DCM » Topics » Operating Income

This excerpt taken from the DCM 20-F filed Jun 25, 2009.
Operating Income
 
For the year ended March 31, 2009, a decrease in wireless services revenues, due mainly to penetration of “Value Course” and new discount services, exceeded an increase in equipment sales, which resulted in a decrease in operating revenues. On the other hand, a decrease in operating expenses due mainly to a decrease in costs of equipment sold as well as sales commissions subsequent to the introduction of “Value Course” exceeded the decrease in operating revenues. As a result, operating income increased. The factors contributing to the increase in operating income are summarized as follows:
 
  •  cellular services revenues decreased due to a decrease in ARPU caused by the penetration of “Value Course” and new discount services, even though the number of subscribers increased from the prior fiscal year. Equipment sales increased from the prior fiscal year despite the decreased number of units sold to agent resellers, because the sales commissions which are deducted from the equipment sales revenues decreased significantly with the introduction of “Value Course”. Operating revenues decreased from the prior fiscal year because the increase in equipment sales was not sufficient enough to make up for the decrease in cellular services revenues.
 
  •  operating expenses decreased reflecting a decrease in cost of equipments sold due to a fewer number of units being sold and a decrease in sales commissions as a result of the penetration of “Value Course”.
 
The market environment has become increasingly competitive after the introduction of Mobile Number Portability. We will be engaged in reinforcing our competitiveness by executing action plans of “DOCOMO’s Change and Challenge” in the area of customer satisfaction, actions to expand usage, creation of new revenue sources, and improvement of cost efficiency. For the year ending March 31, 2010, we expect operating revenues to decrease and operating income to remain the same level as the prior fiscal year for the following reasons:
 
  •  we expect cellular services revenues to decrease because a continued decline in ARPU caused by penetration of “Value Plan”, for which the basic monthly charge is discounted and penetration of new discount services will more than offset the positive effect of our acquisition of new subscriptions;
 
  •  we expect equipment sales to increase despite the decreased number of handsets sold through a continued decrease in sales commissions that are deducted from sales revenue under the “Value Course”. However, the increase in equipment sales is not sufficient to make up for the decrease in cellular services revenues; and
 
  •  we expect operating expenses to decrease through our continuous efforts to lower costs including distributor commissions, network-related costs and general expenditures. As a result, operating profits should remain about the same level as prior fiscal year, as decrease in operating revenues and operating expenses nearly offset each other.
 
Actions to expand cellular phone usage include the followings:
 
  •  offering billing plans that customers need not worry about charges, improvement of handset functionalities, and promotion of packet communications by offering various contents; and
 
  •  increasing product line-ups and enhancement of sales for smart phones and data communication terminals.
 
Creation of new revenue sources includes the followings:
 
  •  offering new services in the area of personalization, social support, and converged services (such as “i-concier” and its subscriber growth);
 
  •  investments and alliances with the aim of expanding businesses in fields where mobile communications can make great contributions;
 
  •  strengthening activities to boost usage of our DCMX credit services and increase users; and
 
  •  promotion of usage of international calls and roaming services, and growth through investment and partnership in Asia-Pacific regions.


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Improvement of cost efficiency includes the followings:
 
  •  reduction of base station construction costs, streamlining of network, and reduction of communication network charges; and
 
  •  further reduction of general expenses, operational process review and operational efficiency improvement through integration of former regional subsidiaries.
 
This excerpt taken from the DCM 20-F filed Jun 25, 2007.

Operating Income

 

In the year ended March 31, 2007, because both wireless service revenues and equipment sales increased, operating revenues increased. The incremental increase in operating expenses exceeded the incremental increase in operating revenues mainly due to the increase in cost of equipment sold, which was derived from the increase in the number of handsets sold after the introduction of the Mobile Number Portability. As a result, operating income decreased. The factors contributing to the decrease in operating income were as follows:

 

   

Although the decrease in ARPU caused by expansion of our rate discount programs continued, it was more than offset by the combination of the increase in our number of subscriptions as a consequence of new customer acquisitions, and the impact of recognition as revenues of the portion of “Nikagetsu Kurikoshi (two-month carry over) allowances that are projected to expire. As a result, cellular services revenues increased slightly; and

 

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With the increase in the number of handsets sold after the introduction of the Mobile Number Portability, increase in cost of equipment sold, which exceeded the combination of increase in equipment sales and decrease in sales commissions, had a negative impact on the balance related to handset sales. The excess of such negative impact over the increase in cellular services revenues resulted in a decrease in operating income.

 

We expect the year ending March 31, 2008 to be another year of involvement for sustainable growth in the future. Although the market environment has become increasingly competitive after the introduction of the Mobile Number Portability, we will be engaged in the establishment of new revenue sources such as the credit services business, while continuing to maintain and expand our subscriber base and revenues by providing further benefits to our subscribers. We expect operating revenues to decrease and operating income to increase slightly in the year ending March 31, 2008 for the following reasons:

 

   

We expect cellular services revenues to decrease as the positive effect from our acquisition of new subscriptions will be more than offset by the decline in ARPU caused by the expansion of discount programs and penetration of the flat-rate billing plan for unlimited i-mode usage;

 

   

Although the migration of mova subscribers to FOMA services will continue, we expect that the demand for switching subscriptions due to the Mobile Number Portability will diminish and that the number of handsets sold will decrease accordingly. We also expect that the balance related to handset sales will improve when a decrease in cost of equipment sold and in sales commissions exceeds a decrease in equipment sales; and

 

   

We further expect that the above-mentioned improvement in the balance related to handset sales will more than offset the decrease in cellular services revenues.

