As filed with the Securities and Exchange Commission on June 25, 2009

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 20-F

 

 

 

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)

 

 

 

Hiromichi Takahashi or Kana Hamazaki
TEL: +81-3-5156-1338/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.

 

 

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, 2009, 41,759,807 shares of common stock were outstanding, comprised of 41,535,363 shares and 22,444,400 ADSs (equivalent to 224,444 shares).

 

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

 

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 o     No þ

 

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 þ     No o

 

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 o     No o

 

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):

 

 

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

 

U.S. GAAP þ     International Financial Reporting Standards as issued by the International Accounting Standards Board o     Other o

 

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 o     Item 18 o

 

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 o     No þ

 

 

 

 

 

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:

 

 

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

 

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, 2009” refers to our fiscal year ended March 31, 2009, and other fiscal years are referred to in a corresponding manner.

 

 

Not applicable.

 

 

Not applicable.

 

 

 

The following tables include selected historical financial data as at and for the years ended March 31, 2005 through 2009. The data as at and for the years ended March 31, 2005 through 2009 in the table is derived from our audited consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). You should read the selected financial data below, in conjunction with Item 5 of this annual report and our audited consolidated financial statements and notes thereto included elsewhere in this annual report.

 

Selected Financial Data

 

 

 

 

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:

 

 

 

 

We have translated selected Japanese yen amounts presented in this annual report solely for your convenience. The rate we used for such translations was $1.00 = ¥99.15, which was the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2009. The noon buying rate for Japanese yen on June 12, 2009 was $1.00 = ¥98.17.

 

 

Not applicable.

 

 

Not applicable.

 

 

Risks Relating to Our Business

 

Changes in the business environment in the telecommunications industry, such as intensifying competition from other service providers or other technologies caused by Mobile Number Portability, new market entrants and other factors, could limit our acquisition of new subscriptions and retention of existing subscriptions, or may lead to diminishing ARPU or an increase in our costs and expenses.

 

Market changes such as the introduction of Mobile Number Portability (MNP) and the emergence of new service providers are resulting in increasing competition with other service providers in the telecommunications industry. For example, other mobile service providers have introduced new products and services including 3G handsets, music player handsets, music distribution services, and flat-rate services for voice communications and e-mail limited to specified recipients, and new installment sale methods for handsets. There are also providers that now offer or may in the future offer services such as combined billing, aggregated point programs, and services

offering free calls between fixed-line and cellular phones in conjunction with fixed-line communications, which may be more convenient for customers.

 

At the same time, there may be increased competition 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, high-speed fixed-line broadband Internet service and digital broadcasting, wireless LAN, and so on or convergence of these services.

 

In addition to competition from other service providers and technologies, there are other factors increasing competition among mobile network operators in Japan such as saturation in the Japanese cellular market, changes to business and market structures due to the entry of new competitors in the market, including MVNOs*, changes in the regulatory environment, and increased 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 among cellular service providers in the areas of rates and services. Furthermore, in order to capture new subscriptions and maintain existing subscriptions, we may need to incur higher 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 such as the introduction in June 2004 of “Pake-hodai,” which is a packet flat-rate service for FOMA i-mode, the introduction of a new unified rate plan for FOMA services and mova services in November 2005 that users find simple and easy to understand, the introduction in March 2006 of a new rate plan that enables users to apply Pake-hodai to all FOMA services, the introduction in March 2007 of “Pake-hodai full,” a service that enables subscribers with full-browser handsets to view not only i-mode but also PC websites and video for a flat monthly rate, the introduction in August 2007 of “Fami-wari MAX 50” and “Hitoridemo Discount 50,” which give a uniform 50% discount on basic monthly charges, regardless of length of continuous service, the introduction in April 2008 of a new rate plan that allows users in the same “Family Discount” group to make free domestic calls to each other 24 hours a day, and the introduction in October 2008 of the packet flat-rate service, “Pake-hodai double,” with monthly charges varying according to usage. However, we cannot be certain that these measures will enable us to acquire new and maintain existing subscribers. Furthermore, these rate revisions are expected to lead to a certain decline in ARPU, but if the trend of subscribers using “Family Discount” and switching to flat-rate services increases more than we expect, our ARPU may decrease more than we expect. Furthermore, if the market growth slows or the market shrinks due to the economic downturn, APRU may decrease even more than forecast and we may not be able to capture new subscriptions or maintain the existing number of subscriptions at the level we expect. The foregoing factors may have a material adverse effect on our financial condition and operating results.

 

 

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 increase in revenue through the expansion of packet communication services and other data communication services from promotion of use of various i-mode services and through the development and expansion of new services focused on i-mode FeliCa, such as credit services, which are useful in everyday life and business, as important factors to our future growth. 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 due to the economic downturn, 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 whether or not the following can be achieved:

 

 

 

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

 

 

The introduction or change of various laws or regulations 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 Government, the mobile telecommunications industry in which we operate is particularly affected by the regulatory environment. 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 or regulations that could have an adverse effect on us. These include:

 

 

It is difficult to predict with certainty if any of the above proposed changes will be drafted into the relevant laws and regulations, and if they are implemented, the extent to which our business will be affected. However, if the implementation of one or more of the changes described above or other changes to laws and regulations are made, we may experience constraints on the provision of our mobile communication services and changes may arise in our existing revenue structure, and this may have an adverse effect on our financial condition and results of operations.

 

 

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.

 

One of the principal limitations on a cellular communication network’s capacity is the available radio frequency spectrum it can use. We have limited 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 cellular communication network operates at or near the maximum capacity of its available spectrum during peak periods, which may cause reduced service quality. In addition, the quality of the services we provide may also decrease due to the limited processing capacity of our base stations and switching facilities during peak usage periods if our subscription base dramatically increases or the volume of content such as images and music provided through our i-mode service significantly expands. Also, in relation to our FOMA services, packet flat-rate service for FOMA i-mode, and our flat-rate service that enables subscribers to view full-browser PC websites and video, an increase in the number of subscriptions and traffic volume of our subscribers may go substantially beyond our projections, we may not be able to process such traffic with our existing facilities and our quality of service may decline. Furthermore, with an increasing number of subscriptions and traffic volume, our quality of service may decline if we cannot obtain the necessary allocation of spectrum from the Government for the smooth operation of our business.

 

We may not be able to avoid reduced quality of services despite our continued efforts to improve the efficiency of our use of spectrum through technology and to acquire new spectrum. If we are not able to successfully address such problems in a timely manner, we may experience constraints on the growth of our mobile communication services or lose subscribers to our competitors, which may materially affect our financial condition and results of operations.

 

The W-CDMA technology that we use for our 3G system and/or mobile multimedia services may not be introduced by other overseas operators, which could limit our ability to offer international services to our subscribers.

 

For our 3G system, we use W-CDMA technology. W-CDMA technology is one of the global standards for cellular telecommunication technology approved by the International Telecommunications Union (ITU). We may be able to offer our services, such as global roaming, on a worldwide basis if enough other mobile network operators adopt handsets and network facilities based on W-CDMA standard technology that is compatible with ours. We expect that the companies we have invested in overseas, our overseas strategic partners and many other mobile network operators will adopt this technology.

 

Also, we have technology alliances with overseas operators in relation to i-mode services and we are aggressively promoting the spread and expansion of i-mode services by overseas operators.

 

However, if a sufficient number of other mobile network operators do not adopt W-CDMA technology or there is a delay in the introduction of W-CDMA technology, we may not be able to offer global roaming services as expected and we may not be able to offer our subscribers the convenience of overseas service. Also, if adoption of W-CDMA technology abroad is not conducted sufficiently and the number of i-mode subscribers among our strategic partners and the usage of i-mode services by those subscribers does not increase sufficiently, we may not realize the benefits of economies of scale we currently expect in terms of purchasing network facilities and offering handsets and contents developed for our services at appropriate prices. Also, we cannot be sure that handset manufacturers or manufacturers of network equipment will be able to appropriately and promptly adjust their handsets and network equipment if we need to change the handsets or network we currently use due to a change in W-CDMA technology as a result of activities conducted by standard-setting organizations.

If W-CDMA technology and i-mode services do not develop as we expect and we are not able to improve the quality of our overseas services or enjoy the benefits of global economies of scale, this may have an adverse effect on our financial condition and results of operations.

 

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 companies and organizations overseas which we believe could help us achieve this objective. We are also promoting this strategy by investing, 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 our past or future investments 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 may be accompanied by challenges 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 developments, 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.

