Edited Transcript of 9433.T earnings conference call or presentation 31-Jul-20 8:00am GMT

Tokyo Aug 1, 2020 (Thomson StreetEvents) — Edited Transcript of KDDI Corp earnings conference call or presentation Friday, July 31, 2020 at 8:00:00am GMT

KDDI Corporation – Senior Managing Executive Officer, Executive Director of Solution Business Sector & Director

KDDI Corporation – Executive VP, Executive Director of Corporate Sector & Representative Director

KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director

Nomura Securities Co. Ltd., Research Division – Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan

UBS Investment Bank, Research Division – Executive Director and Telecom & Software Analyst

Daiwa Securities Co. Ltd., Research Division – Research Analyst

Thank you very much for waiting. We would now like to start the financial results briefing of KDDI Corporation for the first quarter of the fiscal year ending March 2021. Thank you very much for taking time out of your busy schedule to attend the meeting via the Internet. I am [Hongo] from the IR Department, and I will serve as the moderator today. This meeting will be a live Internet streaming with Japanese-English simultaneous interpretation to prevent the spread of COVID-19. It will also be distributed on demand on our IR website later. I ask you for your understanding.

Let me introduce the participants today. To your left, first row from the center, Shinichi Muramoto, Executive Vice President and Executive Director of Corporate Sector; Takashi Shoji, Executive Vice President and Executive Director of Personal Business Sector. To your right, first row from the center, Keiichi Mori, Senior Managing Executive Officer and Executive Director of Solutions Business Sector; Kazuyuki Yoshimura, Executive Officer and Executive Director of Technology Sector. Lastly, to your left second row, Nanae Saishoji, Executive Officer and General Manager of Corporate Management Division.

Three financial results related materials, presentation, Tanshin and detailed materials; and 1 TSC disclosure material are posted on our IR website. Please refer to the disclaimer in the materials regarding statements made in the documents, performance and subscriber targets explained in the Q&A session today.

First, Muramoto will first explain the financial results followed by Q&A. (foreign language) Mr. Muramoto, please.

Shinichi Muramoto, KDDI Corporation – Executive VP, Executive Director of Corporate Sector & Representative Director [2]

Thank you very much for joining us in the KDDI business results meeting out of your very busy schedules. Let me share with you the first quarter results for the fiscal year ending in March 2021.

First of all, I would like to express my heartfelt sympathies to those who have been affected and their families by the torrential rain in July. KDDI Group continue to exert all our efforts for the reconstruction of the affected areas.

First, on entering the era of new normal, let me explain about the approach towards the era with COVID-19 and beyond. Please look at the left with the spread of COVID-19, a new normal living style is promoted. Digitization of real events and expansion of the interactive e-commerce, the workplace diversification, higher needs for remote monitoring technology and other major changes are likely in the business environment surrounding our company. The right shows that in order to simultaneously achieve the prevention of the spread of infection and the sustainable economic activities, it’s indispensable to build a resilient social infrastructure.

Towards the era of new normal, we are utilizing 5G, IoT and AI to further promote the digital transformation. To enhance the resilience of companies, the high level autonomy and growth of employees and an organization is indispensable. We have been allocating human resources first in the management based on which we communicated internally that we’d like our employees to be highly self-driven and continuing to grow. Now we have made the declaration of new work styles, realizing work styles that achieve results not tied to any particular times and places. To support this, we will promote our personnel system reform and the internal digital transformation as well.

In the era of new normal, we are accelerating the reform to be a human resources first company and moving towards a management base that can adapt to drastically changing environments. Under the state of emergency declaration, about 90% of employees utilized teleworking. Analysis has been made on the teleworking effectiveness and issues by an employee survey. Going forward, we intend to make a new hybrid work style and rooted using teleworking to further enhance the operation efficiency.

Specifically, based on the declaration of new work styles, to further improve its effectiveness, work styles and roads have been categorized into 4 model cases. As a company, we do and will support each employee in finding and realizing the optimum work style solution depending on the model case or the living environment. Look at the left, please.

