adopted

As of March 31, 2012, we expect that any recent accounting pronouncements not yet adopted will have no material impacts on our operating results or financial positions.

Critical Accounting Policies

The preparation of our consolidated financial statements requires our management to make estimates about expected future cash flows and other matters that affect the amounts reported in our financial statements in accordance with accounting policies established by our management. Note 2 to our consolidated financial

 

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statements includes a summary of the significant accounting policies used in the preparation of our consolidated financial statements. Certain accounting policies are particularly sensitive because of their significance to our reported results and because of the possibility that future events may differ significantly from the conditions and assumptions underlying the estimates used and judgments relating thereto made by our management in preparing our financial statements. Our senior management has discussed the selection and development of the accounting estimates and the following disclosure regarding the critical accounting policies with our independent public accountants as well as our corporate auditors. The corporate auditors attend meetings of the board of directors and certain executive meetings to express their opinion and are under a statutory duty to audit the administration of our affairs by our directors and to audit our financial statements. Our critical accounting policies are as follows.

Useful lives of property, plant and equipment, internal use software and other intangible assets

The values of our property, plant and equipment, such as the base stations, antennas, switching centers and transmission lines used by our cellular business, our internal-use software and our other intangible assets are recorded in our financial statements at acquisition or development cost and depreciated or amortized over their estimated useful lives. We estimate the useful lives of property, plant and equipment, internal-use software and other intangible assets in order to determine the amount of depreciation and amortization expenses to be recorded in each fiscal year. Our total depreciation and amortization expenses for the years ended March 31, 2012, 2011 and 2010 were ¥684.8 billion, ¥693.1 billion and ¥701.1 billion, respectively. We determine the useful lives of our assets at the time the assets are acquired and base our determinations on expected usage, experience with similar assets, established laws and regulations as well as taking into account anticipated technological or other changes. The estimated useful lives of our wireless telecommunications equipment are generally set at from 8 to 16 years. The estimated useful life of our internal-use software is set up to 5 years. If technological or other changes occur more rapidly or in a different form than anticipated, new laws or regulations are enacted, or the intended usage changes, the useful lives assigned to these assets may need to be shortened, resulting in recognition of additional depreciation and amortization expenses or losses in future periods. In the fiscal years ended March 31, 2012, 2011 and 2010, changes to the estimated useful lives of certain property, plant and equipment, internal use software and other intangible assets did not have a material impact on our operating results or financial positions.

Impairment of long-lived assets

We perform an impairment review for our long-lived assets other than goodwill and other indefinite intangibles to be held and used, including fixed assets such as our property, plant and equipment and certain identifiable intangibles such as software for telecommunications network, internal-use software and rights to use telecommunications facilities of wire line network operators, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. This analysis is separate from our analysis of the useful lives of our assets, although it is affected by some similar factors. Factors that we consider important and that can trigger an impairment review include, but are not limited to, the following trends or conditions related to the business that utilizes a particular asset:

 

   

significant decline in the market value of an asset;

 

   

loss of operating cash flow in current period;

 

   

introduction of competitive technologies and services;

 

   

significant underperformance of expected or historical cash flows;

 

   

significant or continuing decline in subscriptions;

 

   

changes in the manner of usage of an asset; and

 

   

other negative industry or economic trends.

 

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When we determine that the carrying amount of specific assets may not be recoverable based on the existence or occurrence of one or more of the above or other factors, we estimate the future cash inflows and outflows expected to be generated by the assets over their expected useful lives. We also estimate the sum of expected undiscounted future net cash flows based upon historical trends adjusted to reflect our best estimate of future market and operating conditions. If the carrying value of the assets exceeds the sum of the expected undiscounted future net cash flows, we record an impairment loss based on the fair values of the assets. Such fair values may be based on established markets, independent appraisals and valuations or discounted cash flows. If actual market and operating conditions under which assets are used are less favorable or subscriber numbers are less than those projected by management, either of which results in loss of cash flows, additional impairment charges for assets not previously written-off may be required. We did not recognize any impairment charges for the years ended March 31, 2011 and 2010. We recognized impairment loss for a certain long-lived asset for the fiscal year ended March 31, 2012. The impact of the impairment on our financial results was insignificant.

Impairment of investments

We have made investments in certain domestic and foreign entities. These investments are accounted for under the equity method, cost method, or at fair value as appropriate based on various conditions such as ownership percentages, exercisable influence over the investments and marketability of the investments. In the past, we experienced material impairments in the value of our investments in equity method affiliates that were included in “Equity in net losses of affiliates” in our consolidated statements of income and comprehensive income for relevant years. It is possible that we could experience similar impairments with respect to our “Investments in affiliates” and “Marketable securities and other investments” again in the future. We may also experience material gains or losses on the sale of our investments. As of March 31, 2012, the total carrying value of ”Investments in affiliates” was ¥480.1 billion, while the total carrying value for investments in “Marketable securities and other investments” was ¥128.4 billion. Major investee companies of us are Sumitomo Mitsui Card Co., Ltd., TTSL (Tata Teleservices Limited) of India and PLDT (Philippine Long Distance Telephone Company) of Philippine, all of which are included in “Investments in affiliates” as of March 31, 2012.

Equity method and cost method accounting require that we assess if a decline in value or an associated event regarding any such investment has occurred and, if so, whether such decline is other than temporary. We perform a review for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable. Factors that we consider important and that can trigger an impairment review include, but are not limited to, the following:

 

   

significant or continued declines in the market values of the investee;

 

   

loss of operating cash flow in current period;

 

   

significant underperformance of historical cash flows of the investee;

 

   

significant impairment losses or write-downs recorded by the investee;

 

   

significant changes in the quoted market price of public investee affiliates;

 

   

negative results of competitors of investee affiliates; and

 

   

other negative industry or economic trends.

In performing our evaluations, we utilize various information including discounted cash flow valuations, independent valuations and, if available, quoted market values. Determination of recoverable amounts sometimes requires estimates involving results of operations and financial position of the investee, changes in technology, capital expenditures, market growth and share, discount factors and terminal values.

In the event we determine as a result of such evaluations that there are other than temporary declines in value of investment below its carrying value, we record an impairment charge. Such write-down to fair value

 

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establishes a new cost basis in the carrying amount of the investment. The impairment charge of “Investment in affiliates” is included in “Equity in losses of affiliates” while the impairment charge of “Marketable securities and other investments” is reflected in “Other income (expense)” in our consolidated statements of income and comprehensive income.