 

As electronic payment capability and many other new features are built into our cellular phones, and services of parties other than those belonging to our corporate group are provided through our cellular handsets, potential problems resulting from malfunctions, defects or loss of handsets, or imperfection of services provided by such other parties may arise, which could have an adverse effect on our financial condition and results of operations.

 

Various functions are mounted on the mobile handsets we provide, and if we cannot appropriately deal with technological problems that may arise with respect to current or future handsets or the malfunction, defect or loss of handsets, our credibility may decline and our corporate image may be damaged, leading to an increase in cancellations of subscription or an increase in expenses for indemnity payments to subscribers and our financial condition or results of operations may be affected. New issues may arise which are different from those related to mobile communication services which we have been providing, especially with i-mode handsets with FeliCa capabilities that can be used for electronic payment and credit transactions. Events that may lead to a decrease in our credibility and corporate image, or an increase in cancellations of subscriptions and indemnity payments for subscribers include the followings:

 

 

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 existing 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 unscrupulous subscribers.

 

One example is unsolicited bulk e-mail sent through our e-mail services, including i-mode mail and SMS. 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 pursuing actions against 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 damage our corporate image, leading to a reduction in the number of i-mode subscriptions.

 

Mobile phones have been used in crimes such as the “it’s me” fraud, whereby callers request an emergency bank remittance pretending to be a relative. To combat these misuses of our services, we have introduced various measures such as more strict identification confirmation at points of purchase and ended new contracts for pre-paid mobile phones as of March 31, 2005 because pre-paid mobile phones are easier to use in criminal activities. However, in the event criminal usage increases, mobile phones may be regarded as a problem and lead to an increase in cancellation of contracts.

 

In addition, as our handsets and services become more sophisticated, new issues may arise when subscribers are charged fees for packet communication at levels higher than they are aware of as a result of using handsets without fully recognizing over use of packet communication in terms of frequency and volume. Also, there are issues concerning manners for phone usage in public places such as in trains and aircraft and the occurrence of car accidents caused by the use of mobile phones while driving. 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 basically to subscribers under 20 years of age as the enforcement of 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 addressing those issues appropriately in the future as well and if we fail to do so, we may experience an increase in 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 other factors, may adversely affect our credibility or corporate image.

 

We possess information on numerous subscribers in the telecommunications, credit, 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 such as thorough management of confidential information including personal information, employee education, supervision of subcontractors and by strengthening technological security.

 

However, in the event an information leak occurs despite these security measures, our credibility 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 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 those intellectual property rights 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 will 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 forced to expend considerable time and cost in reaching a resolution, and if such claims are recognized, we may be liable to pay damages for infringement of the rights concerned, which may adversely affect our financial condition and results of operations.

 

Earthquakes, power shortages, malfunctioning of equipment, software bugs, computer viruses, cyber attacks, hacking, unauthorized access and other problems could cause systems failures in the networks required for the provision of service, disrupting our ability to offer services to our subscribers and may adversely affect our credibility or corporate image.

 

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 redundant systems. However, despite these measures, our system could fail for various reasons including hardware problems, network damage caused by earthquakes, power shortages, typhoons, floods, terrorism and similar phenomena and events. These system failures can require an extended time for repair and as a result, may lead to decreased revenues and increased repair costs, and our financial condition and results of operations may be adversely affected.

 

There have been instances in which millions of computers worldwide were infected by viruses through the Internet. Similar incidents could occur on our mobile communication network. If such a virus entered our network or handsets through such means as hacking, unauthorized access, or otherwise, our system could fail and our mobile phones become unusable. In such an instance, the credibility of our network and customer satisfaction could decrease significantly. Although we have enhanced our security systems to block unauthorized access and remote downloading in order to provide for unexpected events, such precautions may not make our system fully prepared for every event. In addition, our network could be affected by software bugs, incorrect equipment settings and human errors which are not the result of malfeasance, but also cause system failures or breakdowns.

 

In the event we are unable to properly respond to any such events, our credibility or corporate image may be reduced, and we may experience a decrease in revenues as well as significant repair costs, which may affect our financial condition and results of operations.

 

Concerns about wireless telecommunication health risks may adversely affect our financial condition and results of operations.

 

Media and other reports have suggested that electric wave emissions from wireless handsets and other wireless equipment may adversely affect the health of mobile phone users and others such as by causing cancer and vision loss and interfering with various electronic medical devices including hearing aids and pacemakers, and also may present increased health risks for users who are children. While these reports have not been conclusive, and although the findings in such reports are disputed, the actual or perceived risk of wireless telecommunication devices to the health of users could adversely affect us through increased cancellation by existing subscribers, reduced subscriber growth, reduced usage per subscriber or litigation, and may also potentially adversely affect our corporate image, financial condition and results of operations. The perceived risk of wireless devices may have been elevated by certain wireless carriers and handset manufactures affixing labels to their handsets showing levels of electric 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 not demonstrate a relation between electric wave emissions and health problems.

 

Furthermore, although the electric wave emissions of our cellular handsets and base stations comply with the electromagnetic safety guidelines of Japan, including guidelines regarding the specific absorption rate of electric waves, and the International Commission on Non-Ionizing Radiation Protection, the guidelines of 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, 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, 2009, NTT owned 66.19% 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, which may not be in the interests of our other shareholders.

 

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, 2009, NTT owned 66.19% 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 144,180,000 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, our board of directors’ regulations 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 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.

 

 

 

We are a joint stock corporation incorporated and registered under the laws of Japan 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. 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, or NTT, the holding company of NTT group. NTT group constitutes 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 MPT, we transferred wireless telecommunication operations (other than those in the Kanto-Koshinetsu region which remained with us) to our eight regional subsidiaries. However, the other eight regional subsidiaries were merged into our company as the surviving company in July 2008.

The following diagram shows our corporate organization and includes our subsidiaries and affiliates as of March 31, 2009. Unless otherwise indicated, we own 100% of the voting securities of the subsidiaries included in the diagram. The percentages in parenthesis represent our group’s holdings of the total issued shares in these subsidiaries and affiliates.

 

 

 

 

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.

 

 

 

We are a mobile telecommunication services provider belonging to NTT group whose parent company is NIPPON TELEGRAPH AND TELEPHONE CORPORATION (NTT). The total number of subscriptions to our cellular services (FOMA and mova) was approximately 54.6 million and our domestic market share was 50.8% as of March 31, 2009.

 

We not only provide voice services, but also focus on the development of mobile multimedia services such as i-mode service (Internet access service for mobile terminals). In addition to offering enhanced music and video services and mobile credit payment services, we are personalizing services and functions to match customers’ lifestyles and needs and providing services that make use of the unique characteristics of mobile phones such as convenient and appropriate services tailored to use scenarios through collaboration with mobile phones and various customer lifestyle support tools. We also provide handsets adapted for this extensive range of services and contents, offering a handset lineup that has been tailored to diversifying customer values and lifestyles.

 

As the Japanese mobile communication market makes a transition from growth to maturity, we are shifting from a strategy that emphasizes the acquisition of new subscribers to one that prioritizes our relationship with existing customers and are working to raise the brand loyalty of those customers and to secure a base for stable income. We are striving for further penetration of our new discount services and new handset purchase methods introduced in 2007. In addition, with the diversification of the sense of values and sophistication of the needs of our customers, in April 2008 we unveiled our new corporate brand and the “New DOCOMO Commitments,” which sets forth four commitments for reforming our company:

 

New DOCOMO Commitments

 

 

Going forward, we will continue to work to offer high-quality, value-added mobile services and technologies to each customer.

 

We also developed a new action plan, “DOCOMO’s Change and Challenge to Achieve New Growth,” which covers initiatives to be implemented between the year ended March 31, 2009 and the year ending March 31, 2013. With the changes carried out based on “the customer-focused perspective,” we will continue to take on such challenges to advance the roles of mobile phones, such as “personalization of services,” “development of social-support services,” and “provision of converged services.” By executing the “Change and Challenge” programs, we aim to contribute to society’s sustainable development and a safer, more secure environment for people to lead enriched, convenient lives.

 

In addition, we have taken measures to create new income opportunities by developing our international businesses such as expanding and enhancing international roaming services, developing international solutions for enterprise business, and reinforcing our overseas business through investments and alliances, mainly in the Asia-Pacific region.

 

We are putting particular effort into raising the quality of our networks to ensure that customers can use the services we provide comfortably and stably. We are expanding FOMA coverage areas and are working to achieve

100% population coverage by high-speed FOMA as soon as possible, provide a maximum download speed of 7.2 Mbps*, and facilitate access to a rich variety of content such as music and video.