We are introducing the KDDI version Job Style under the new personnel system. By clarifying the job boundaries and evaluation and reward based on performance, ambition and capabilities, we make the most of the job style and provide diverse growth opportunities in the KDDI Group’s business field and support self-driven career development.

The right shows In-House DX to realize the hybrid work style of teleworking and committing to office, we are upgrading the office and IT environment. We are accelerating organizational permeation and environmental upgrade for the new work style. In May, we announced the basic policy towards COVID-19, based on which various measures have been taken.

Through our businesses, we continue to contribute to the stability of society and living. Now I’d like to introduce you to some of our efforts from the next page. The left shows start-up support by KDDI MUGENLABO. MUGENLABO Support Program 2020 has been started where 46 partner companies offer each assets. Going forward, we will be using start-up companies technology, among others, to prevent the spread of the infection.

Going to the right by collaborating with CAMPFIRE, an investee by the KDDI Open Innovation Fund, we supported waiving fees with crowd funding for those businesses experiencing major difficulties in management. We are encouraging solutions to social issues by supporting start-ups and operators.

Next concerns are undertaking at Aeon. We are supporting young children and students who cannot attend classes due to school shutdown for the prevention of the spread of infection. We provide English conversation lessons for free to 10,000 high school students. For elementary school pupils whose English language learning is changing due to new learning guidelines, we are distributing English conversation video content free of charge. We’re supporting DX of education environments.

Next, in entertainment and sports. We are exploring means to live with COVID-19. The left, sound VR x au 5G, shows an interactive audio and video technology that allows you to freely focus on what you want to see and listen to in a 360-degree video. We provide a new platform that connects artists to fans. The right shows supporting team au comprising top-notch climbers in the world.

Tokyo Olympics are delayed for a year, affecting athletes’ practice environments. We are building a climbing wall using the cutting-edge technology of AI and IoT to continue to support athletes.

Let me share with you the consolidated results for the first quarter of the fiscal year 2021 ending in March. Highlights of the consolidated results for the first quarter. The consolidated operating revenue was JPY 1.242.7 trillion. The full year progress was 23.7%. In the middle, the operating income was JPY 290.7 billion. The full year progress was 28.2%. On the bottom, the profit for the period attributable to owners for the parent was JPY 182.3 billion. The full year progress was 28.5%. We’re carefully analyzing the impact on operating results from the second quarter onwards and maintaining the full year forecast unchanged.

Next, let me focus on the factors for change of the operating income. From the left, Life Design Domain and Business Services segment, which are growth fields, total a JPY 20.6 billion increase in the income with steady progress. On the other hand, due to COVID-19, the sales volume of mobile handsets decreased significantly, which led to a sales cost reduction resulting in an increase of the operating income by JPY 24.1 billion. Further, a decrease in the gross margin of mobile handset sales and others contributed to a JPY 9.8 billion decline in the income. The first quarter operating income saw the increase partly because of the poor results in the first quarter last year. Handset sales decreased 450,000 units year-on-year. Migration from 4G to 5G is not on track compared with our plan. On the increase of the operating income, we are not pleased. We are feeling rather anxious. We intend to continue to work on the early deployment of 5G.

This slide summarizes the performance impact of COVID-19. In the first quarter, we enjoyed the temporary increase in income due to a decrease in cost of mobile handset sales in Personal Services segment and an increase in demand of teleworking in Business Services segment. From second quarter onward, we are thoroughly examining the impact on our performance, promoting businesses and using costs in growth areas to achieve the initial plan.

Next is business strategy. As we explained in our full year results briefing in May, in order to maximize group ID x engagement x total ARPU, we place engagement at the core, prioritize the testing relationship with our customers and promote business strategies across the entire group. Let me explain them from the next page.

First is double brand strategy. To your left, to cater to our customers who want to use large data volume comfortably, we started offering Data MAX 5G ALL STAR pack from June 25. On the other hand, to you’re right, for the customers preferring middle volume, UQ Mobile started offering Sumaho Plan R on June 1. au and UQ Mobile together will provide services chosen by a wide range of customers.