For the year ended March 31, 2012, we recorded impairment charges accompanying other than temporary declines in the values of certain investee affiliates, but the impact of the impairment charges on our results of operations and financial position was inconsequential. We did not recognize any impairment charges on “Investments in affiliates” for the years ended March 31, 2011 and 2010.

We recorded impairment charges on certain investments which were classified as “Marketable securities and other investments.” The amount of impairment charges on “Marketable securities and other investments” was ¥4.0 billion, ¥13.4 billion and ¥4.0 billion for the years ended March 31, 2012, 2011 and 2010, respectively.

While we believe that the remaining carrying values of our investments are nearly equal to their fair value, circumstances in which the value of an investment is below its carrying amount or changes in the estimated realizable value can require additional impairment charges to be recognized in the future.

Accrued liabilities for point programs

We offer “docomo Points Service,” which provides benefits, including discounts on handset, to customers in exchange for points that we grant customers based on the usage of cellular and other services and record “Accrued liabilities for point programs” relating to the points that customers earn. The total amount of accrued liabilities for point programs recognized as short-term and long-term liabilities as of March 31, 2012 and 2011 was ¥182.9 billion and ¥199.6 billion, respectively. Point program expense for the years ended March 31, 2012, 2011 and 2010 was ¥95.8 billion, ¥126.8 billion and ¥142.2 billion, respectively.

In determining the accrued liabilities for point programs, we estimate such factors as the point utilization rate reflecting the forfeitures by, among other things, cancellation of subscription. Higher-than-estimated utilization rate could result in the need for recognizing additional expenses or accrued liabilities in the future. In determining the accrued liabilities for point programs as of March 31, 2012, one percent raise in point utilization rate would result in an additional accrual of approximately ¥1.6 billion, if all the other factors are held constant.

Pension liabilities

We sponsor a non-contributory defined benefit pension plan which covers almost all of our employees. We also participate in the NTT CDBP, a contributory defined benefit welfare pension plan sponsored by NTT group.

Calculation of the amount of pension cost and liabilities for retirement allowances requires us to make various judgments and assumptions including the discount rate, expected long-term rate of return on plan assets, long-term rate of salary increases and expected remaining service lives of our plan participants. We believe that the most significant of these assumptions in the calculations are the discount rate and the expected long-term rate of return on plan assets. We determine an appropriate discount rate based on current market interest rates on high-quality, fixed income debt securities that are currently available and expected to be available during the period to maturity of the pension benefits. In determining the expected long-term rate of return on plan assets, we consider the current and projected asset allocations, as well as expected long-term investment returns and risks for each category of the plan assets based on analysis of historical performances. The rates are reviewed annually and we review our assumptions in a timely manner when an event occurs that would have significant influence on the rates or the investment environment changes dramatically.

 

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The discount rates applied in determination of the projected benefit obligations as of March 31, 2012 and 2011, and expected long-term rates of return on plan assets for the years ended March 31, 2012 and 2011 were as follows:

 

     Years ended March 31
     2011    2012

Non-contributory defined benefit pension plan

     

Discount rate

   2.0%    1.9%

Expected long-term rate of return on plan assets

   2.3%    2.0%

Actual return on plan assets

   Approximately (2)%    Approximately 1%

NTT CDBP

     

Discount rate

   2.0%    1.9%

Expected long-term rate of return on plan assets

   2.5%    2.5%

Actual return on plan assets

   Approximately (2)%    Approximately 1%

The amount of projected benefit obligations of our non-contributory defined benefit pension plan as of March 31, 2012 and March 31, 2011 was ¥202.4 billion and ¥196.1 billion, respectively. The amount of projected benefit obligations of the NTT CDBP as of March 31, 2012 and March 31, 2011, based on actuarial computations which covered only DOCOMO employees’ participation, was ¥102.8 billion and ¥97.3 billion, respectively. The amount is subject to a substantial change due to differences in actual performance or changes in assumptions. In conjunction with the differences between estimates and the actual benefit obligations, net losses in excess of 10% of the greater of the projected benefit obligation or the fair value of plan assets are amortized from “Accumulated other comprehensive income (loss)” over the expected average remaining service life of employees in accordance with U.S. GAAP.

The following table shows the sensitivity of our non-contributory defined benefit pension plan and the NTT CDBP as of March 31, 2012 to the change in the discount rate or the expected long-term rate of return on plan assets, while holding other assumptions constant.

 

     Billions of yen  

Change in Assumptions

   Change in projected
benefit obligation
     Change in pension
cost, before
applicable taxes
   Accumulated other
comprehensive
income (loss), net
of applicable taxes
 

Non-contributory defined benefit pension plan

        

0.5% increase/decrease in discount rate

     (12.2) / 13.0       0.4 / (0.4)      8.1 / (8.6)   

0.5% increase/decrease in expected long-term rate of return on plan assets

           (0.4) / 0.4        

NTT CDBP

        

0.5% increase/decrease in discount rate

     (10.1) / 11.2       0.1 / (0.1)      6.6 / (7.2)   

0.5% increase/decrease in expected long-term rate of return on plan assets

           (0.3) / 0.3        

Please also refer to Note 15 “Employees’ retirement benefits” to our consolidated financial statements for further discussion.

Revenue recognition

We defer upfront activation fees and recognize them as revenues over the expected term of a subscription. Related direct cost to the extent of the activation fee amount are also being deferred and amortized over the same period. The reported amounts of revenue and cost of services are affected by the level of activation fees, related direct cost and the estimated length of the subscription period over which such fees and cost are amortized. Factors that affect our estimate of the subscription period over which such fees and cost are amortized include

 

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subscriber churn rate and newly introduced or anticipated competitive products, services and technology. The current amortization periods are based on an analysis of historical trends and our experiences. For the years ended March 31, 2012, 2011 and 2010, we recognized as revenues deferred activation fees of ¥14.0 billion, ¥14.6 billion and ¥18.4 billion, respectively, as well as corresponding amounts of related deferred cost. As of March 31, 2012, remaining unrecognized deferred activation fees were ¥88.6 billion.