 

We conduct cutting-edge research and development both in and outside of Japan in fields such as network, wireless and multimedia research. The DOCOMO R&D Center, established in Yokosuka Research Park to assist us in our W-CDMA development as well as the research and development of additional advanced technology, is striving to further expand mobile communication services and is engaging in the development of HSDPA, HSUPA, and LTE, as well as in fundamental research for 4G.

 

 

 

We offer wireless voice and data communication services on networks that are accessible by substantially the entire population in Japan. We offer a variety of services to support our subscribers’ needs for wireless voice and data communications. In addition to the cellular voice services, we are increasingly focusing on mobile multimedia services, such as i-mode. We are continuing to develop a lifestyle infrastructure for cellular phones and are enhancing services such as GPS and credit cards.

 

Our core business is our cellular services. For the year ended March 31, 2009, our cellular services, including associated equipment sales, accounted for approximately 98.5% of our consolidated operating revenues. We offer mova services, on our 2G network, compatible with voice and data communications. We also offer FOMA services, on our 3G network, with voice and high-speed data communications which are compatible with various services such as videophone and video content downloading.

 

In order to improve convenience for our subscribers and to expand usage and increase profits, we are providing various additional services and features.

 

• Cellular (mova) Services

 

Our 2G mova services are still offered on our nationwide 800 MHz digital network. However, given that mova subscriptions have been steadily decreasing, we have decided to eventually discontinue mova services on March 31, 2012 and concentrate on our popular 3G service, FOMA. (We ceased accepting new subscriptions on November 30, 2008.) Further, we have determined to terminate our cellular services using the 1.5 GHz radio band (City Phone services) on June 30, 2008.

 

• Cellular (FOMA) Services

 

FOMA services are our third generation, or 3G, wireless voice and data communication services. FOMA services use advanced technology which allows us to offer faster and higher quality services to our customers. As of March 31, 2009, subscriptions have become approximately 49.04 million. Moving toward the scheduled termination date of mova services in March 2012, we will promote further migration of our mova subscribers to FOMA services.

 

Our basic strategy is to expand our FOMA services. We believe that our FOMA services are well-suited for both ordinary users and business users because of FOMA’s advanced features, including clear voice quality, high data communication speed, video communication capabilities, and diversified billing plans for packet communication.

 

In August 2006, we launched our FOMA high speed services, which achieved a downlink transmission speed of up to 3.6Mbps*. In December 2008, we achieved 100% population coverage nationwide in the FOMA high-speed area with maximum downlink transmission speed of 7.2Mbps. Going forward, we will continue to enhance the FOMA high-speed areas, and build coverage areas that meet our customers’ expectations.

 

 

• i-mode Services

 

i-mode services are our wireless Internet access services based on a data transmission system that organizes data into bundles called packets prior to transmission. Our i-mode capable handsets allow subscribers to send and receive data through our i-mode server to and from the Internet in addition to providing them with the full range of cellular voice services. i-mode is an optional service available to mova and FOMA subscribers which allows users to send and receive e-mail, access online services such as banking services and airline and ticket reservations, access an array of information from i-mode servers and execute and settle retail transactions directly through their handsets. Almost all cellular handsets which we currently sell are i-mode compatible, thus allowing our customers to choose whether or not to subscribe to i-mode service.

 

As of March 31, 2009, the number of i-mode subscriptions had reached 48.47 million and the number of i-mode portal menu sites had reached 16,587 (FOMA only).

 

Services on i-mode

 

Typical services that may be accessed through an i-mode handset include:

 

 

In August 2006, we launched the “Music Channel,” a service that, requiring only advance settings by a user, automatically distributes music programming of up to an hour in length to FOMA users with HSDPA compatible handsets late at night and enables users to listen to the programming at any time during the day. In November 2007, the service also began offering distribution of video programs, and we changed the name of the service to the “Music & Video Channel.”

 

In January 2008, the number of subscribers to “i-channel,” a service for FOMA subscribers with i-mode services that automatically delivers and displays the latest information such as news, weather, entertainment, sports, horoscopes, and more, exceeded 15 million.

 

In June 2008, we launched the “POCKETU” service, which enables users to access or view videos, music, photos, and documents stored on the user’s home PC via mobile phone or smartphone. In August 2008, we began providing the “Net Kaden Plug-In” service as an expanded function, and are expecting expansion of video use in mobile environments such as viewing videos recorded on an HDD recorder from a mobile phone at a remote location. To ensure that customers can use these services with peace of mind, we are providing secure access such as through the use of VPN for connecting home PCs to our network to prevent unauthorized access by third parties.

 

The number of subscribers to the “i-concier” service, which was launched in November 2008 and which enables cellular handsets to act as a concierge by assisting customers in their daily lives, exceeded one million in April 2009.

Improvement of i-mode

 

In October 2006, we launched a search-by-keyword function for i-mode menu sites, to provide even greater convenience for i-mode customers. At the same time, partnering with non-i-mode sites, we also launched services enabling the search of non-i-mode menu sites using a customer’s preferred search engine. In January 2008, we formed a partnership with Google Inc. (“Google”) that includes providing search services, search-related advertisements, and applications for use by i-mode subscribers. We continue to endeavor to enhance search services and improve their convenience.

 

In April 2008, we overhauled “iMenu,” the i-mode portal site. Through this renewal, we redesigned the site for greater convenience and added search functions in collaboration with Google on the top screen for “iMenu,” available without charges for packet communication (charges apply for access from overseas), and began to provide news and weather information. Further, in January 2009, we launched a system that enables customers to select from six different themes for their i-mode screen depending on the customer’s preferences, thereby making i-mode even more convenient to use.

 

We plan to personalize services and features to match the lifestyles and needs of individual customers and to continue adding new and attractive i-mode services in the future.

 

To cope with the issue of unsolicited bulk e-mails sent to our i-mode users, we have taken a number of measures, including the following: we have enabled users to block all e-mail sent to them from particular addresses, blocked e-mails sent to large numbers of invalid e-mail addresses, enabled users to restrict incoming e-mail to user-designated domains, restrict incoming emails from senders who send emails to a large number of addresses, and SMS rejection functions. Also in November 2007, in addition to the existing lineup of spam countermeasures, we began offering anti-spoof functions — a function for refusing e-mail having fraudulent sender information and a “domain designation and refusal” function that enables users to refuse to receive e-mail containing designated domain names in the sender address — and because in the wake of the variety of anti-spam functions being offered, the settings required to enable these functions had become complicated and numerous, we began providing a simplified e-mail settings function to facilitate their use, by beginners and children in particular. In January 2008, because there were cases where users using anti-spam functions were, because of their settings, unable to receive e-mails from mailing lists and forwarded e-mails, we began providing an “addressee-designated” function enabling reception of such e-mails. By making it easier for customers to implement various anti-spam settings, such as changing the configuration of the settings screen, we are striving for further convenience.

 

With respect to access restriction services (filtering services)*, we comply with certification standards of third party organizations (EMA) to the “i-mode Filters.” We also began providing the “Web Blocking” service that restricts access to web sites and “Access Restriction Customization” that allows customers to make individual settings of web sites to be blocked and those that can be viewed according to their own preferences. We also modified the “i-mode Filters” service and confirmed with all current i-mode subscribers under 18 years of age who had not yet signed up for “Access Restriction” services whether they wished to use “Access Restriction” services, and unless their parents or guardians specifically reported that the services were unnecessary, “i-mode Filters” were applied to such subscribers automatically. Following the implementation of the “Act on Establishment of Enhanced Environment for Youth’s Safe and Secure Internet Use” on April 1, 2009, we began strongly encouraging the use of access restriction services when customers sign up for i-mode services and are working towards promotion of the services.

 

 

• Other Mobile Multimedia Services

 

We have focused extensively on our initiative to develop the mobile multimedia and data communication markets. As part of these efforts, we have been offering a wide variety of data services such as packet communication at a speed up to 28.8 Kbps for i-mode and DoPa services, 64K data service on the PHS platform and data communication at a speed up to 384 Kbps on FOMA and 7.2 Mbps on FOMA HIGH-

SPEED. Our client authentication service ensures a highly secure individual authentication to suit a variety of users of the mobile Internet.

 

As part of our endeavor to promote mobile multimedia services, we began sales of the DoPa Ubiquitous Module in July 2004 and the FOMA Ubiquitous Module in December 2005 to address the increase in machine-to-machine services. We expect that incorporation of these modules will lead to a broad range of uses such as automobile fleet management, wireless credit card transaction systems, and systems enabling automatic inventory checks between vending machines and service centers. These modules contribute to our strategy of broadening the scope of mobile communication. Ubiquitous Modules are used mainly in person-to-machine and machine-to-machine communications. We offer a ubiquitous plan for FOMA services and DoPa services for PDC, and we offer low-rate services for users with low-traffic needs. As of March 31, 2009, there were 670,000 subscriptions to DoPa services and 860,000 subscriptions to the ubiquitous plan. Also, in order to focus management resources on FOMA services (our 3G communication services), we ceased accepting new subscriptions for DoPa single packet services for 2G communication services in September 2008. We have determined to terminate DoPa services in March 2012.