Next is group ID status. The number of group IDs is led by UQ mobile and is growing steadily to 27.2 million as of the end of June. On the right side, UQ Mobile number of net increase grew by 1.5x year-on-year in first quarter and by 2.4x year-on-year in the single month of June when the Sumaho Plan R started. It has gained strong popularity.

Next is au PAY that is positioned in the center of higher engagement. Left side, au PAY, a QR code payment that started in April last year is growing steadily in number of payments. As a result of a campaign in February and March this year, many non-new customers used it. The awareness and the number of payments increased significantly.

The growth is continuing even after the campaign. Right side, we started Ponta Point, the long-awaited common point from May 21. Lawson launched a campaign to increase points return and we aim to enhance the engagement by encouraging the use further.

Next growth driver of au total ARPA. Left side, first quarter au total ARPA was JPY 7,790, up 4.6% year-on-year. The growth of au Denki ARPA was especially prominent with the steady increase of the number of au Denki subscribers and the extended time at home due to the spread of COVID-19, au Denki ARPA was JPY 640 in the first quarter, up 31% year-on-year.

Right side, number of AU Smart Pass premium members is growing favorably and exceeded the 10 million mark. The number of Life Design Service users is increasing steadily.

Next is Business Services segment regarding the increasing demand for telework. Left side, the number of KDDI service applications increased, cloud applications by 5x, remote access by 4x and video conference by 8x. Right side, KDDI Matomete office that offers one-stop solution to companies also increased in April. During the state of emergency declaration, the number of net contracts for smartphones increased by 1.6x, tablets by 1.8x and mobile routers by 1.9x. Measures to prevent the spread of infection triggered the expansion of the contactless message and digitalization, including teleworking from big companies to small and medium-sized companies.

Next is DX that supports a new way of working, including teleworking. Left side, we started offering a new highly secure security system based on Zero Trust concept. We will propose optimal solutions for our customers’ work styles and system configurations. Right side, our corporate division will be relocated to a new office in Toranomon. The number of seats will be 40% less than the number of staffs. Web conference tools will be enhanced, and internal, external networks and multiple cloud services will be utilized. We will practice DX for way of working by ourselves.

Next is 5G for corporate customers. Left side, SORACOM will launch MVNO business adapted to au 5G network by the end of this fiscal year. Furthermore, in order to create use cases leveraging 5G together, we began pilot test demonstration test of ultra-low latency application environment using AWS Wavelength from July 2020.

Right side shows office solution offering, utilizing 5G to resolve issues at office buildings and support work style reforms. We will promote the DX leveraging the characteristics of 5G through partnership with Mitsui Fudosan.

Next is au 5G infrastructure layer. We plan to deploy approximately 10,000 base stations by the end of March 2021 and approximately 50,000 by the end of March 2022. We will accelerate on early 5G nationwide expansion and promote 5G consumer use and IoT market penetration in each industry.

My last slide is the summary for today. Based on our basic policy toward COVID-19, we aim to expand our role in the society across a wide range of fields surrounding telecommunications. As we enter the era of new normal, we will accelerate DX to help build resilient social infrastructure and move toward a management base that can adapt to drastically changing environments by promoting new work style.

Regarding our financial results and business strategies. In the first quarter, the impact of COVID-19 has become apparent. We will carefully analyze the impact on the — on our operating results from second quarter onward and aim to achieve the initial plan. The growth fields, namely Life Design Domain and Business Services segments are both progressing steadily. We will keep promoting initiatives for social stability and solid management. Thank you very much for your attention.

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Questions and Answers

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Unidentified Company Representative, [1]

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(Operator Instructions)

The first question. Nomura Securities, Mr. Masuno. The floor is yours.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division – Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [2]

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Masuno from Nomura Securities. Can you hear me?

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Unidentified Company Representative, [3]

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Yes, we can hear you, sir.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division – Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [4]

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I have 2 questions. First question. From June, your operation has resumed. And from July to September, sale — regarding sales promotion as was usual or I think you are planning to boost it. But there is some affected by the current state of infection, but UQ Mobile new prices. I understand that you have been increasing — enjoying the increase. I think you can sell even more.

