NTT DOCOMO, Inc (DCM)

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NTT DoCoMo, Inc. (DCM)

F3Q 2012 Earnings Call

January 27, 2012 3:30 AM ET

Executives

Osamu Hirokado – Head, IR

Ryuji Yamada – President and CEO

Kazuto Tsubouchi – CFO

Analysts

Makio Inui – UBS

Hitoshi Hayakawa – Credit Suisse

Daisaku Masuno – Nomura Securities

Atsuo Takahashi – Mizuho Securities

Tetsuro Tsusaka – Morgan Stanley

Shinji Moriyuki – SMBC Nikko Securities

Well, our basic philosophy is this

Daisuke Oshidari – JP Morgan

Presentation

Osamu Hirokado

(Interpreted) Thank you very much, ladies and gentlemen, for spending your precious time, to attend this meeting. Now, we would like to start this analyst meeting reporting the results for the first three quarters of the fiscal year ending March 2012.

My name is Hirokado of IR Department, and I’ll be presiding this meeting. Now, please be advised that this meeting is broadcast live on FOMA via live streaming and also on the Internet. And also a recorded video of this meeting will be distributed on demand from NTT DOCOMO’s website.

Now, I would like to introduce the participants from NTT DOCOMO. First of all, we have Mr. Ryuji Yamada, President and CEO; Senior Executive Vice President, Mr. Kiyoyuki Tsujimura; Executive Vice President and CFO, Mr. Kazuto Tsubouchi; Executive Vice President and Managing Director of Corporate Strategy and Planning Department, Mr. Kaoru Kato; Executive Vice President and Managing Director of Network Division, Mr. Fumio Iwasaki; and finally, we have Executive Vice President, Senior Vice President responsible for Consumer Marketing, Mr. Takashi Tanaka.

We will be using five sets of documents for this meeting. We have the earning release and two sets of presentations. One for the financial results for the first three quarters and the other one entitled “Response to the Series of Network Malfunctions.” And we have two pieces of press release. One, “NTT DOCOMO to Offer Discount Campaign for LTE,” and the other one entitled “DOCOMO to Offer Discounts to Customers” using Xi for second device. Now, for today’s meeting we will first begin with the presentation by Mr. Yamada followed by a Q&A session. We will aim to finish this meeting at 7:00 sharp. Please also be advised that this meeting including the Q&A session may contain forward-looking statements.

For potential risks, please take a look our Form 20-F filed with the SEC or this presentation document.

Ryuji Yamada

(Interpreted) I am Yamada. Good afternoon to you, and thank you very much for attending this meeting despite your busy schedule. First of all, I would like to express our apologies for the inconvenience that we have caused for the network troubles in the sp-mode services. We have considerably inconvenienced to our customers, and we would like to extend our deepest apologies.

In light of the occurred network disturbances we have established a task force for the improvement of network infrastructure headed by myself. Under which we have been – we have explored many counter measures for the improvement of the situation. Now, I would like – because I am heading this task force, I would like to introduce the activities that we have been undertaking in order to improve the situation.

So, we would like to explain the results of the financial quarter or the financial results ended December 31, and also the response to the series of malfunctions. I’ll begin with the response to the malfunctions. Page two which contains the table of contents. And you see there, first, we have given the overview of the sp-mode malfunction which occurred on the 16th of August and the 20th of December as well as the 1st of January this year. Second, we have the overview of the packet switch malfunction that occurred on the 25th of January. First – and third, because we have established a taskforce for the improvement of network infrastructure, I would like to elaborate on the activities there.

Number four, we have the sp-mode malfunction countermeasures. And number five, the countermeasures for the packet switch failure. And under item number six, we would like to explain how we are going to ensure prompt information disclosure to customers.

Now, let me begin the explanation. As I said earlier, on the 16th of August, the 20th of December and 1st of January, we faced sp-mode troubles. As we see in the overview there, the MAPS system, sp-mode system, was the cause of this problem. The MAPS is a group of service that offers the sp-mode service.

And on the 16th of August, the trouble occurred in the network authentication server which is responsible for authenticating customers. Then on the 20th of December, the point of failure occurred in the user management server. And as you see there, this caused a breach of secrecy of communication and leakage of personal information.

And then also in the mail transmission/reception system, we also saw a failure on the 1st of January in the mail information server. So, those are all the troubles related to sp-mode system.

Then on page four, this is about the packet switch malfunction that we’ve encountered two days ago on the 25th of January. Because packets, as you may be aware, packet switch is the switch that handles the data communication service.

Now let me explain this, if it happened, the impact if it happened. Now, we have seven units of existing packet switches and the whole (inaudible) of existing packet switches as you on the left and right on this chart which accommodates the radio network control there, providing service to Area A and Area B of Tokyo. Now, the new packet switches that you see in the model are the switches that we have been introducing in order to expand the capacity of the network in order to accommodate the growth of smartphones.

So, starting from the four units of the existing packet switches on the right, we’ve been gradually switching over to these new switches. And we saw a very steadfast progress, completing the accommodation of 23 units of fiber RNC. But now, the remaining 37 radio network controllers were about to be accommodated in a new packet switches.

But then immediately after the switch over, which was completed after around 3:00 in early morning, then starting from around 8:30 in the morning, we saw a gradual occurrence of congestion in the nodes. And then around 9:00, we have seen a steep increase of convectors – steep degradation of the congestion around 9:00 in the morning of 25th of January.

Now, on page five, so in order to tackle the problem, we established the task force for network infrastructure improvement. The task force is responsible to determine the causes of events that have occurred in line with the rapid increase in a number of smartphone users so that we can implement the immediate countermeasures against the cause of problems.

Secondly, the task force will also perform company-wide cross-sectional studies for stable network operations and further enhancement of processing capabilities so that we can construct the network infrastructure capable of accommodating 50 million smartphone users. So, as an immediate countermeasure against the series of malfunctions, we have decided to invest a total of ¥4 billion for the two years of 2011-2012.

Also, in order to construct an infrastructure capable of accommodating 50 million smartphones, we decided to implement drastic measures as we announced when we unveiled our medium-term vision. We set a plan, we set a target to acquire 40 million subscribers by fiscal 2015 with smartphones. So, in order to reinforce the sp-mode system, we decided to invest ¥40 billion for – in the period between 2011 and 2014 and also to invest ¥120 billion for the packet switch reinforcement.

To give you a breakdown, naturally, because of the foreseen increase of smartphones, we have decided to expand the capacity and build up the facilities in the case of packet switches, for example. This time around, we have seen a huge increase in a number of control signals, so we decided to reinforce the capabilities to accommodate this growth of control signals. It’s not only about the simultaneous connection. So, out of this ¥120 billion of investment, ¥90 billion were already appropriated for in our existing plants.

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