 

We provide “Business mopera Access Series” services to corporate customers, to enable them to link to office information systems outside the workplace. “Business mopera Access Pro” provides extremely high-security access to corporate LANs from remote terminals such as notebook PCs and PDAs via closed networks. This service makes it possible under a contract for a single dedicated line to provide access to office information systems through wireless networks such as FOMA, mova, DoPa, i-mode and Wide Star (satellite packet communication only).

 

We provide the “mopera U” service, which enables FOMA customers to access the Internet from public wireless LAN service areas, overseas (using international roaming connections) and fixed-line broadband circuits at home. The “mopera U” service provides users with diversified access options and strives to enhance security features such as web compression, packet filtering, and transmission domain authentication to prevent spam mails.

 

In August 2006, we launched the “Business mopera Anshin Manager” service for remotely setting and controlling mobile phones and expanded the Business mopera network lineup of network services for corporate customers. We added a browser use restriction function and simultaneous transmission function in January 2007, expanded the number of browser restricted URLs in September 2007, added subgroup settings and common manager settings in March 2008, and added remote initialization and remote customization functions in November 2008.

 

We started offering the “HOMEU” service in June 2008. This service is the first service in Japan to use household broadband lines and wireless LAN routers to enable high-speed packet communication at a maximum uplink and downlink speed of 54 Mbps as well as IP telephony using the FOMA/wireless LAN dual function N906iL handset. We also launched the FMC service, “One Number (HOMEU)” in October 2008. This service allows users to use a single phone number (090 or 080 number) when making and receiving calls in FOMA and “HOMEU” service areas. Using a single number for FOMA and IP phones decreases missed calls, increasing the frequency with which calls reach the recipient and otherwise improving communication efficiency. In June 2009, we revised our monthly charges, to provide the service at a monthly charge of ¥490 (including tax), which is less than half the previous monthly charges of ¥1,029 (including tax). We believe this revision makes the service even more customer-friendly.

 

In October 2006, we launched the “OFFICEED,” an internal communication service for corporate customers that uses an In-building Mobile Communications System (“IMCS”) to provide free voice communication among registered FOMA handsets within the IMCS service area. With this service, by installing an IMCS and additional dedicated equipment, customers can use their existing FOMA handsets for free voice communication among registered members within the IMCS service area. The service makes use of an IMCS and existing FOMA handsets to reduce communication expenses. In May 2007, as part of the “OFFICEED” service menu, we launched the “OFFICEED-PBX Connection Service,” which achieves communication between FOMA handsets and internal telephone lines by connecting “OFFICEED” and the PBX, enabling FOMA handsets to serve as cordless internal telephones.

 

In November 2006, we also launched the “Business mopera IP Centrex” service. This service for corporate customers enables users to make internal or outbound IP telephony calls via IP Centrex devices on DOCOMO

networks without the need for an in-house IP-PBX. The FOMA and wireless LAN compatible handsets, such as N900iL and N902i and N906iL, can be used as an extension phone for internal calls, as an IP phone (with a 050 number) for external calls, and as a FOMA-compatible mobile phone (with a 090 number) when outside the office, allowing users to access a number of different communication services from a single handset. Business customers that introduce this service will not incur expenses for installation, operation, and maintenance of PBX and other equipment and can lower their communication expenses by using low-cost IP telephony voice networks and eliminating fees for internal calls, including calls made between different offices. In April 2007, we began providing new plans and expanded functions, including soft phone and fixed IP phone compatibility.

 

In addition, in June 2008, we launched “IP Centrex One Number,” a Fixed Mobile Convergence (“FMC”) service which enables users to make and receive calls with a single number (090 or 080) in both FOMA and Office areas (IP Centrex area).

 

We offer a public wireless LAN service called “Mzone,” and started “U ‘Public Wireless LAN’ Course” as an optional service of “mopera U.” Customers in Mzone areas (DOCOMO Public Wireless areas) such as airports and train stations are able to send and receive data at high speed of up to 54Mbps using notebook PCs with wi-fi, smartphones, PDAs, or cellular game devices. In October 2007, the monthly fee for the “U ‘Public Wireless LAN’ Course” was lowered to ¥315 yen. There were approximately 6,700 access points as of March 31, 2009, and we plan to further expand the coverage in the future according to the needs of our customers. Furthermore, we currently offer roaming service domestically through “BB Mobile Point” and “Airport Net” (Narita Airport), and internationally through arrangements with iPass, TeliaSonera, SingTel and Deutsche Telekom. Through these endeavors, we are aiming to provide enhanced convenience to customers by enabling public wireless LAN service over a broad area both in Japan and overseas.

 

• Cellular Subscribers

 

The number of our subscriptions including mova and FOMA services has grown by approximately 1,210,000 in the most recent fiscal year to approximately 54.60 million as of March 31, 2009, which represents a market share of 50.8%, a 1.2 point decrease from March 31, 2008. We believe that our cellular subscriber growth has been attributable primarily to (i) nationwide growth and popularity of cellular services, (ii) marketing from the customers’ perspectives, (iii) enhanced customer service, (iv) significant declines in tariffs and our competitive pricing, (v) our reputation for quality products and services and (vi) the introduction of new, value-added cellular services such as i-mode. As a result, the number of FOMA subscriptions increased and was approximately 49.04 million as March 31, 2009.

 

Subscription growth for i-mode services in the four years ended March 31, 2009 was approximately 4.45 million. The DOCOMO cellular subscription numbers, including i-mode subscription numbers, for the years ended March 31, 2006, 2007, 2008 and 2009 are as follows:

 

 

 

 

 

 

• 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 the coastline. Currently the satellite mobile communication network uses two communication satellites, N-STARc and N-STARd. Satellite mobile communication services can be used for voice, fax, and packet communication. We had approximately 41,000 subscriptions to the services as of March 31, 2009. The services can be used for high-speed packet communication (maximum 64 Kbps downlink and 4.8 Kbps uplink) and a variety of communication services are offered including Internet connectivity and telemetering.

 

We have determined to discontinue current satellite packet communication services on March 31, 2012. Further, we are developing the next-generation satellite mobile communication services, with packet communication at the maximum speed of 384 Kbps downlink, and plan to launch the services in the first half of 2010.

 

• PHS Services

 

Our PHS (Personal Handyphone System) services were wireless voice and data communication services similar to our cellular services but offered using different technology and a different network. PHS was originally introduced by the NTT Personal Group in July 1995. We took over the PHS business from the NTT Personal Group in December 1998. Since that time, we implemented a variety of strategies to improve the performance of our PHS business. However, with the subsequent popularity of inexpensive ADSL and optical fiber fixed-line flat rate data communication services, the introduction of packet flat-rate services using mobile phones, and the increasingly fast data transfer rates, the business environment changed rapidly, and on April 30, 2005, we stopped accepting new subscriptions to PHS services, and we terminated PHS services on January 7, 2008.

 

As of March 31, 1996, the NTT Personal Group had approximately 0.38 million subscriptions. Initially, with the rapid expansion of service areas and the introduction of inexpensive handsets and billing rates, the number of NTT Personal Group PHS subscriptions reached approximately 2.12 million in September 1997. From there, PHS subscriptions continued to decline. PHS subscriptions increased to approximately 1.92 million as of March 31, 2002, but fell to approximately 0.45 million as of March 31, 2007. As of December 2007, the number of PHS subscriptions was 0.155 million.

 

 

• Revenues and Tariffs for Cellular Services

 

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

 

Over the past few years, as the competition for acquiring subscribers has increased, tariff rates and monthly charges have been significantly reduced and certain other fees have been eliminated entirely. Currently, our cellular subscribers pay (i) an activation fee of ¥3,000, (ii) a fixed monthly plan charge based upon the “plan” chosen,

(iii) usage or per call charges which vary according to duration and the particular plan chosen and (iv) additional monthly service fees for miscellaneous value-added services, etc.