 

B.    Liquidity and Capital Resources

Cash Requirements

Our cash requirements for the year ending March 31, 2013 include cash needed to pay to the agent resellers to provide funds under the installment payment scheme, to expand our network, to invest in other facilities, to make repayments for interest bearing liabilities and other contractual obligations and to pay for strategic investments, acquisitions, joint ventures or other investments aimed for capturing business opportunities. We believe that cash generated from our operating activities, future borrowings from banks and other financial institutions or future offerings of debt or equity securities in the capital markets will provide sufficient financial resources to meet our currently anticipated capital and other expenditure requirements and to satisfy our debt service requirements. We believe we have enough financing ability supported by our high creditworthiness resulting from our stable financial performance and strong financial standing. Also, our management is of the opinion that the working capital is sufficient for our present requirements. When we determine the necessity for external financing, we take into consideration the amount of cash demand, timing of payments, available reserves of cash and cash equivalents and expected cash flows from operations. If we determine that demand for cash exceeds the amount of available reserves of cash and cash equivalents and expected cash flows from operations, we plan on obtaining external financing through borrowing or the issuance of debt or equity securities. Additional debt, equity or other financing may be required if we underestimate our capital or other expenditure requirements, or overestimate our future cash flows. There can be no assurance that such external financing will be available on commercially acceptable terms or in a timely manner.

Capital Expenditures

The wireless telecommunications industry in general is highly capital intensive because significant capital expenditures are required for the construction of the wireless telecommunications network. Our capital requirements for our networks are determined by the nature of facility or equipment, the timing of its installment, the nature and the area of coverage desired, the number of subscribers served in the area and the expected volume of traffic. They are also influenced by the number of cells required in the service area, the number of radio channels in the cell and the switching equipment required. Capital expenditures are also required for information technology and servers for internet-related services.

In recent years, the usage of data communications services has expanded remarkably as a result of a rapid surge in the use of smartphones and other factors. We intend to accommodate the projected growth in data communications traffic through the combination of a number of measures, including capacity expansion of our existing FOMA network, coverage expansion of Xi services, application of traffic control against excessive network use, and data offloading through the use of Wi-Fi and other technologies.

Our capital expenditures for the fiscal year ended March 31, 2012 recorded an increase of ¥58.4 billion or 8.7% compared to the prior fiscal year. This was mainly due to the factors that caused an increase of investments such as further quality enhancement of FOMA areas, capacity buildup in response to the growth in data traffic, expansion of Xi network as well as the additional outlays required for the restoration of communication facilities and equipment damaged by the Great East Japan Earthquake and the implementation of new disaster preparedness measures based on the lessons learned from the experience of the earthquake, although the increase from these factors were partly offset by our ongoing efforts toward improvement of capital investment efficiency such as reduction of procurement costs, introduction of economical equipment and devising efficient designs and construction processes.

 

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During the fiscal year ended March 31, 2012, we added 4,300 outdoor base stations to our FOMA network, growing the cumulative number of FOMA outdoor base stations to 67,100. The cumulative number of indoor base stations grew to 31,700, as we completed the installation in 2,500 base stations during the fiscal year ended March 31, 2012. As for Xi service, which was launched in the fiscal year ended March 31, 2011, we increased its cumulative number of base stations to over 7,000.

Total capital expenditures for the years ended March 31, 2012, 2011 and 2010 were ¥726.8 billion, ¥668.5 billion and ¥686.5 billion, respectively. For the year ended March 31, 2012, 44.1% of capital expenditures were used for construction of the FOMA network, 12.7% for construction of the Xi network, 20.5% for the installation of servers and other cellular facilities and equipment and 22.7% for general capital expenditures such as an internal IT system. By comparison, in the prior fiscal year, 56.7% of capital expenditures were used for construction of the FOMA network, 3.9% for construction of the Xi network, 17.3% for the installation of servers and other cellular facilities and equipment and 22.1% for general capital expenditures such as an internal IT system.

For the year ending March 31, 2013, we expect total capital expenditures to be ¥735.0 billion, of which approximately 29% will be appropriated for the FOMA network, 23% for the Xi network, 25% for servers and other cellular facilities and equipment and 23% for general capital expenditures. In the fiscal year ending March 31, 2013, we plan to build up the FOMA network facilities and expand Xi service areas on a continual basis to accommodate the projected growth in data traffic, increase the number of Wi-Fi access points and make investments required for new services and businesses and dispersion of key facilities, while pursuing efficiency enhancement. We already started employing measures to prevent recurrence of the service interruptions reported in the fiscal year ended March 31, 2012, and the outlays required for the improvement of network infrastructure are factored in the above capital expenditures forecast for the fiscal year ending March 31, 2013. As these general trends are expected to continue in the fiscal year ending March 31, 2013 and the subsequent few fiscal years, according to our current estimates, the total annual capital expenditures for the next few fiscal years will likely be around ¥700.0 billion.

Our actual level of capital expenditures may vary significantly from expected levels for a number of reasons. Capital expenditures for expansion and enhancement of our existing cellular network may be influenced by the growth in subscriptions and traffic, which is difficult to predict with certainty, the ability to identify and procure suitably located base station sites on commercially reasonable terms, competitive environments in particular regions and other factors. The nature, scale and timing of capital expenditures to reinforce our network may be materially different from our current plans due to demand for the services, delays in the construction of the network or in the introduction of services and changes in the variable cost of components for the network. We expect that these capital expenditures will be affected by market demand for data communications services, and by the state of our existing network expansion efforts that are being continued to satisfy these communication demands.

Long-term Debt and other Contractual Obligations

As of March 31, 2012, we had ¥255.9 billion in outstanding long-term debt including the current portion, primarily in corporate bonds and loans from financial institutions, compared to ¥428.1 billion as of the end of the prior fiscal year. We did not implement any long-term financing in the years ended March 31, 2012 or 2011. We repaid ¥171.9 billion, ¥180.1 billion and ¥29.0 billion of long-term debt, in the years ended March 31, 2012, 2011 and 2010, respectively.

Of our long-term debt outstanding as of March 31, 2012, ¥15.9 billion, including the current portion, was indebtedness to financial institutions, majority of which has fixed interest rates, with a weighted average interest rate of 1.5% per annum. The term of maturities was from the year ending March 31, 2013 through 2018. As of March 31, 2012, we also had ¥240.0 billion, including the current portion, in bonds due from the year ending March 31, 2013 to 2019 with a weighted average coupon rate of 1.5% per annum.