Now about the au 4G and no limit plan, the shift to high volume, I think, is very important. But the UQ growth and au promotion of the high-volume plan in the second quarter, July to September, what is your outlook for the second quarter?

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Unidentified Company Representative, [5]

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Thank you for your question. From July to September, sales promotion. How are we planning to grow UQ? And on the EU side, a shift to high-volume plan promotion of that. I think those are the questions. I’d like to ask Shoji to respond to your question.

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [6]

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This is Shoji speaking. Allow me to address your question. First of all, as we explained to you, with the COVID-19 effect in the months of April and May, sales volume decreased significantly. But from June, there has been some recovery. And as for the month of July, it’s actually higher than the internal plan. So using this as a kind of a spring for second quarter and onwards, we need to keep making efforts. That’s a given. That’s a kind of a prerequisite.

Now against this backdrop, about 5G, as we already announced in March, because of the COVID-19, our start was affected, as Muramoto said in his presentation. We have a huge sense of crisis here. About au 5G for the sake of the entire Japan, we have to make sure that 5G will be penetrated in the society. We want to boost 5G.

About unlimited plan, about this Data MAX centering on 5G, for the time being, it will be Android. But centering on a Data MAX, we will be aggressive in selling this. As for the UQ, as you pointed out, Plan R has been doing very well. Plan R, we want to, again, promote plan with the double brand strategy. Formally, it starts around the month of October, but with double brand strategy, rich content can be used with no limit even with a little slightly high price for such customers, au 5G. But for those customers who are really conscious about the price, then we would like to promote UQ. We would like to do a good job in promoting both of them in terms of sales promotion. There are no changes to those strategies.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division – Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [7]

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Just to clarify, higher than July. I think you were mentioning the sales of the handsets. The net addition of contract, I think that actually contributes to the result for the UQ. Are you ally focusing on net addition? As for the 4G, I think there’s no data, no limit plan. What about the promotion of those?

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [8]

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So much for my first question. au and UQ, au MVNO, of course, we would like to acquire net addition. No mistakes about that. Data MAX, as you pointed out, with 4G, people can use it even with 4G, depending on the customers, Data MAX with 4G, there are many such customers. So again, we would like to promote sales.

Android sales ratio. Totally, we need to enhance the 5G more. So there was a rather slow start in April. Then in May, it was better. In July — June and July, the ratio of Android 5G is increasing. And we would like to do more of this.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division – Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [9]

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Regarding the second question about 5G, March 2020 fiscal year, the 50,000 stations, I think you will have better results. But Mac, with the low latency, you can do this for pop-up plans and industry, they would like people to use this. But again, this can be used by consumers. But in terms of speed, for consumers, how fast it will be, we don’t know for sure. For consumers, how are you planning to utilize them? Would you like to elaborate on that, please?

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Unidentified Company Representative, [10]

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This is more or less related to area of Yoshimura, who is overseeing technology. Yoshimura?

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Kazuyuki Yoshimura, [11]

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Allow me to answer your question. As you have really heard, 4G LTE network, making it more sophisticated compared with the frequencies dedicated for 5G in terms of speed, it’s slightly lower in terms of speed. But as you really heard in the presentation and also Shoji mentioned, with regard to 5G network, we would like to deploy them early, and we would like to deploy them in the area, not just in dots, that’s important. So prices, majors, handsets, we would like to have a good lineup. We also had — would like to have a good line of services.

So for consumers, 5G smartphone customers, we would like to offer them broadly. We believe that’s important and making it NR, and we would like to doing that as well, making it NR. About 5G handsets within this fiscal year, more than 2 million units. That’s our plan for consumers. So we would like to deploy the area and we also would like to focus on sales. Did we answer your question?

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Unidentified Company Representative, [12]

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So next question. Daiwa Securities, Mr. Ando, please.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division – Research Analyst [13]

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This is Ando from Daiwa Securities. Can you hear me?