 

Under these circumstances, we seek to further reinforce our core cellular business, secure new sources of revenues and reduce costs, in order to achieve sustainable growth.

 

We seek to reinforce our core business, while implementing customer-oriented operations, and maintaining and reinforcing our competitiveness by:

 

   

introducing subscriber-friendly billing plans and further improvement of after-sales services offered to our subscribers;

 

   

releasing new handsets which respond to customers’ demands; and

 

   

efficient expansion of network coverage, e.g., introducing more economical networking equipment.

 

We seek to secure new sources of revenues by:

 

   

increasing non-traffic revenues by further acquisition of “DCMX”, our mobile credit services using “Osaifu-Keitai”, subscriptions and promotion of its usage;

 

   

increasing packet communications revenues through introduction of new services which utilize high speed packet communication of HSDPA technology and promotion of services such as “i-channel”; and

 

   

increasing international services revenues through upgrade of international calling and roaming services and compatible handsets.

 

We seek to reduce costs by:

 

   

increasing sales of “FOMA 7 series” and “SIMPURE series”, which we expect will incur less cost of equipment sold and sales commissions;

 

   

saving on the development cost of FOMA handsets by developing collective specifications on single-chip LSI and operating system platforms and economized procurement from overseas handset vendors; and

 

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reducing network costs through economized procurement, the design and installment of low-cost devices, and improvements in construction processes.

 

This excerpt taken from the DCM 20-F filed Jun 27, 2006.

Operating Income

 

In the year ended March 31, 2006, because both wireless service revenues and equipment sales decreased, operating revenues decreased. Operating expenses decreased more than operating revenues mainly due to decreases in sales commissions and impairment loss. As a result, operating income increased. The factors contributing to the increase in operating income were as follows:

 

    Although the decrease in ARPU caused by expansion of our rate discount programs continued, it was offset by the increase in our number of subscriptions as a consequence of new customer acquisition and a lowered churn rate, which resulted in a slight increase of cellular services revenues;

 

    The decline in equipment sales revenues, which exceeded the declines in the aggregate of cost of equipment sold and sales commissions due to the decrease in the number of handsets sold, had a negative impact on operating income; and

 

    Operating expenses decreased significantly due to the effect of the impairment of PHS-related assets recorded in the year ended March 31, 2005. As a result, together with the above factors, operating income increased.

 

We expect the year ending March 31, 2007 to be another year of involvement for sustainable growth in the future. Although the introduction of the Mobile Number Portability will accelerate the competitive market environment, we will be engaged in the establishment of new revenue sources such as the credit services business, while continuing to maintain or expand our subscriber base and revenues by providing further benefits to our subscribers. We expect operating revenues to increase slightly and operating income to decrease in the year ending March 31, 2007 for the following reasons;

 

    Cellular services revenues are expected to increase slightly as the increase of our subscriptions will continue to more than offset the decrease in ARPU caused by the expansion of discount programs and flat-rate billing plan for unlimited i-mode usage;

 

    Although cost of equipment sold and sales commissions will increase because of continued migration of mova subscribers to FOMA services and the introduction of the Mobile Number Portability, we plan to manage the increase in such expenses at a level no greater than the increase in equipment sales, so that the impact of increased handset sales on operating income would be minimized; and

 

    The combination of increases in depreciation and amortization and selling, general, and administrative expenses, which will derive from improvement of FOMA network coverage and our after-sales support, is expected to exceed the increase in the cellular services revenues.

 

Under these circumstances, we seek to further reinforce our core cellular business, reduce costs and secure new sources of revenues, in order to achieve sustainable growth.

 

We seek to reinforce our core business, while implementing customer-oriented operations, and maintaining and reinforcing our competitiveness by:

 

    improvement of consultation, support and after-sales services offered to our subscribers;

 

    release of new handsets which respond to customers’ demands; and

 

    efficient expansion of network coverage, e.g., introducing more economical networking equipment.

 

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We seek to reduce costs by:

 

    saving on the development cost of FOMA handsets by developing collective specifications on single-chip LSI and operating system platforms and economized procurement from overseas handset vendors;

 

    efficient allocation of sales commissions on targeted specific market segments; and

 

    reduction of network costs through economized procurement, design and installment of low-cost devices, and improvements of construction processes.

 

We seek to secure new sources of revenues by:

 

    increasing non-traffic revenues by evolving our cellular services into “life-style infrastructure,” tools, through the introduction of new services such as our mobile credit services using “Osaifu-Keitai”;

 

    increasing packet communications revenues through introduction of new services which utilize high speed packet communication of HSDPA technology and promotion of new services such as “i-channel” or “Push-Talk”; and

 

    increasing international services revenues through upgrade of international calling and roaming services and compatible handsets.

 

This excerpt taken from the DCM 20-F filed Jun 27, 2005.

Operating Income

 

Our ability to continue to generate profits will be substantially affected by a number of factors affecting all cellular operators, including, among others, our ability to maintain current level of aggregate ARPU, our ability to attract and retain subscribers, the rate of growth of subscribers, the level of subscriber usage, the level and structure of tariffs, competition, the rate of churn of subscribers, spectrum availability and allocation, fees for interconnection among telecommunications operators, network capital expenditure requirements and research and development expenditures. See also Item 5.D.—Trend Information.

 

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