 

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As of March 31, 2012, we and our long-term debt obligations were rated by rating agencies as shown in the table below. Such ratings were issued by the rating agencies upon our requests. On September 1, 2011, Moody’s downgraded our long-term obligation rating from Aa1 to Aa2, and changed the outlook for the rating from “negative” to “stable.” Credit ratings reflect rating agencies’ current opinions about our financial capability of meeting payment obligations of our debt in accordance with their terms. Rating agencies are able to upgrade, downgrade, reserve or withdraw their credit ratings on us anytime at their discretions. The rating is not a market rating or recommendation to buy, hold or sell our shares or any financial obligations of us.

 

Rating agencies

  

Type of rating

   Rating    Outlook

Moody’s

   Long-Term Obligation Rating    Aa2    Stable

Standard & Poor’s

   Long-Term Issuer Credit Rating    AA    Stable

Standard & Poor’s

   Long-Term Issue Credit Rating    AA   

Japan Credit Rating Agency, Ltd.

   Long-Term Senior Debt Rating    AAA    Stable

Rating and Investment Information, Inc

   Issuer Rating    AA+    Stable

None of our debt obligations include a clause in which a downgrade of our credit rating could lead to a change in a payment term of such an obligation so as to accelerate its maturity.

The following table summarizes our long-term debt, interest payments on long-term debt, lease obligations and other contractual obligations (including current portion) over the next several years.

 

             Millions of yen  
             Payments Due by Period  

Category of Obligations

   Total      1 year or less      1-3 years      3-5 years      After 5 years  

Long-Term Debt

              

Bonds

   ¥   240,000       ¥ 60,000       ¥   70,000       ¥       ¥   110,000   

Loans

     15,947         15,428         447         52         20   

Interest Payments on Long-Term Debt

     16,164         3,710         5,099           4,206         3,149   

Capital Leases

     6,129         2,657         2,667         782         23   

Operating Leases

     18,577         2,627         4,108         3,299         8,543   

Other Contractual Obligations

     71,137         69,593         1,044         500           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 367,954       ¥   154,015       ¥ 83,365       ¥ 8,839       ¥ 121,735   

 

* The amount of contractual obligations which is immaterial in amount is not included in “Other Contractual Obligations” in the above table.

“Other contractual obligations” principally consisted of commitments to purchase property and equipment for our cellular network, commitments to purchase inventories, mainly handsets, and commitments to purchase services. As of March 31, 2012, we had committed ¥35.0 billion for property, plant and equipment, ¥20.4 billion for inventories and ¥15.8 billion for other purchase commitments.

In addition to our existing commitments, we expect to make significant capital expenditures on an ongoing basis for our FOMA and Xi networks and for other purposes. Also, we consider potential opportunities for entry to new areas of business, merger and acquisitions, establishment of joint ventures, strategic investments or other arrangements primarily in wireless communications businesses from time to time. Currently, we have no contingent liabilities related to litigation or guarantees that could have a materially adverse effect on our financial position.

 

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Sources of Cash

The following table sets forth certain information about our cash flows during the years ended March 31, 2012, 2011 and 2010:

 

      Millions of yen  
      Years ended March 31  
      2010     2011     2012  

Net cash provided by operating activities

   ¥     1,182,818      ¥     1,287,037      ¥     1,110,559   

Net cash used in investing activities

     (1,163,926     (455,370     (974,585

Net cash used in financing activities

     (260,945     (421,969     (378,616
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (241,833     407,836        (243,473

Cash and cash equivalents at beginning of year

     599,548        357,715        765,551   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

   ¥ 357,715      ¥ 765,551      ¥ 522,078   
  

 

 

   

 

 

   

 

 

 

Analysis of cash flows for the year ended March 31, 2012 and comparison with the prior fiscal year

For the fiscal year ended March 31, 2012, net cash provided by operating activities was ¥1,110.6 billion, a decrease of ¥176.5 billion or 13.7% from the prior fiscal year, mainly due to a decrease of revenue collections due to bank closures at the end of the fiscal period and a decrease of the cash collections in relation to subscribers’ handset purchases under the installment method.

Net cash used in investing activities was ¥974.6 billion, an increase of ¥519.2 billion or 114.0% from the prior fiscal year. This was mainly due to an increase in purchases of short-term investments of more than three months for cash management purpose and a decrease of proceeds from redemption of short-term bailment for consumption to a related party.

Net cash used in financing activities was ¥378.6 billion, a decrease of ¥43.4 billion or 10.3% from the prior fiscal year. This was mainly due to an increase in proceeds from noncontrolling interests due to capital increase in subsidiaries and a decrease in payments to acquire treasury stock.

The balance of cash and cash equivalents was ¥522.1 billion as of March 31, 2012, a decrease of ¥243.5 billion or 31.8% from the prior fiscal year end. The balance of investments with original maturities of longer than three months, which were made to manage a part of our cash efficiently, was ¥381.5 billion as of March 31, 2012, compared to ¥161.0 billion as of March 31, 2011.

Analysis of cash flows for the year ended March 31, 2011 and comparison with the prior fiscal year

For the year ended March 31, 2011, net cash provided by operating activities was ¥1,287.0 billion, an increase of ¥104.2 billion or 8.8% from the prior fiscal year, mainly due to an increase in cash inflow resulting from a decrease of fund-provision in relation to installment receivables for subscribers’ handset purchases, and due to a decrease in the payment of income taxes.

Net cash used in investing activities was ¥455.4 billion, a decrease of ¥708.6 billion or 60.9% from the prior fiscal year. This was mainly due to an increase of proceeds from redemption of short-term investments, an increase of proceeds from redemption of short-term bailment for consumption to a related party and a decrease in purchases of non-current assets, which were partially offset by an increase in purchases of short-term investments of more than three months for cash management purpose.

Net cash used in financing activities was ¥422.0 billion, an increase of ¥161.0 billion or 61.7% from the prior fiscal year. This was mainly due to an increase in repayment of long-term debt and an increase in dividends paid.

 

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The balance of cash and cash equivalents was ¥765.6 billion as of March 31, 2011, an increase of ¥407.8 billion or 114.0% from the prior fiscal year end. The balance of investments with original maturities of longer than three months, which were made to manage a part of our cash efficiently, was ¥161.0 billion as of March 31, 2011, compared to ¥403.0 billion as of March 31, 2010.

Prospect of cash flows for the year ending March 31, 2013

As for our sources of cash for the year ending March 31, 2013, we currently expect our net cash flows from operating activities to decrease from the prior fiscal year due to an increase in cash outflows resulting mainly from the increase of fund-provision in relation to installment receivables for subscribers’ handsets purchases despite the projected decrease in corporate tax and other payments.