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Unidentified Company Representative, [14]

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Yes.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division – Research Analyst [15]

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I have 2 questions, too. Page 12, presentation material. So this is the higher performance in the area, the business area. First question, Life Design Domain will be up JPY 12 billion in profit. From what you said previously, the area that is impacted by COVID, like the ones that have to shut down, we were seeing how the impact will turn out. But if you have a breakdown of the higher income, what does it look like? What led to this higher profit? What are the components? And in terms of revenue, you’re higher than first quarter last year, but lower than second, third and fourth quarter. So how can I interpret this? So if you could break this down into the factors, components, please.

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Unidentified Company Representative, [16]

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Thank you. So let me answer that question. Life Design, as you correctly mentioned, Y-o-Y increase was JPY 12 billion. The biggest driver was energy business. Energy business was the biggest driver, accounted for the largest portion. And in the first quarter this year, the stay-at-home led to higher electricity consumptions at home. And in terms of procurement, the procurement price was lower than our plan. So from those 2 aspects, we had higher profit. This contributed to the higher profit. And the next big component was the Smart Pass, the paid members, Smart Pass, we were able to increase profit there.

Now revenue we have not looked into this detailed fashion. But from the first quarter, on the accounting term, ENERES sales accounting treatment changed. Until then, things that were posted as sales is now netted and is now posted on the profit side. Saishoji-san, could you explain?

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Nanae Saishoji, [17]

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So what was recognized in sales previously is now minus of cost. And so the revenue goes down, profit remains unchanged. Revenue goes down.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division – Research Analyst [18]

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Yes. And second is also the growth area. So Business Services segment is JPY 8.6 billion. So looking at this Business Services segment, this quarter’s highlight is teleworking. I think that is the big factor. So this increase of JPY 8.6 billion. Was teleworking cost big? And what kind of form did that contribute to higher profit? And is teleworking sustainable? It’s a promising business that can be expanded going forward. And what kind of route will it go through to become a promising business, please?

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Unidentified Company Representative, [19]

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So Mori will answer that question.

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Keiichi Mori, KDDI Corporation – Senior Managing Executive Officer, Executive Director of Solution Business Sector & Director [20]

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This business segment increase in profit. The point that you mentioned is the impact of teleworking due to COVID-19. Of course, that is included here. However, our original growth area, the IoT that we’ve had pre-COVID and the growth that we realized through various measures is bigger, it’s a bigger contributor. And teleworking portion was added on to that. So the contribution of teleworking, the biggest part is mobile. The handsets, mobile routers, number of IDs increased, exceeded our plan. When the emergency — state of emergency was declared, the impact was largest. And then the upside became smaller. But overall, this number of ID pushed up the numbers and the data usage and cloud type application usage are increasing. So if you multiply all these factors, we see this increase. And in mobile, mobile handset and PC. PCs are taken outside to join — go into the company’s network, the remote access is increasing. So that’s also a positive factor.

And another question was how we will trend going forward. The company network until now was connecting — connection between office and office or the network in the offices that — those were the mainstream. But now, as I mentioned earlier, there are more usage going outside and used from outside. So we will focus on that to grow this business in a sustainable fashion. That’s all.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division – Research Analyst [21]

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Just one point of clarification. So other than teleworking, you said that the IoT and others had a bigger contribution on the higher profit this fiscal year — this first quarter. What were they?

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Keiichi Mori, KDDI Corporation – Senior Managing Executive Officer, Executive Director of Solution Business Sector & Director [22]

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One is mobile handset net addition and cloud applications. We are expanding the sales of cloud applications to be used on that. So the associated sales is also increasing, and IoT number of lines is growing as a net addition. So that’s another contributor.

And other than that, in Japan, our domestic group companies are helping the shift to IT of the SMEs. This is now progressing. And this telework is added on to that. And we also do call center business so customers’ inquiry to the call centers or sales matters are handled at call centers. So that’s another positive factor.

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Unidentified Company Representative, [23]

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Next question, please. UBS Securities, Takahashi-san. The floor is yours.

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Kei Takahashi, UBS Investment Bank, Research Division – Executive Director and Telecom & Software Analyst [24]

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UBS, my name is Takahashi. 2 questions. First of all, about effect of COVID-19 versus communications revenues, what were the actual impact on the service? For instance, the increase on the voice and — but the data decreased. Could you give us some breakdown about the communication service?