 

One of our basic strategies has been to focus on offering subscribers simple and easy-to-understand rate plans and discount services tailored to their usage patterns. As a result, we offer a variety of different monthly plans targeted at different segments of the market. These plans include basic usage plans for ordinary usage and heavy usage plans. In addition, almost all plans include a certain amount of free minutes per month for fixed rates. The amount of free minutes can be applied to FOMA and mova subscribers with the “Two-Month CarryOver” service, which allows automatic carryovers of up to two months, and can be credited against telephone calls, packet communication, “Push Talk (FOMA),” video phone (FOMA), SMS (FOMA), short mail (mova), and international communications. Additionally, we offer various discount services, including discounts for families, long-term subscriber discounts and heavy-volume user discounts. The amount of free minutes will not change even after the discounts are applied to monthly charges.

 

In November 2007, in conjunction with the introduction of the new “Value Course” handset purchase method, we began offering the new “Value Plan,” which applies to subscribers who have chosen the “Value Course.” Under this plan, when a subscriber purchases a 905i series handset or any later model, that subscriber will be eligible to select the less expensive “Value Plan” (excluding a partial plan), under which basic monthly charges (prior to application of other discounts) will be ¥1,680 lower (including tax) than standard plans. In March 2009, the number of subscribers of the “Value Plan” exceeded 20 million.

 

For families that have subscriptions between two and ten lines, we offer the “Family Discount” service, which provides discounts both on basic monthly charges and on charges for communications between family members. In August 2007, we began offering “Fami-wari MAX 50,” which also offers subscribers committing to a two-year contract an immediate 50% discount on basic monthly charges. In addition, in April 2008, for FOMA subscribers who have contracted for the “Fami-wari MAX 50” service, communications among members of the same “Family Discount” group, which had been subject to a 30% discount, became free of charge, and the 30% discount for intra-group videophone communication was increased to a 60% discount. Also, not only are customers able to use i-mode mail for free (with some exceptions) within the same group under the “Family Discount” but also they can share unused free minutes under the “Two-Month CarryOver” service within the same group. Further, in May 2009, in order to make the service even more appealing, we expanded the coverage of free mail, for example, by adopting packet communication charges to download large images and videos from group members for free.

 

In August 2007, we also launched “Hitoridemo Discount 50,” a discount service for subscribers who do not use the “Family Discount” but have a single subscription. With this service, subscribers committing to a two-year contract will immediately receive a 50% discount on basic monthly charges.

 

In June 2007, for our corporate customers, we began offering the “Office Discount” service. Corporate customers which have between two and 10 DOCOMO mobile phone subscriptions under the same corporate name are eligible for a 25% discount on basic monthly charges and a 30% discount on intra-group communication charges. Also, not only are customers able to use i-mode mail for free (with some exceptions) within the same group under the “Office Discount” but also they can share unused free minutes under the “Two-Month CarryOver” service within the same group. In September 2007, for subscribers contracting under a corporate name who commit to a two-year subscription, we began offering a new discount service called “Office-wari MAX50,” which offers an immediate and uniform 50% discount on basic monthly charges.

 

In June 2008, we expanded discounts for corporate customers subscribing to FOMA services with the “Office Discount” and “Office-wari MAX 50” services. Under the expanded discounts, domestic calls among “Office Discount” group employees are free (formerly discounted by 30%), 24 hours a day, and videophone communication charges are discounted by 60% (formerly discounted by 30%). Further, in May 2009, in order to make the service even more appealing, we expanded the coverage of free mail, for example, by adopting packet communication charges to download large images and videos from group members for free.

 

In June 2008, in order to make mobile phone more customer-friendly and help the disabled be more active participants in society, we revised the “Hearty Discount” rate to provide discounts of 50% to 60% on basic monthly charges and other charges.

We believe that our variety of easy-to-understand plans, prices and discounts has helped us remain competitive in retaining existing subscribers and attracting new subscribers. Going forward, we will continue to provide simple and easy-to-understand fee structures for customers.

 

• i-mode Revenues and Fees

 

i-mode users are charged according to the volume of data they transmit and not for the length of time they are online or the distance over which the data are transmitted. The use of i-mode incurs a fee in addition to the standard monthly charges of voice services for FOMA and mova. With regards to charges for the additional i-mode functions, so that subscribers can more easily use their mobile phones to connect to the Internet, we have provided Internet connection services at monthly charges that are lower than those of other mobile network operators. However, the cost of providing services has increased because of the improved convenience resulting from the enhanced web pages (viewable for free) that introduce new services and content and explain pricing plans, anti-spam measures and other enhanced functionality to enable peace of mind and safety, and facility enhancement to address the increase in data communication traffic in the wake of the popularity of services that distribute video, music and other large files. In such an environment, we have made an effort to achieve greater efficiency and reduced costs, but to be able to provide even more superior i-mode services going forward, starting in June 2008, we raised the basic monthly charges for i-mode services from ¥210 (including tax) to ¥315 (including tax). The i-mode packet communication charge for FOMA users varies according to the packet billing plan selected by the user, but is priced between ¥0.015 and ¥0.2 per packet (128 bytes). The basic communication charge for mova users is equal to ¥0.3 per packet (128 bytes). When FOMA users use the i-mode mail without any packet discount service, a short e-mail of about 20 full characters can be sent for almost as little as ¥3 and a longer e-mail of 250 full characters would be approximately ¥5. Also, for Java-related services, users are charged according to the size of the application to download various applications such as games, stock charts, maps and cartoons.

 

In addition to communication charges, there are also information charges payable to content providers when subscribers use certain i-mode sites. For example, access to the Nikkei Money & Sports service and CNN, which provides world news, each costs ¥315 (including tax) per month. We bill subscribers for content provider fees together with communication charges, and receive from the providers a commission of the information charges for our billing and collection services.

 

In order for customers to use the service without worrying about the monthly charges, and to provide new value and expand the usage of i-mode, since June 2004 we have been providing a packet flat-rate service called “Pake-hodai,” which offers unlimited access to i-mode Internet service and i-mode mail for a flat monthly charge of ¥4,095 (including tax), for users of our FOMA i-mode service. By introducing this plan, we added value for our users and expanded use of miscellaneous i-mode contents by freeing customers from concerns about their monthly bill. The charges for packet communication other than i-mode communication in Japan (such as browsing the web via devices connected to a 3G handset) on the “Pake-hodai” service have been set at ¥0.02 per packet.

 

In March 2007, we launched a new packet flat-rate service called “Pake-hodai full,” which provides FOMA i-mode subscribers with, in addition to i-mode services, full-browser viewing of PC websites and videos for a flat monthly fee. In May 2007, subscribers to packet flat-rate services (“Pake-hodai” and “Pake-hodai full”) exceeded 10 million. In April 2007, for smartphone users, we also launched “Biz-hodai,” a packet flat-rate service for smartphones.

 

In October 2008, to enable customers to use packet communication services with ease and peace of mind, we introduced the new “Pake-hodai double” and “Biz-hodai double” flat-rate services that feature variable monthly fees based on usage volume. “Pake-hodai double” is an unlimited domestic i-mode communication service with fees starting at ¥1,029 per month (including tax) and a maximum monthly fee of ¥4,410 (including tax). “Biz-hodai double” is a flat-rate service for domestic unlimited non-i-mode packet communication (excluding PC communication) for smartphones with fees starting at ¥1,029 per month (including tax) and a maximum monthly fee of ¥5,985 (including tax). Packet communication using BlackBerry^® handsets were made eligible for the “Biz-hodai” and “Biz-hodai double” services in February 2009.

 

With the introduction of these flat-rate services, we stopped accepting new subscriptions for the “Pake-hodai,” “Pake-hodai full” and “Biz-hodai” services in December 2008. In April 2009, we revised the “Pake-hodai double”

and made packet communication using a connection between a PC and a mobile phone via USB cable, etc. eligible for flat rates under “Pake-hodai double” with a maximum monthly fee of ¥13,650 (including tax). Further, in May 2009, we revised the monthly fees for “Pake-hodai double” and “Biz-hodai double” so that the minimum monthly fee is now ¥490 (including tax). As a result, even customers who rarely use packet communication will be able to use “Pake-hodai double” and “Biz-hodai double” with peace of mind, and the only discount service for data communication especially for i-mode usage is “Pake-hodai double.” We believe the revisions have brought a simpler rate structure for customers.

 

Note:
BlackBerry is a registered trademark of Research In Motion Limited.

 

• Fees for Data Transmission Services

 

In June 2005, we established new rate plans, communication charge reductions and expanded available free minutes primarily for customers who used exclusive devices for FOMA data communication. In October 2007, so that our subscribers could engage in mobile data communication without worrying about over communication charges, we introduced two flat-rate plans, “Flat-rate Data Plan 64K” and “Flat-rate Data Plan HIGH-SPEED.” “Flat-rate Data Plan HIGH-SPEED” is a plan offered at monthly charges starting at ¥4,200 (including tax) and going up to ¥10,500 (including tax), which provides unlimited domestic mobile data communication. “Flat-rate Data Plan HIGH-SPEED” is capable of data communication at a speed of up to 7.2Mbps for downlink, and provides a better environment for mobile data communication.