In June, 2012, in order to improve customers’ convenience and operational efficiency, our board of directors approved to enter into an agreement with NTT FINANCE CORPORATION, under which we will transfer our billing claims against our customers to be billed on and after July 1, 2012 to NTT FINANCE. We currently expect that the agreement will not have a material impact on our cash management as the payment conditions of the consideration of claims transferred to NTT FINANCE are set in the agreement approximately equivalent to our cash collection cycle history.

Our net cash flow used in investing activities for the year ending March 31, 2013 is expected to be approximately ¥735.0 billion. We do not include any items other than capital expenditures in our forecast of net cash flows in investing activities, as it is difficult to estimate impacts of such items on cash flows in investing activities at this point.

C. Research and Development

Our research and development activities include development of new products and services, development related to LTE and research on fourth-generation mobile communications systems or LTE-Advanced, conversion into IP networks for economical network constructions and basic research aimed for driving innovation. Research and development costs are charged to expenses as incurred. We incurred ¥108.5 billion, ¥109.1 billion and ¥109.9 billion as research and development expenses for the years ended March 31, 2012, 2011 and 2010, respectively.

D. Prospects for Business Trends and Financial Performance

The mobile communication market in Japan is undergoing changes brought about by such factors as increasing rate of mobile phone penetration, diversification of customer needs, and rapid growth in smartphone adoption. Under these market conditions, with operators stepping up their efforts in such areas as reinforcement of handset lineup, provision of value-added services and introduction of less expensive billing plans, the competition among operators is expected to remain intense.

The trends in the market expected for the fiscal year ending March 31, 2013 are summarized below:

Operating revenues:

 

   

Although it will be difficult to expect a significant increase in the number of new subscriptions given the rise in the penetration rate to a high level, we will aim to expand our subscription count by cultivating new demand for smartphones, PC data cards, mobile Wi-Fi routers, embedded communication modules and other devices. Also, we intend to strive to expand the customer base of our Xi service. On the other hand, we will strive to maintain or further reduce our low churn rate through loyalty marketing targeted at enhancing the satisfaction of our existing users. As a result of these actions, we believe we can achieve an increase in our total cellular subscriptions during the fiscal year ending March 31, 2013.

 

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In the fiscal year ended March 31, 2012, voice revenues recorded a decline over the prior fiscal year, but packet communications revenues posted year-on-year gains. This trend is likely to continue in the fiscal year ending March 31, 2013.

The primary reasons behind the expected decline in voice revenues include the reduction of revenues resulting from the expanded uptake of “Monthly Support” discount program, an increase in the number of customers who choose billing plans with lower basic monthly charges, a decrease in billable MOU, and the impact of reduced interconnection fees revenue.

The primary reason behind the expected increase in packet communications revenues is the growth in revenues derived from the increase in the number of smartphone and PC data card users, expansion in the subscriptions to flat-rate billing plans for packet access and other factors. We expect the total number of smartphones to be sold in the fiscal year ending March 31, 2013 will further increase, compared to 8.82 million for the fiscal year ended March 31, 2012.

 

   

Equipment sales revenues for the fiscal year ended March 31, 2012 reported a growth over the prior fiscal year primarily due to the increase in the number of smartphones sold despite the decline in the wholesale price per unit resulting from reduced cost of procurement. The growth trend in equipment sales revenues is expected to continue in the fiscal year ending March 31, 2013, because we expect to achieve an increase in the total number of smartphones to be sold and to further improve the efficiency of our handset sales commissions which will be recognized as a decrease in equipment sales revenues under U.S. GAAP.

 

   

“Other revenues” recorded an increase in the fiscal year ended March 31, 2012 as a result of actions implemented for their growth. We expect to achieve a year-on-year increase in other revenues in the fiscal year ending March 31, 2013 as well, as we plan to take actions to drive the growth of the mobile multimedia broadcasting business launched in April 2012, credit service, home shopping and other businesses.

As a result of the foregoing, operating revenues for the fiscal year ending March 31, 2013 are expected to record a second consecutive year-on-year increase, following the increase in the fiscal year ended March 31, 2012.

Operating Expenses:

 

   

Cost of equipment sold recorded an increase in the fiscal year ended March 31, 2012, mainly due to the increase in the total number of smartphones sold. Because we anticipate a similar trend to continue in the fiscal year ending March 31, 2013, cost of equipment sold is projected to increase in the fiscal year ending March 31, 2013.

 

   

Improvement of cost efficiency is expected for selling, general and administrative expenses, network-related costs (communication network charges, depreciation and amortization costs) and other operating expenses for the fiscal year ending March 31, 2013. We aim to achieve the improvement of cost efficiency through a review on sales policies, enhancement of operational efficiency expected from the integration of nationwide common operations, and efficient facility roll-out to be achieved through the introduction of new technologies and review of design methods and other factors. On the other hand, expenses required for new businesses for future growth are projected to increase owing to the rise in expenses resulting from the launch of mobile multimedia broadcasting service and other factors.

As a result of the foregoing, operating expenses for the fiscal year ending March 31, 2013 are expected to increase compared to the fiscal year ended March 31, 2012, although we expect such increases to be somewhat less than the expected increase in operating revenue.

Due to the above, we expect operating income for the fiscal year ending March 31, 2013 to increase from the fiscal year ended March 31, 2012.

 

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The discussion above includes forward-looking statements based on management’s assumptions and beliefs as to the factors set forth above, as to market and industry conditions and as to our performance under those conditions and are subject to the qualifications set forth in “Special Note Regarding Forward-looking Statements” which can be found immediately following the table of contents. Our actual results could vary significantly from these projections and could be influenced by a number of factors and uncertainties, including changes in the market and industry conditions, competition and other factors and risks as discussed in “Risk Factors” in Item 3.D. Additionally, unanticipated events and circumstances may affect our actual financial and operating results. As a result, no representation can be or is made with respect to the accuracy of the foregoing projections.

E.    Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

F.    Tabular Disclosure of Contractual Obligations

Please refer to Item 5.B.