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Unidentified Company Representative, [25]

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Right. You actually answered your questions. Regarding the effect on ARPU, as you rightly said, sound — voice ARPU increased, data — the WiFi offloading, it decreased. That’s about the mobile communications. It’s almost the plus/minus 0, about in terms of the effect.

As for the rest, as was already mentioned, sales of handsets decreased significantly in terms of the sales volume. About the business, the teleworking increased. On the negative factors, overseas economic activities decreased and because of that, there are some negative effects. About the voice and data trend from April to June, on a monthly basis. What about the trend on a monthly basis? I would like to ask Shoji to respond.

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [26]

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This is Shoji speaking. As you rightly said, the state of emergency was declared and movement of people, I think there was close link to the movement of people. You could understand it in this way. As people stay at home, then the voice had upside and the data traffic had downside as you already heard. In May, when there was a lifting of the emergency state declaration. Gradually, it’s coming back. The voice decreased. Data is recovering. That’s the situation. And what was symbolic is this — the fixed line network, the telephone or internet, fixed line networks, and it’s the same for both the individuals and corporates.

For the fixed line, the — our acquisition was pretty good because the people used them more. Did I answer your question, sir?

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Kei Takahashi, UBS Investment Bank, Research Division – Executive Director and Telecom & Software Analyst [27]

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My second question. Page 13, please. Second quarter and onwards, on the growth areas, you are planning to spend more cost. Here, promotion of the cashless settlements or payments making education online and promotion of the DX. There are several items listed here. In terms of total amount, how much are you planning to spend? But what about the breakdown of the cost that you will be spending on these? What’s the allocation that you have in your mind? That’s my question.

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Unidentified Company Representative, [28]

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About the detailed numbers, I’m afraid but I may not be able to share those with you. But in terms of our policy and approach, Shoji-san?

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [29]

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On this, consumers’ personal. Handsets — first, about those handsets. In a way, it’s a legacy. But on the other hand, it’s a growth area. 5G, as I said at the outset, in the first quarter, our start was rather spoiled. So we need to recover this. So on this, the necessary promotional costs, promotion costs it’s something we have in our mind, we would like to be aggressive here.

But the encompassing 3G users because of the COVID-19, including our internal plan, we were not able to clear the internal plan. So we, again, need to do better than this. From July about this 3G encompassing, the — yes, we have been strengthening our promotional activities. So we need to spend cost on these as well. But the cashless businesses. Again, as you already know, Minor Point already started the Minor Point.

Yes, we do feel that au payments is working. But with au payment on that, we would like to again spend necessary cost on this. Personal in the sales area, this is what I wanted to share with you. About the COVID-19, educational measures and others, again, I would like to pass the microphone to Muramoto-san.

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Shinichi Muramoto, KDDI Corporation – Executive VP, Executive Director of Corporate Sector & Representative Director [30]

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In the presentation material, we mentioned this, Page 13, as you can see. No, not on Page 13, but a contribution to the society. Obviously, we need to do our mission. So as I already said, with Aeon, we have some programs. And other than that, those — the society is suffering from COVID-19, we would like to use our capacity to support the society. I hope I answered your question.

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Kei Takahashi, UBS Investment Bank, Research Division – Executive Director and Telecom & Software Analyst [31]

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But 5G in terms of the utility is low, that’s JPY 20,000 per unit. Other than at discount, are you planning to spend cost on those other than that. About the business law, telecommunications business law dictate certain commission and others, of course, we have to comply with what’s stated by the law. But in the months of April and May, I’m so sorry to say this, but about shops, like au shops and GMS, they have to make sure that they would not attract customers. So promotional activities to attract customers was not possible at all. Sending direct mail, DM, or doing SNS promotion activities, those were not really done properly. That’s the actual situation. So including those, we need to spend the cost that is necessary, July and onwards. About the Android, we’re using (inaudible) program. In a nutshell, this JPY 30,000 priced terminals handsets will become available. So we would like to again promote sales, and we would like to see the increase of the sales of handsets.

