NTT Docomo (DCM)

Selling, general and administrative expenses —

Selling, general and administrative expenses primarily include commissions paid to sales agents, expenses associated with DoCoMo’s customer loyalty programs, advertising expenses, as well as other expenses such as payroll and related benefit costs of personnel not directly involved in the operations and maintenance process. Commissions paid to sales agents represent the largest portion of selling, general and administrative expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses represented 32.0% of our total operating expenses in the year ended March 31, 2007. 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 are sales commissions paid to agent resellers. The main components of the sales commission that we pay to agents who sign up new subscribers are a closing commission for each new subscription and volume incentives that vary depending on the number of new subscriptions per agent per month. In addition, we pay agent resellers a commission in the form of handset sales incentives depending on the type of handset a subscriber purchases. Sales commission differs from region to region due to such factors as the competitive and economic environments in the various regions. The average sales commission we paid when acquiring a new subscriber who also purchased a handset and when upgrading a handset for a current subscriber and activating the handset was approximately 34,000 yen, 36,000 yen and 37,000 yen for the years ended March 31, 2005, 2006, and 2007, respectively. The increase in the average commission per subscription in the year ended March 31, 2007 from the prior fiscal year was mainly due to the increase in the percentage of FOMA handsets, for which the average commission per subscription was approximately 11,000 yen higher than that of mova handsets, among the total number of handsets sold. In the year ended March 31, 2007, the average commission paid for FOMA subscription acquisition or FOMA handset sales was virtually unchanged while average commission paid for mova subscription acquisition or mova handset sales decreased in comparison with the prior fiscal year. We applied EITF 01-09 and therefore a portion of the sales commissions paid to agent resellers, including handset sales incentives, is recognized as a deduction from equipment sales revenues and selling, general and administrative expenses. Due to the migration of mova subscribers to FOMA services, gross sales commission before application of EITF 01-09 increased in the year ended March 31, 2007 compared with the prior fiscal year. However, because the increase in handset sales incentives exceeded the increase in gross sales commissions, net sales commissions after application of EITF 01-09 decreased in the year ended March 31, 2007. For the year ending March 31, 2008, we plan to control the gross and net amount of sales commissions at a lower level than that of the prior fiscal year through our efforts such as efficient operations of our sales channels and increase in sales of “FOMA 7 series” and “SIMPURE series”, which incur comparatively inexpensive handset sales incentives when sold.

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:

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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:

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:

We seek to secure new sources of revenues by:

We seek to reduce costs by:

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Other income and expenses

As part of our corporate strategy, we have made investments in foreign and domestic companies in businesses that complement our mobile communications business. See “Item 4. Information on the Company—B. Business Overview—Other Business Activities—Investments and Affiliations in Japan” and “—B. Business Overview—Global Businesses—International Investments and Licensing Agreements”. Where our investment is relatively small as a percentage of the investee’s issued and outstanding capital, we include the investment as “marketable securities and other investments” on 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. In some cases, the size of our investment as a percentage of the investee’s issued and outstanding capital or other indices of control make the investee our equity-method affiliate. We include equity in net gains or losses of affiliates in our consolidated income, but such amounts are not typically material to our consolidated net income. In the years ended March 31, 2002 and 2003, 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 those years, and it is possible that we could experience material impairments with respect to our equity method investments again in the future. Please refer to “- Critical Accounting Policies—Impairment of investments”. We may also experience material gains or losses on the sale of our investments, as we did in the year ended March 31, 2006 with respect to our investments in Hutchison 3G UK Holdings Limited (“H3G UK”) and KPN Mobile N.V. (“KPN Mobile”). Please refer to “- Operating Results for the year ended March 31, 2006—Analysis of operating results for the year ended March 31, 2006 and comparison with the prior fiscal year”. As of March 31, 2007, the total carrying value of our investments in affiliates was 176.4 billion yen, while the total carrying value for investments in marketable equity securities and equity securities accounted for under the cost method was 261.4 billion yen.