Item 6. Directors, Senior Management and Employees

A.    Directors and Senior Management

Directors, Corporate Executives and Corporate Auditors

Our board of directors has the ultimate responsibility for the administration of our affairs. Our Articles of Incorporation specify the number of directors as not more than 15. Directors are elected at a general meeting of shareholders from among those candidates nominated by the board of directors. The candidates may also be nominated by shareholders. The normal term of office of directors is 2 years, although they may serve any number of consecutive terms. The board of directors elects from among directors one or more representative directors, who have the authority individually to represent us. From among directors, the board of directors also elects the president and may elect a chairman and one or more senior executive vice presidents and executive vice presidents.

We have a board of corporate auditors as an organization that is independent from the board of directors. The board of corporate auditors audits execution of duties by directors and carries out accounting audits. Our Articles of Incorporation provide for not more than 5 corporate auditors. Under the Corporation Law of Japan, the board of corporate auditors is composed of all of our corporate auditors. Corporate auditors, more than half of whom must be from outside our company, are elected at a general meeting of shareholders from among those candidates nominated by the board of directors with the prior consent of our board of corporate auditors. The candidates may also be nominated by shareholders. The board of corporate auditors may, by its resolution, request that the board of directors submit to a general meeting of shareholders an item of business concerning election of corporate auditors and/or proposed candidates of corporate auditors. The normal term of office of a corporate auditor is 4 years, although they may serve any number of consecutive terms. Corporate auditors are under a statutory duty to audit the administration of our affairs by our directors, to audit our financial statements and business reports submitted by our directors to the general meetings of shareholders and to report to the shareholders the results of investigations regarding any actions by our directors that are unreasonable or which are in violation or breach of laws, ordinances or the Articles of Incorporation of our company. They are obliged to attend meetings of the board of directors and to express their opinions if they deem necessary, but they are not entitled to vote. It is a statutory duty for the board of corporate auditors to prepare an audit report and for identified corporate auditors to submit it to identified directors each year. A corporate auditor may note his or her opinion in the audit report if his or her opinion is different from the opinion expressed in the audit report. The board of corporate auditors is empowered to decide audit policy, the methods of examination of our affairs and financial position and other matters concerning the execution of the corporate auditors’ work duties.

 

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In addition to corporate auditors, we must appoint independent public accountants who have statutory duties to examine the financial statements to be submitted by the board of directors to the general meetings of shareholders, reporting thereon to the board of corporate auditors and the directors, and examining the financial statements to be filed with the director of the Kanto Local Finance Bureau of Japan. Since our incorporation, KPMG AZSA LLC, has acted as our independent public accountant.

We introduced an executive officer system in 2005 with the aim of clarifying the board’s managerial supervision function and further enhancing its business execution functions.

The following table sets forth our board of directors and corporate auditors as of July 5, 2012 and certain other information.

 

Name

(Date of Birth)

 

Position/
Responsibility

 

History, Positions, Responsibilities and

Principal Concurrent Positions

  Shares
Owned  (1)
  Date
Current
Terms
Ends
  Initial
Appointment
Date

Member of the Board of Directors:

       

Kaoru Kato (2)

(May 20, 1951)

  President and Chief Executive Officer  

April 1977

 

July 2007

 

Entered NTT Public Corporation

 

Executive Vice President, Managing Director of Corporate Strategy Planning Department of NTT DoCoMo Kansai, Inc.

  117   June
2014
  June
2008
   

 

June 2008

 

 

Executive Vice President, Managing Director of Corporate Strategy and Planning Department of the Company

     
   

 

April 2009

 

 

Executive Vice President, Managing Director of Corporate Strategy and Planning Department and Managing Director of Mobile Society Research Institute of the Company

     
   

 

July 2009

 

 

Executive Vice President, Managing Director of Corporate Strategy and Planning Department of the Company

     
   

 

June 2012

 

 

President and Chief Executive Officer of the Company

 

     

Kazuto Tsubouchi (2)

(May 2, 1952)

 

Senior Executive Vice

President, Chief Financial

Officer/ Responsible for

Global business, Corporate and CSR

 

April 1976

 

June 2004

 

Entered NTT Public Corporation

 

Managing Director of Accounts and Finance Department of NTT DoCoMo Kansai, Inc.

  148   June
2014
  June
2006
    June 2006   Senior Vice President, Managing Director of Accounts and Finance Department of the Company      
    June 2008   Executive Vice President, Chief Financial Officer, Managing Director of Accounts and Finance Department of the Company      
    July 2008   Executive Vice President, Chief Financial Officer, Managing Director of Accounts and Finance Department and Responsible for Business Alliance Department of the Company      
   

June 2012

 

Senior Executive Vice President, Chief Financial Officer, Responsible for Global business, Corporate and CSR of the Company

 

(Principal concurrent position)

Member of the Board of Directors of Tata Teleservices Limited (India)

     

 

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Name

(Date of Birth)

 

Position/
Responsibility

 

History, Positions, Responsibilities and

Principal Concurrent Positions

  Shares
Owned  (1)
  Date
Current
Terms
Ends
  Initial
Appointment
Date

Fumio Iwasaki (2)

(Feb. 28, 1953)

 

Senior Executive Vice

President, Chief

Privacy Officer/ Responsible for

Multimedia services,

Network and

Technology

 

April 1977

 

June 2004

 

Entered NTT Public Corporation

 

Managing Director of Network Planning Department of the Company

  126   June
2014
  June
2010
    June 2005   Senior Vice President, Managing Director of Network Planning Department of the Company      
    June 2007   Representative Director and Senior Executive Vice President, Managing Director of Corporate Marketing Division of NTT DoCoMo Kyushu, Inc.      
    July 2008   Senior Vice President, Managing Director of Kyushu Regional Office of the Company      
    June 2010   Executive Vice President, Responsible for Network of the Company      
    June 2012  

Senior Executive Vice President, Chief Privacy Officer, Responsible for Multimedia services, Network and Technology of the Company

 

     

Tsutomu Shindou (3)

(Sep. 4, 1954)

 

Executive Vice President/ Managing

Director of Corporate Marketing

Division

and Managing Director of TOHOKU Reconstruction Support Office

 

April 1978

 

Entered NTT Public Corporation

  90   June
2014
  June
2011
    June 2007   Senior Vice President, Managing Director of Corporate Marketing Department I of the Company      
    June 2011   Executive Vice President, Managing Director of Corporate Marketing Division of the Company      
    December 2011   Executive Vice President, Managing Director of Corporate Marketing Division and Managing Director of TOHOKU Reconstruction Support Office of the Company      
    May 2012   Executive Vice President, Managing Director of Corporate Marketing Division, Managing Director of Corporate Marketing Strategy Department and Managing Director of TOHOKU Reconstruction Support Office of the Company      
    July 2012   Executive Vice President, Managing Director of Corporate Marketing Division and Managing Director of TOHOKU Reconstruction Office of the Company      