 

In addition, in March 2008, we began applying new handset purchase method “Value Course” to exclusive devices for FOMA data communication, and offering a new rate plan “Value Plan” for use with the “Value Course.” Under this purchase method, when a subscriber purchases a FOMA N2502 HIGH-SPEED, exclusive FOMA data communication handset, or later model, that subscriber will be eligible to select the “Value Plan,” under which basic monthly charges (prior to application of other discounts) will be ¥735 lower (including tax) than in standard data plans. In September 2008, for subscribers of “Flat-rate Data Plan HIGH-SPEED” and “Flat-rate Data Plan 64K,” we launched the “Flat-rate Data Discount” service which allows subscribers who commit to a two-year contract to receive a discount of up to ¥3,780 on basic monthly charges. Further, starting in July 2009, we plan to offer a new plan called “Flat-rate Data Plan Standard” and a discount service “Flat-rate Data Standard Discount.” When the “Value Plan” is applied, customers will be able to use these plans at monthly charges that start at ¥1,000 (including tax). With such plans and services, we believe we have achieved a customer-friendly rate structure for mobile data communication, as well as rates for our cellular phone services and i-mode services.

 

• Cellular Phone Service Usage

 

We track subscriber usage of our cellular services with two measures, MOU and average monthly revenue per unit (ARPU). MOU measures the average amount of connection time per month per unit among our subscribers. ARPU is used to measure average monthly operating revenues attributable to designated services on a per unit basis. ARPU is calculated by dividing various revenue items included in operating revenues from our wireless services, such as monthly charges, voice communication charges and packet communication charges from designated services that are charged consistently each month, by the number of active subscriptions to the relevant services. Accordingly, the calculation of ARPU excludes revenues that are not representative of monthly average usage such as activation fees. We believe that our ARPU figures provide useful information to analyze the trend of monthly average usage of our subscribers over time and the impacts of changes in our billing arrangements. Additional discussions of MOU and ARPU are included in Item 5.A. of this annual report.

 

MOU (FOMA+mova) decreased to 137 minutes per month for the year ended March 31, 2009 from 138 minutes in the prior fiscal year. ARPU (FOMA+mova) decreased to ¥5,710 in the year ended March 31, 2009 from ¥6,360 in the prior fiscal year.

 

Aggregate ARPU (FOMA + mova) continues to decline moderately because of rate reductions and shifts in usage. During the period from the beginning of the year ended March 31, 2008 to the end of the year ended March 31, 2009, voice ARPU declined while data ARPU increased slightly. The reasons for the decline in voice ARPU include rate reductions (expansion of basic charge discounts as a result of expansion of family discounts, the

introduction of new handset purchase methods, and the expansion of “Long-Term Subscriber Discount”) and changes in customer usage patterns (declining MOU and optimization of rate plans). Meanwhile, usage of data services such as i-mode is increasing, and the data ARPU is increasing steadily.

 

The following tables set forth selected information concerning MOU and ARPU data for our cellular services in three categories, (FOMA + mova), (FOMA) and (mova):

 

MOU and APRU (FOMA + mova)

 

 

 

Aggregate ARPU (FOMA+mova): Voice ARPU (FOMA+mova) + Packet ARPU (FOMA+mova)

 

Voice ARPU (FOMA+mova): Voice ARPU (FOMA+mova) Related Revenues (basic monthly usage charges, voice communication charges)/No. of active cellular phone subscriptions (FOMA+mova)

Packet ARPU (FOMA+mova): {Packet ARPU (FOMA) Related Revenues (basic monthly usage charges, packet communication charges) + i-mode ARPU (mova) Related Revenues (basic monthly usage charges, packet communication charges)}/No. of active cellular phone subscriptions (FOMA+mova)

 

i-mode ARPU (FOMA+mova)⁽²⁾: i-mode ARPU (FOMA+mova) Related Revenues (basic monthly usage charges, packet communication charges)/No. of active cellular phone subscriptions (FOMA+mova)

 

No. of active subscriptions used in ARPU/MOU calculations is as follows:

FY Results: Sum of No. of active subscriptions* for each month from April to March

 

 

MOU and ARPU (FOMA)

 

 

 

Aggregate ARPU (FOMA): Voice ARPU (FOMA) + Packet ARPU (FOMA)

 

Voice ARPU (FOMA): Voice ARPU (FOMA) Related Revenues (basic monthly usage charges, voice communication charges)/No. of active cellular phone subscriptions (FOMA)

 

Packet ARPU (FOMA): Packet ARPU (FOMA) Related Revenues (basic monthly usage charges, packet communication charges)/No. of active cellular phone subscriptions (FOMA)

 

i-mode ARPU (FOMA)⁽²⁾: i-mode ARPU (FOMA) Related Revenues (basic monthly usage charges, packet communication charges)/No. of active cellular phone subscriptions (FOMA)

No. of active subscriptions used in ARPU/MOU calculations is as follows:

FY Results: Sum of No. of active subscriptions* for each month from April to March

 

 

MOU and ARPU (mova)

 

 

 

Aggregate ARPU (mova): Voice ARPU (mova) + i-mode ARPU (mova)

 

Voice ARPU (mova): Voice ARPU (mova) Related Revenues (basic monthly usage charges, voice communication charges)/No. of active cellular phone subscriptions (mova)

 

i-mode ARPU (mova)⁽²⁾: i-mode ARPU (mova) Related Revenues (basic monthly usage charges, communication charges)/No. of active cellular phone subscriptions (mova)

 

No. of active subscriptions used in ARPU/MOU calculations is as follows:

FY Results: Sum of No. of active subscriptions* for each month from April to March

 

 

 

 

• Billing and Collection

 

We bill each of our subscribers on a monthly basis and subscribers may pay their bills by automatic withdrawal from a bank or other financial institution account, by credit card, or in person at any number of locations such as docomo Shops or convenience stores. As of March 31, 2008, approximately 75% of subscribers paid by financial institution account transfer or by credit card, and by March 31, 2009 this rate had risen to a very high level of approximately 83%. This is because when subscribers purchase a mobile phone handset, select the “Value Course,” and pay for the handset in installments, payment options for the handset and monthly use fees have been limited to the account withdrawal or credit-card payment since July 2008. In addition, in July 2008, we introduced a system, which allows applications for these payment methods to be registered online, to mass merchandisers and general distributors to increase convenience of customers. We also provide the “e-billing” service that sends the bills to customers using electronic media instead of paper invoices, which contributes to the environmental preservation.

 

As of March 31, 2009, the rate of collection for issued bills within 60 days from the payment due date was 99%. To limit the ratio of nonperforming receivables, we closely monitor subscribers with large outstanding amounts or in arrears, and if use fees exceed a certain level within a billing cycle, we send the subscribers frequent notices or take measures for earlier billing. Further, we suspend the services to subscribers who do not pay within 20 to 30 days after the initial due date and also cancel the contracts of customers who do not pay within 60 days.

 

• Sales Strategy

 

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, 2009, nationwide there were 2,363 docomo Shops, which are specialized stores for which we have approved the use of the DOCOMO’s logo and other trademarks and service marks belonging to us, as well as the use of store exteriors and displays that provide immediate recognition as shops for DOCOMO. These docomo Shops are mainly operated by third party distributors who have no equity relationship with DOCOMO. 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, 2009, the number of such shops was 8,449 (excluding docomo Shops).

 

One of the major advantages of our large sales network is that it makes it easy for customers to subscribe to our services and purchase products, such as FOMA handsets. As the mobile communication market matures, it is becoming more important to acquire and retain customers. To continue acquiring and retaining subscribers, we are engaged in the following sales and marketing strategies: (1) comprehensive brand enhancement from a customer-oriented perspective; (2) improvement of customer retention programs; (3) continuous expansion of service areas and improvement of network quality; (4) increase in traffic by promoting the use of services such as i-mode services; (5) improvement of the quality of our after-sales services; (6) provision of competitive tariffs; and (7) enhancement of handset lineups.

 

In order to enhance our business activities based on customer needs, we formed Corporate Branding Division in August 2007 as an entity directly under the direct supervision of our president. Outside marketing experts were invited to participate in the Division, which directed its efforts towards brand marketing unbound by conventional values. In addition to seeking to further strengthen marketing functions, we also reviewed the role of the corporate brand in the light of the changing market environment. This led to the renewal of the DOCOMO brand and declaration of the “New DOCOMO Commitments,” which express a vision of changing our company in April 2008. Under these Commitments, we have thoroughly pursued our customer-based principles and provide each and every customer with the best service along with safety and security in order to transform ourselves to a corporation that exceeds expectations. The functions discussed above are succeeded by Strategic Marketing Department formed by structural reorganization in July 2008.