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Unidentified Company Representative, [32]

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Merrill Lynch Securities, Mr. Kinoshita, please.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division – Research Analyst [33]

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This is Kinoshita from Merrill Lynch. I have 2 questions. First, 5G. You and SoftBank until the end of August, if you sign up by the end of August, the price will be the same as 4G. You can enjoy 5G plan at the price of 4G. So I think that campaign continues until the end of August. So you said you are off to a slow start in 5G. But in order to raise the demand, do you plan on postponing this campaign — or extending the campaign, but under the current circumstances, maybe you may feel hesitant to gain — get more. But what is your idea on the campaign? That’s my first question.

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Unidentified Company Representative, [34]

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So Shoji will respond to that.

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [35]

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So thank you for the question. This campaign, yes, you are right. If you apply until the — by the end of August, you can enjoy the — JPY 3,460 is the lowest price. You can enjoy the 4G price for 2 years. So what after this. Maybe many things may happen. iPhone that is launched in fall, maybe one factor. We don’t know what will happen. So we are trying to think of various factors. So as of today, I’m sorry, I cannot clearly say our plan.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division – Research Analyst [36]

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Understood. So the factors are the penetration or the network coverage, and the handset, iPhone. So those will be the important factors?

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [37]

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Yes, I would say so. But regarding network, as Yoshimura-san mentioned, at the beginning of this fiscal year, we said — and we are building the network as we announced, and so it’s not that the schedule is delayed. We are doing this as scheduled. But as you correctly mentioned, between April and June, 5G lagged behind. And I’m sure — I’m confident that we can recover, but — and we will think of what to do with the plan on a comprehensive manner. But as of today, we have nothing to clearly announce.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division – Research Analyst [38]

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Next is about your idea going forward. In performance, you said you will scrutinize and aim to achieve the target that you had at the beginning of the year. So JPY 5 billion increase in operating profit in the first half, or the first half you already exceeded that, and will your profit decline somewhere because you will pay costs — you will use costs? So what I would like to know is, in the Business Services segment going forward, this higher profit exceeding the plan. Can we expect you will exceed the plan? Or will you use the excess to invest in the medium- to long-term growth in the personal segment. Is that your thinking?

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [39]

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It’s a difficult question to answer. But 2.5 months ago, we announced the forecast for this fiscal year, and it’s been 2.5 months. So it is still too early to say something in a determinate factor. From the first quarter result, yes, it seems like we have some leeway headroom, if you will. Last year was very bad. And so now the profit is the same level as 2 years ago in the first quarter.

So — and we could not use the cost we wanted to. So in each segment, we will start using cost as we planned at the beginning of the fiscal year. So there are gaps from our plan. And this allocation will be studied from the second quarter onward. So I would like to refrain from saying anything clear today.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division – Research Analyst [40]

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Understood. So it’s not just personal segment, but also in Business Services segment, you may use cost aggressively. That’s a possibility?

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [41]

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Yes, not just short term. We are aiming for mid- to long-term growth. So we will take measures accordingly. So please understand as such. Thank you.

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Unidentified Company Representative, [42]

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We don’t have much time left. So we would like — next will be the last question. SMBC Nikko Securities, Mr. Kikuchi. The floor is yours, sir.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division – Senior Analyst [43]

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Kikuchi speaking. I have 2 questions. First question about the double brand strategy. How you’re planning to deploy this double brand strategy? The similar strategy has been taken by SoftBank. So using SoftBank, as an example, how are you planning to actually deploy this? This is my question. What are your focal points?

Now about SoftBank, number of cases past 2 years or so, they have been focusing on this. As a background, the monthly discount that actually decreased. So the communication, the revenue will be okay even if the number of contract decreases. But again, they are now hitting the limitation. So that’s the real issue. The monthly discount effect is disappearing. In your case, you are focusing on double brand strategy. Are you really focused on the number of contracts about communication revenues? Would you like to keep them? But as for the communication revenues, you’re not really focusing on this? Are you planning to grow total ARPA? So are you going to focus on the number of subscribers contracts? I think many people in the industry are really paying a lot of attention. They might really feel threatened by what you might do. But what are you focal points? What’s your focus? That’s my question. My first question.