Takashi Tanaka (3)

(Jun. 2, 1955)

 

Executive Vice President/

Responsible for Consumer Sales and Branches in Kanto and Koshinetsu areas

 

April 1979

 

June 2007

 

Entered NTT Public Corporation

 

Senior Vice President, Managing Director of General Affairs Department of the Company

  149   June
2014
  June
2007
    June 2008   Senior Vice President, Managing Director of Human Resources Management Department of the Company      
    July 2008   Senior Vice President, Managing Director of Human Resources Management Department of the Company (change in Japanese department name)      
    June 2011   Executive Vice President, Responsible for Consumer Sales of the Company      
    June 2012   Executive Vice President, Responsible for Consumer Sales and Branches in Kanto and Koshinetsu areas of the Company      

 

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Name

(Date of Birth)

 

Position/
Responsibility

 

History, Positions, Responsibilities and

Principal Concurrent Positions

  Shares
Owned  (1)
  Date
Current
Terms
Ends
  Initial
Appointment
Date

Kazuhiro Yoshizawa (3)

(Jun. 21, 1955)

 

Executive Vice President/ Managing Director of Corporate Strategy & Planning Department, Responsible for Mobile Society

Research Institute

 

April 1979

 

July 2001

 

Entered NTT Public Corporation

 

Senior Director of Human Resources Management Department of the Company

  108   June
2014
  June
2011
    July 2003   Senior Director of Corporate Strategy and Planning Department of the Company      
    June 2007   Senior Vice President, Managing Director of Corporate Marketing Department II of the Company      
    June 2011   Senior Vice President, Managing Director of Human Resources Management Department of the Company      
    June 2012   Executive Vice President, Managing Director of Corporate Strategy & Planning Department and Responsible for Mobile Society Research Institute of the Company      

Seizo Onoe (3)

(May 12, 1957)

  Executive Vice President, Chief Technical Officer/ Managing Director of R&D Center  

April 1982

 

December 2005

 

Entered NTT Public Corporation

 

Managing Director of IP Radio Network Development Department and Managing Director of Radio System Development Department of the Company

  103   June
2014
  June
2012
    July 2006   Managing Director of Radio Access Network Development Department of the Company      
    June 2008   Senior Vice President, Managing Director of R&D Strategy Department and Managing Director of Radio Access Network Development Department of the Company      
    July 2008   Senior Vice President, Managing Director of R&D Center of the Company      
    June 2012  

Executive Vice President, Chief Technical Officer, Managing Director of R&D Center of the Company

 

     

Wataru Kagawa (3)

(Oct. 4, 1953)

  Senior Vice President/ Managing Director of General Affairs Department, Managing Director of Corporate Citizenship Department and Managing Director of Business Process Improvement Office  

April 1978

 

July 2004

 

June 2005

 

June 2007

 

 

July 2008

 

 

June 2011

 

Entered NTT Public Corporation

 

Managing Director of IR Department of the Company

 

General Manager of Saitama Branch of the Company

 

Managing Director of General Affairs Department of NTT DoCoMo Kansai, Inc.

 

Associate Senior Vice President, Managing Director of General Affairs Department of Kansai Regional Office of the Company

 

Senior Vice President, Managing Director of General Affairs Department, Managing Director of Corporate Citizenship Department and Managing Director of Business Process Improvement Office of the Company

  76   June
2014
  June
2011
           
           
           
           

 

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Name

(Date of Birth)

 

Position/
Responsibility

 

History, Positions, Responsibilities and

Principal Concurrent Positions

  Shares
Owned  (1)
  Date
Current
Terms
Ends
  Initial
Appointment
Date

Kiyohito Nagata (3)

(Mar 17, 1958)

 

Senior Vice

President/ Managing Director of

Strategic Marketing

Department

  April 1982   Entered NTT Public Corporation   101   June

2014

  June

2012

    June 2004   Managing Director of Communication Device Development Department and Managing Director of Product Department of the Company      
    July 2004   Managing Director of Product Department of the Company      
    June 2007   Senior Vice President, Managing Director of Product Department of the Company      
   

June 2010

  Senior Vice President, Managing Director of Strategic Marketing Department and Responsible for Product Strategy of the Company      
   

June 2012

 

Senior Vice President, Managing Director of Strategic Marketing Department of the Company

 

(Principal concurrent position)

Member of the Board of Directors of Tata Teleservices Limited (India)

 

     

Hirotaka Sato (3)

(Nov.18, 1958)

  Senior Vice President/ Managing Director of Accounts and Finance Department   April 1982   Entered NTT Public Corporation   40   June

2014

  June

2012

    July 2004   Senior Director of System Marketing Department III of the Company      
    June 2005   Senior Director of Accounts and Finance Department of the Company      
    July 2008   General Manager of Finance and Accounting Department of NIPPON TELEGRPH AND TELEPHONE CORPORATION (“NTT”)      
   

June 2011

  Senior Vice President, Managing Director of Corporate Marketing Department I of the Company      
   

June 2012

 

Senior Vice President, Managing Director of Accounts and Finance Department of the Company

 

     

Kazuhiro Takagi (3)

(June 29, 1956)

 

Senior Vice

President/ Managing

Director of Human

Resources Management

Department

  April 1982   Entered NTT Public Corporation   32   June

2014

  June

2012

    July 2001   Senior Director of i-mode Business Department of the Company      
    May 2002   Senior Director of Procurement and Supply Department of the Company      
    July 2005   Senior Director of Human Resources Management Department of the Company      
    July 2008   Managing Director of Frontier Services Department of the Company      
   

June 2012

 

Senior Vice President, Managing Director of Human Resources Management Department of the Company

 

     

Ryuji Yamada

(May 5, 1948)

 

Chief

Strategic Advisor

  April 1973   Entered NTT Public Corporation   507   June

2014

  June

2007

    June 2002   Executive Vice President, Senior Executive Manager of the Marketing and Support Solutions Headquarters of NIPPON TELEGRAPH AND TELEPHONE WEST CORPORATION (“NTT WEST”)      
   