 

Moreover, we have employed a new brand statement and a new brand slogan, “Unlimited Potential, in Your Hand,” in an effort to enhance satisfaction of each and every customer and create deeper ties to bring customers continued enjoyment and satisfaction by using DOCOMO products and services. We also selected a new corporate brand logo and corporate color, “DOCOMO red,” which we have been using since July 2008.

 

In November 2007, we started offering new handset purchase methods. Under these purchase methods, customers can choose the “Value Course” or the “Basic Course” based on their needs. The “Value Course” offers lower basic monthly charges than in conventional model and instead customers pay the initial handset purchase costs on their own. The “Basic Course,” which is similar to the conventional model in that initial costs are reduced by our sales incentives to distributors, offers basic monthly charges unchanged from conventional basic monthly charges and lower initial handset purchase costs, as we pay a portion of (give a discount on) handset purchases in exchange for two-year contracts.

 

Customers who purchased handsets with “Value Course” will receive lower basic monthly charges even after they finish the payment of handsets, so the longer customers use the same handsets, the more they can cut the spending. Under the “Value Course,” customers can choose from either 12- or 24-month installments, in addition to a lump-sum payment.

 

Previously in Japan, mobile handsets were sold with sales incentives to reduce initial costs and make them more affordable for customers. We agree that this sales model contributed significantly to the growth of the mobile phone market, but nowadays that the market has matured, issues as feelings of unfairness and the lack of transparency had been emerging, we considered that, in part to solve these problems, it was necessary to introduce a sales model suitable for current situation of Japan’s maturing mobile phone market.

We feel strongly that the combined elements of our sales network, extensive advertising activities, strong branding power, network quality, competitive billing plans, and after-sales services will enable us to continue acquiring and retaining subscribers.

 

• Customer Support

 

With Japan’s mobile communication market transitioning to a mature phase, we have shifted from a strategy focusing on acquiring new subscriptions to one concentrating on the relationships with existing customers, and have strived to achieve high customer satisfaction. We consider customer support, including services and after-sales services providing to subscribers, to be extremely critical in retaining subscribers and maintaining the high reputation and recognition of the DOCOMO brand. We provide fruitful services to our customers from the time a subscription is made or a handset is purchased at a docomo Shop or at other sales channels, and such services are supported by our fully integrated information system. In addition, our Internet site, accessible via mobile phones and personal computers, etc., allows customers to change their services, billing plans and addresses, as well as shop for mobile handsets and accessories 24 hours a day.

 

Our after-sales services are provided mainly through docomo Shops. All docomo Shops can deal with repairs. A toll-free number is available for inquiries on such matters as basic service contents and billing plans. In addition, we have a 24-hour framework for responding to handset and network problems, including stolen or lost handsets.

 

To enhance the quality of after-sales services for existing subscribers, when our sales distributors provide certain after-sales services, including handset exchanges, billing plan changes, and diagnosis/repair work on products such as handsets, payments suitable for the services performed are paid to the distributors.

 

Further, in July 2009, we will begin offering at all docomo Shops the “keitai tenken” service, a check-up service for handsets designed to ensure that customers can use their mobile phones — which have become an indispensible tool in their daily lives — with peace of mind and without trouble. With the “keitai tenken” service, to ensure that customers’ handsets are kept in the best possible condition, an expert staff will check handset functions, give advice, carry out minor repairs, and so that customers can continue to use their handsets more comfortably.

 

Further, in an effort to increase the number of users in customer segments where penetration rate is low, we have provided consultation for customers by holding seminars regularly to promote the understanding of how to use mobile phones.

 

As part of our efforts to provide enhanced customer services, we offer a membership program called “docomo Premier Club,” This program consists of the rewarding program, complimentary services and after-sales services; depending on their monthly mobile phone usage, subscribers earn points, which can be exchanged for discounts on purchasing handsets, or for travel certificates, restaurant certificates or tickets. Customers are classified into four stages based on their usage during the previous year and years of continuous subscription, and the point-earning percentage increases with each stage level. All members of the Club are entitled to the following services: free repair services for three years from handset purchase; the “Battery Pack Anshin Support,” which offers markdowns on battery packs to customers who have used the same FOMA handsets for at least one year (the service will be expanded in July 2009 to give customers an option to choose a charger adapter in addition to the conventional battery pack); the “Repair Fee Anshin Support.” which caps repair charges for non-insured phones at ¥5,250 (including tax); the “Premier Club Replacement Support,” which provides support in case of undesirable incidents (water exposure, theft, loss, etc.) within one year of handset purchase; the “Delivery Service for Repaired Mobile Phones,” which ships repaired handsets free of charge to customers who do not use replacement phones when their FOMA handsets are being repaired (the service was renewed as “Receive Anywhere Service for Repaired Mobile Phones” in June 2009, so customers are able to choose any docomo Shop or address to receive their repaired handsets); and the “Keitai-Osagashi Service,” which confirms the approximate locations of phones at no cost. Moreover, FOMA customers may apply the “Mobile Phone Protection & Delivery Service,” which for a monthly premium of ¥315 (including tax) protects phones against all problems, including water exposure, loss and damage beyond repair, and then the shipping of replacement handsets. Further, Club members are entitled to other complimentary services from hotels, shops, restaurants, and other sponsor companies. In addition, after October 2007, complimentary services provided by partner companies were expanded to include popular overseas travel destinations (Guam, Saipan, South Korea, Hawaii, and Beijing/Shanghai). Customers in the Premier Stage are also

entitled to the following perks: services that give free battery packs (after July 2009, we will give customers an option to choose a charger adapter in addition to the conventional battery pack) to customers who have used the same FOMA handsets for more than one year; participation in “Minna no docomo Kenkyushitsu,” where customers can take part in studies on near-future services; and the benefit of being able to redeem their points for the “DCMX (iD) coupons.”

 

Further, to promptly respond to opinions for area quality, we offer a service, if requested, by which we perform area quality surveys generally within 48 hours after service staff contact a customer. We also introduced the “Water Exposed Keitai Data Recovery Service,” by which in the case that data such as phonebooks is successfully retrieved from handsets that do not turn on after being subject to accidental water exposure, we copy the data onto CD-Rs and then gave them to customers.

 

 

We offer a wide range of handsets to our subscribers. Manufacturers of our handsets have met our strict quality standards. We also offer a one-year warranty period for all handsets and provide free repairs during this period, except for cases when customers are at fault. Further, software can be updated thorough our network, to enhance customer convenience and operational efficiency.

 

• Mobile Phone Handsets (FOMA)

 

We had previously offered a lineup that included the 9 series, which came equipped with the latest functions, the 7 series, which focused on key functions, and concept models, which featured unique characteristics, but so that customers can choose according to their values and lifestyles, our handset lineup was renewed in November 2008 to the “docomo STYLE series,” “docomo PRIME series,” “docomo SMART series,” “docomo PRO series,” as well as the “Raku-Raku PHONE series.”

 

docomo STYLE series

 

Starting in November 2008, docomo STYLE series handsets were released in models such as “N-02A” and “SH-02A.” The series was developed under the concept of “distinctive mobile phones, designed like accessories and offered in a wide variety of fashionable designs and colors for individuals who want to project the latest ‘look’.”

 

docomo PRIME series

 

Beginning in November 2008, docomo PRIME series handsets were released in models such as “F-01A” and “P-01A.” The concept for the series is “full-feature mobile phones for the maximum enjoyment of video, games and other entertainment by people who love to explore the latest multimedia.” The series features a number of entertainment functions, including videos and games, and lets users fully enjoy the latest mobile entertainment.

 

docomo SMART series

 

Starting in January 2009, docomo SMART series handsets were released in models such as “N-04A” and “F-04A.” The series was developed under the concept of “sophisticated mobile phones for busy people who want to live productively and enhance the management of their professional and private lives.” The series is designed for those who want to successfully balance work and private life. The phones are equipped with useful business tools and feature elegant designs.

 

docomo PRO series

 

Beginning in November 2008, docomo PRO series handsets were released in models such as “SH-04A.” The series was developed under the concept of “the most advanced high-spec mobile phones for those who love cutting-edge digital tools and can’t get enough of the newest, hottest technology.” The series allows customers to use mobile phones comfortably as cutting-edge digital tools with their own specifications by resemblance to personal computers in terms of operations.