Selling, general and administrative expenses —

Selling, general and administrative expenses primarily include commissions paid to agents, expenses associated with DoCoMo’s customer loyalty programs, advertising costs, as well as other expenses such as payroll and related benefit costs of personnel not directly involved in the operations and maintenance process. Commissions paid to agents represent the largest portion of selling, general and administrative expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses represented 34.0% of our total operating expenses in the year ended March 31, 2006. The primary expenses included in our selling, general, and administrative expenses are those related to acquiring new subscribers, the most significant of which are sales commissions paid to agent resellers. The main components of the sales commissions that we pay to agents who sign up new subscribers are a closing commission for each new subscription and volume incentives that vary depending on the number of new subscriptions per agent per month. In addition, we pay agent resellers a commission in the form of handset sales incentives depending on the type of handset a subscriber purchases. Sales commissions differ from region to region due to such factors as the competitive and economic environments in the various regions. Average sales commissions we paid when acquiring a new subscriber who also purchased a handset and when upgrading a handset for a current subscriber and activating the handset were approximately ¥36,000, ¥34,000 and ¥31,000 for the years ended March 31, 2006, 2005, and 2004, respectively. The increase in the average commission per subscription in the year ended March 31, 2006 from the prior fiscal year was mainly due to the increase in the percentage of FOMA handsets, for which the average commission per subscription was approximately ¥9,000 higher than that of mova handsets, among the total number of handsets sold. The average commissions paid for FOMA subscription acquisition or FOMA handset sales and paid for mova subscription acquisition or mova handset sales in the year ended March 31, 2006 were virtually unchanged from the prior fiscal year. We adopted EITF 01-09 and therefore a portion of the sales commissions paid to agent resellers, including handset sales incentives, is recognized as a deduction from equipment sales revenues and selling, general and administrative expenses. Due to the migration of mova subscribers to FOMA services, gross sales commissions before application of EITF 01-09 increased in the year ended March 31, 2006 compared with those in the prior fiscal

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year. However, because the increase in handset sales incentives exceeded the increase in the gross sales commissions, the net sales commissions after application of EITF 01-09 decreased in the year ended March 31, 2006. For the year ending March 31, 2007, despite the introduction of the Mobile Number Portability, we plan to control the gross sales commissions at a level similar to that of the prior fiscal year. However, we expect that the net sales commissions after EITF 01-09 will slightly decrease due to an increase in handset sales incentives.

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:

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;

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:

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We seek to reduce costs by:

We seek to secure new sources of revenues by:

Other income and expenses

As part of our corporate strategy, we have made investments in foreign and domestic companies in businesses that complement our mobile communications business. See “Item 4. Information on the Company—B. Business Overview—Other Business Activities—Investments and Affiliations in Japan” and “—B. Business Overview—Global Businesses—International Investments and Licensing Agreements”. Where our investment is relatively small as a percentage of the investee’s issued and outstanding capital, we include the investment as “marketable securities and other investments” on 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. See “- Operating Results for the year ended March 31, 2006—Analysis of operating results for the year ended March 31, 2006 and comparison with the prior fiscal year”. In some cases, the size of our investment as a percentage of the investee’s issued and outstanding capital or other indices of control make the investee our equity-method affiliate. We include equity in net gains or losses of affiliates in our consolidated income, but such amounts are not typically material to our consolidated net income. In the years ended March 31, 2002 and 2003, 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 those years, and it is possible that we could experience material impairments with respect to our equity method investments again in the future. See “- Critical Accounting Policies—Impairment of investments”. We may also experience material gains or losses on the sale of our interest in affiliates, as we did in the year ended March 31, 2005 with respect to our interest in AT&T Wireless Services, Inc. (“AT&T Wireless”). See “- Operating Results for the year ended March 31, 2005—Analysis of operating results for the year ended March 31, 2005 and comparison with the prior fiscal year”. As of March 31, 2006, the total carrying value of our investments in affiliates was ¥174.1 billion, while the total carrying value for investments in marketable equity securities and equity securities accounted for under the cost method was ¥258.0 billion.

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Selling, general and administrative expenses —

Selling, general and administrative expenses primarily include commissions paid to agents, expenses associated with DoCoMo’s customer loyalty programs, advertising costs, as well as other expenses such as payroll and related benefit costs of personnel not directly involved in the operations and maintenance process. Commissions paid to agents represent the largest portion of selling, general and administrative expenses.

Selling, General, and Administrative Expenses

The primary expenses included in our selling, general, and administrative expenses are expenses related to acquiring new subscribers, the most significant of which are commissions paid to sales agents. The main components of the commissions that we pay to agents who sign up new subscribers are a closing commission for each new subscriber and volume incentives that vary depending on the number of new subscribers per agent per month. In addition, we pay agents a commission in the form of handset sales incentives depending on the type of handset a subscriber purchases. Commissions differ from region to region due to such factors as the competitive and economic environments in the various regions. Average commissions we paid when acquiring a new subscriber who also purchased a handset and when selling a replacement handset to an existing subscriber and activating the handset were approximately ¥30,000, ¥31,000 and ¥34,000 per subscriber for fiscal 2002, 2003 and 2004, respectively. The increase in the average commission per subscriber from fiscal 2003 to fiscal 2004 was mainly due to the increase in the percentage of FOMA handsets among the total handsets sold in fiscal 2004, for which the average commission per subscriber was approximately ¥8,000 higher than that of mova handsets. The average commissions paid for FOMA subscriber acquisition or FOMA handset sales and paid for mova subscriber acquisition or mova handset sales were virtually unchanged from fiscal 2003 to fiscal 2004. We adopted EITF 01-09 and therefore the portion of the commissions paid to agent resellers for equipment, including handsets, is recognized as a reduction of equipment sales revenues.