June 2004

  Representative Director and Senior Executive Vice President of NTT      
   

June 2007

  Representative Director and Senior Executive Vice President, Managing Director of Corporate Marketing Division of the Company      

 

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Table of Contents

Name

(Date of Birth)

 

Position/
Responsibility

 

History, Positions, Responsibilities and

Principal Concurrent Positions

  Shares
Owned  (1)
  Date
Current
Terms
Ends
  Initial
Appointment
Date
   

June 2008

  Representative Director and President and Chief Executive Officer of the Company      
   

June 2012

 

Chief Strategic Advisor of the Company

 

     

Hiroo Kusumoto (4)

(Aug 2, 1963)

    April 1988   Entered NTT   10   June

2014

  June

2012

    February 2000   Associate Manager of Corporate Planning Department of NTT Communications Corporation (“NTT Communications”)      
    August 2002   Associate Manager of Human Resources Department of NTT Communications      
   

June 2006

  General Manager of Kyushu Branch, Second Sales Division of NTT Communications      
   

July 2009

  Senior Manager of Corporate Planning Department of NTT Communications      
   

August

2011

 

Senior Manager of Corporate Strategy Planning Department of NTT

 

     
   

June 2012

 

Member of the Board of Directors of the Company

 

(Principal concurrent positions)

Senior Manager of Corporate Strategy Planning Department of NTT

 

     

Corporate Auditors:

         

Shuro Hoshizawa (5)

(Jun. 17, 1949)

 

Corporate

Auditor

  April 1973   Entered NTT Public Corporation   139   June

2015

  June

2011

    June 2002   Managing Director of Corporate Marketing Department I of the Company      
   

June 2004

  Executive Vice President, Managing Director of Corporate Marketing Division of the Company      
   

June 2005

  (Implementation of executive officer system) Executive Vice President, Managing Director of Corporate Marketing Division of the Company      
   

June 2007

  Representative Director and President and Chief Executive Officer of NTT DoCoMo Hokkaido, Inc.      
   

July 2008

  Associate Senior Vice President, Managing Director of Hokkaido Regional Office of the Company      
   

July 2008

  Representative Director and President and Chief Executive Officer of DOCOMO Support, Inc.      
   

June 2011

 

Corporate Auditor of the Company

 

     

Takanori Utano (5)

(Sep. 20, 1949)

 

Corporate

Auditor

  April 1974   Entered NTT Public Corporation   155   June

2016

  June

2012

    June 2001   Managing Director of Radio Network Development Department of the Company      
   

June 2002

 

Managing Director of Research and Development Planning Department of the Company

 

     
   

June 2004

 

Executive Vice President, Managing Director of Research and Development Division of the Company

 

     
   

June 2005

  (Implementation of executive officer system) Executive Vice President, Managing Director of Research and Development Division of the Company      

 

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Table of Contents

Name

(Date of Birth)

  

Position/
Responsibility

 

History, Positions, Responsibilities and

Principal Concurrent Positions

  Shares
Owned  (1)
  Date
Current
Terms
Ends
  Initial
Appointment
Date
    

June 2008

 

Representative Director and President and Chief Executive Officer of DOCOMO Technology, Inc.

 

     
    

June 2012

 

Corporate Auditor of the Company

 

     

Haruo Morosawa (5) (6) (7)

(Dec. 27, 1950)

  

Corporate

Auditor

  April 1974   Entered Board of Audit of Japan   29   June

2015

  June

2011

     December 1999   Director for Accounting, Secretariat of General Executive Bureau, Board of Audit of Japan      
     December 2000   Deputy Director-General, Secretariat of General Executive Bureau, Board of Audit of Japan      
     December 2004   Director General of 1st Bureau, Board of Audit of Japan      
    

April 2009

  Deputy Secretary General of General Executive Bureau, Board of Audit of Japan      
    

April 2010

  Member of the West Block Bidding Inspection Commission of Japan Railway Construction, Transport and Technology Agency      
    

June 2011

 

Corporate Auditor of the Company

 

     

Kyouichi Yoshizawa (6)

(Apr. 12, 1950)

  

Corporate

Auditor

  April 1969   Entered NTT Public Corporation   131   June

2015

  June

2007

     August 2000   Secretary General of East Japan Headquarters of All NTT Workers Union of Japan      
    

July 2002

  President of East Japan Headquarters of All NTT Workers Union of Japan      
     August 2004   Secretary General of National Headquarters of All NTT Workers Union of Japan      
     September 2006   Advisor, NTT Travel Service Co. Ltd.      
    

June 2007

 

Corporate Auditor of the Company

 

     

Eiko Tsujiyama (6) (7)

(Dec. 11, 1947)

   Corporate Auditor   August 1980   Assistant Professor, Humanities Department, Ibaraki University   6   June
2015
  June
2011
     April 1985   Assistant Professor, Faculty of Economics, Musashi University      
     April 1991   Professor, Faculty of Economics, Musashi University      
     April 2003   Professor of Accounting Faculty of Business & Commerce, Waseda University      
     June 2011  

Corporate Auditor of the Company

 

(Principal concurrent positions)

Professor of Accounting Faculty of Business &

Commerce, Waseda University

Corporate Auditor of Mitsubishi Corporation

Director of ORIX Corporation

Corporate Auditor of LAWSON, INC.

Corporate Auditor of Shiseido Company, Limited

     

 

(1) DOCOMO shares owned as of May 31, 2012
(2) Representative director
(3) Concurrently serves as an executive officer
(4) Outside director as provided in Article 2, Item 15 of the Corporation Law
(5) Full-time corporate auditor
(6) Outside corporate auditor as provided in Article 2, Item 16 of the Corporation Law
(7) Independent director/corporate auditor under the Security Listing Regulations of the Tokyo Stock Exchange regulations

 

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Table of Contents

The following table shows information about our executive officers as of July 5, 2012, including their positions and responsibilities.

 

Name

 

Position

  

Responsibility

Katsuhiro Nakamura   Executive Vice President    Managing Director of Tokai Regional Office
Kiyoshi Tokuhiro   Executive Vice President    Managing Director of Kansai Regional Office
Masaki Yoshikawa   Executive Vice President    Managing Director of Credit Card Business Division
Seiji Nishikawa   Executive Vice President, Chief Information Officer    Managing Director of Information Systems Department
Tomohiro Kurosawa   Senior Vice President    Managing Director of Hokkaido Regional Office
Yuji Araki  </