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Unidentified Company Representative, [44]

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Shoji-san?

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [45]

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This is Shoji speaking. About the double brand strategy, in the previous question, I touched upon this. Speaking of customers, there’s the polarization about the customers, want to use various services or want to pursue higher quality, want to have the higher volume of data. Then the Data MAX, the 5G Data MAX is something that we can — that they can use. And In terms of prices, there are some who want the cheaper prices, but still want to have good quality. Such customers could use UQ, that is a basic stance.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division – Senior Analyst [46]

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About the SoftBank, this is about the different companies I don’t really know. But the number — I think you mentioned the IDs. ID is important or ARPU is important? Naturally, both are important, both are important. But the IDs, how are we going to go about the IDs?

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [47]

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At the moment, the market had such a low fluidity. So against this low fluid market, we wanted to increase it even by a little and stem the flow of outflow. With the double brand strategy, prepare a lineup of plans. So that customers will remain in the KDDI Group, that’s most important. From au to UQ type R because it’s relatively cheaper. But as the data usage becomes higher, then coming back to au Data MAX, that’s the likely scenario. With the double brand strategy, this is going to be just an upgrade of the handset. Very easy procedure — very easy clerical procedure and with little impact on us as well.

Within the KDDI group, we would like to keep the number of IDs. And about the communication ARPU, how best we can keep them — keep it appropriately. And also, we’ve been doing this business for such customers. Total ARPA is what I’m talking about. The life design goods and services. We would like to offer them. We would like to offer them various customer experiences so that they can find our services convenient. I hope I answered your question.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division – Senior Analyst [48]

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So this is how I understood. Looking at the past years of your strategy, the number of ideas, that’s very important with 5G going forward, you have au Denki electricity service. So in the long term, you need to ensure the revenue. So in keeping the number of IDs in the next 1 or 2 years, that will be very important for you. That’s how I understood your comment.

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [49]

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Sorry — excuse me, to maintain the number of IDs, anything will go, anything will go. That’s not what I mentioned, that’s not what I mentioned. We need to strike a good balance because with au. With regard to the number of aus, we would like to have the net addition, we would like to keep it. That’s what we feel.

But having said that, because of what customer wants, they may go to UQ, but they may come back to au in the future. So here, 5G Data MAX included, we need to combine various strategies. So for the customers, the best thing we really want to offer what’s best for customers. You mentioned this, not just on communications but electricity. If the customer user au Denki, then the cost — customer’s cost will go down by 1% to 5%. So in total aspects, they can au services and products.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division – Senior Analyst [50]

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Second, the commission paid to the agents or agencies, I think there has been a decrease of JPY 7 billion or so. On the carriers, selection of agents or agencies, I see some differences among the carriers. But the fee paid to agencies, are you planning to review them in the second quarter about the au shop including your policies towards au shop, would you like to explain about them, please?

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [51]

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Again, allow me to address your second question. I couldn’t really understand what you asked about the agents — or about the policies. This is about other companies I don’t really know. What are the differences? I couldn’t really understand what you asked.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division – Senior Analyst [52]

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The management support for the agents or agencies for a fixed cost, for instance. But your support actually is lower compared with what others did. Or do you think the other companies did too much because I don’t really know what other companies are doing, not everything has been disclosed.

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Takashi Shoji, KDDI Corporation – EVP, Executive Director of Personal Business & Global Consumer Business and Representative Director [53]

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No, no, no. We are not doing anything extraordinary. That’s okay. First, are you — if you are talking about the support under the COVID-19, I can’t disclose detailed numbers as necessarily because agencies suffered so much. So we are extending necessary support.

And second quarter and onwards to agents and agencies about policies on fees, we do not have a plan to change them drastically from the second quarter. And I’m sorry about the other companies, I don’t really know. That’s all.

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Unidentified Company Representative, [54]

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Now time has come, so we would like to end KDDI financial results briefing for the first quarter of the fiscal year ending March 2021. Thank you very much again for your attendance.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

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