In November 2008, we released the smartphone “HT-01A,” equipped with a touch screen and QWERTY keyboard for easy Internet navigation. In December 2008, we released the smartphone “HT-02A,” equipped with a touch screen for easy operation and featuring a slim design palm-size. In February 2009, we released the “BlackBerry^® Bold^tm,” a high-spec smartphone used throughout the world.

 

Raku-Raku PHONE series

 

The series was developed under the concepts of “user-friendliness,” “easy to use,” “easy to see,” and “peace of mind.”

 

In April 2007, we started selling “Raku-Raku PHONE Basic,” which is a result of our extensive pursuit of beauty in design and easy use of the “calling,” “e-mail” and “i-mode” functions, which are the fundamental functions of mobile phones. In August 2007, we released “Raku-Raku PHONE IV,” the first Raku-Raku PHONE model with the GPS capability and stepped-up calling functions focusing on “audibility” and “ease of talking.” In April 2008, we released “Raku-Raku PHONE PREMIUM” which succeeded the universal design developed for the Raku-Raku PHONE series and improved functions such as “Osaifu-Keitai,” which are preinstalled dedicated applications friendly even to first-time users; “One-Seg,” which can be easily activated by simply swinging the screen to the right; and compatibility with “WORLD WING (3G+GSM).” “Raku-Raku PHONE PREMIUM” also features a user-friendly and elegant design supervised by the same graphic designer of the “Raku-Raku PHONE BASIC.” In addition, “Raku-Raku PHONE IVS” eligible for the “Value Course” was released.

 

In May 2008, “Raku-Raku PHONE Basic S,” which focuses on easy use of basic mobile phone functions of “calling,” “e-mail” and “i-mode,” went on sale. In August 2008, “Raku-Raku PHONE V,” which comes with a pedometer and sphygmometer for health management, was released. The “Raku-Raku PHONE BASIC II,” a basic phone that is easy for anyone to use has a point-and-shoot camera for easy and high-quality photos, went on sale in April 2009.

 

Other handset series that went on sale on or after April 2006 are as follows.

 

Kids’ PHONE

 

In December 2007, we released “Kids’ PHONE F801,” with improved functions providing peace of mind such as waterproof and loss-prevention functions. In February 2009, we started selling “Kids’ PHONE F-05A,” which initial settings are limited to the functions of a security buzzer, calling and GPS but with enhanced functions available to give families peace of mind.

 

Concept Models

 

“FOMA D800iDS,” a two-screen handset equipped with a touch panel, was released in February 2007. In June 2008, we released “PRADA Phone by LG,” which was developed by the global brand “PRADA” through collaboration with LG Electronics.

 

Smartphones

 

We released “BlackBerry^® 8707h” in September 2006 and “BlackBerry^® 8707h” with Japanese language support in July 2007. “hTc Z,” which comes with Windows Mobile^® OS installed, went on sale in July 2006. In March 2008, we started selling Windows^® handset “F1100,” which is installed with Windows Mobile^® 6 and features “portability” and “user-friendliness” with expanded business functions. In June 2008, we released the Windows^® phone “HT1100,” which comes installed “TouchFLO,” a new user interface that is operated by rotating the 3D cube menu on a touch screen.

 

Note:
Windows and Windows Mobile are trademarks or registered trademarks of Microsoft Corporation, registered in the U.S. and other countries.

90X Series

 

In August 2006, “FOMA N902iX HIGH SPEED,” which is compatible with HSDPA, went on sale. This handset supports “Music Channel (currently “Music & Video channel”)” and “Chaku-Uta Full.” In October 2006, we released the FOMA 903i series, which supports “Chaku-Uta Full” and “Mega i-appli.” In May 2007, the FOMA 904i series, which is compatible with “2in1,” “Chokkan Game” and “Uta Hodai,” was released. In November 2007, the FOMA 905i series went on sale as an “all-in-one phone.” In June 2008, the FOMA 906i series, which is positioned as an all-around video phone, was released. The handset comes with such functions as “WORLD WING (3G+GSM)”; “FOMA high speed (HSDPA)”; “One-Seg”; “GPS”; “2in1”; “DCMX”; “iD”; “Full-wide VGA LCD,” and supports a variety of video services and contents.

 

70X Series

 

In January 2007, we released the FOMA 703i series, which pursue unique styles such as the world’s slimmest (as of January 16, 2007) handset and collaboration handsets. In July 2007, we released the FOMA 704i series, which features not only “slim and compact,” but also “One-Seg,” “waterproof” and other functions. In January 2008, we began selling the FOMA 705i series, which is the result of a new approach to design in addition to being slim. As part of this series, “PROSOLIDµ (P705iCL)” — which comes installed with numerous business functions — was released in March of that year, and FOMA “SH705iII,” which features clear and audible calls and “One-Seg” and a 3.2 mega-pixel camera with clearly visible characters and screen, went on sale that April. In July 2008, we launched the FOMA 706i series, which was developed under the concept of individualism and slimness. It features not only a compact design but also functions supporting various customer needs and lifestyles, such as “Extreme Slim One-Seg Phone,” “Waterproof One-Seg,” “Wellness Phone” and “Friendly Phone for Everybody.” The performance of each of these handsets was further improved.

 

SIMPURE Series

 

In April 2006, we started offering customers wishing for simple and basic functions the “SIMPURE” series, which is simple and compact and supports overseas use. In December 2006, we released “SIMPURE N1,” a compact phone featuring such basic functions as i-mode, e-mail, camera and TV phone. In June 2007, “SIMPURE L2,” developed in collaboration with a designer, was released as the latest model in the “SIMPURE” series.

 

Data Communication Devices

 

In September 2006, the HSDPA-compatible data communication device “FOMA M2501 HIGH SPEED” was released. In October 2007, we launched a USB-type device “FOMA A2502 HIGH SPEED,” which supports HSDPA. This data communication device was developed as part of the device joint procurement project by DOCOMO and South Korean mobile communication provider KT Freetel Co., Ltd. (KTF, currently KT Corporation). In March 2008, we launched “FOMA N2502 HIGH-SPEED,” a compact flashcard-type data communication device that supports high-speed 7.2Mbps. In December of that year, we released “L-02A,” which supports “WORLD WING (3G+GSM),” that enables the use of packet communication in 135 countries and regions around the world (as of December 9, 2008), and which is compatible with FOMA HIGH-SPEED 7.2Mbps.

 

FOMA Ubiquitous Modules

 

To further promote the spread and development of FOMA Ubiquitous Modules for the built-in market to the machine communication field, we released in March 2007 “FOMA UM01-F,” which supports both FOMA packet communication and voice/packet communication separation control. In July 2008, we launched the FOMA Ubiquitous Module “UM02-F,” improving functions and expanding the lineup of FOMA Ubiquitous Modules. Currently, the FOMA Ubiquitous Modules have been used in familiar usage, such as for monitoring and controlling power and gas facilities; business support through compact information terminals; and managing inventory for vending machines.

• Mobile Phone Handsets (mova)

 

For 2G services, we had offered three types: the 5xx series, which featured a variety of functions; the 2xx series, which came with basic functions; and the 6xx series, which was targeted at certain user segments. In response to the persistent demand for mova handsets despite increasing transition by users from mova to FOMA, we offered “N506iSII” and “P506iCII” — which were developed based on the 506i series and featured lower prices — in March and April of 2006, respectively, but we have since released no new mova products.

 

 

• Osaifu-Keitai (i-mode FeliCa Service)

 

We began “Osaifu-Keitai (i-mode FeliCa service)” services using non-contact IC in July 2004 and have been striving to create new usage opportunities in cooperation with other business platforms, such as electronic money, membership cards and point cards.

 

As a result, “Osaifu-Keitai” has steadily grown, with subscribers reaching 33.9 million in March 2009 and the number of stores accepting the services totaling approximately 862,000 (as of March 31, 2009). We believe the utilization of the services linked to the customers’ daily lives will be promoted with the emergence of numerous settlement services such as our mobile credit “iD/DCMX,” “Mobile Suica*” which are eligible for shinkansen bullet trains as well as mutual use with “PASMO**,” and e-money “Edy” and “nanaco***.”

 

Further, “ToruCa,” an additional function of “Osaifu-Keitai,” lets users download, into their handsets, coupons and store information that conventionally have been distributed in paper format at the storefront, by holding “Osaifu-Keitai” over a reader/writer (a reading device set up at the storefront, etc.).

 

 

• Credit Business

 

The credit brand “iD,” which enables users to make credit card payments using the “Osaifu-Keitai” services, is a settlement platform that enables a user, simply by holding the “Osaifu-Keitai” over a specialized terminal installed in stores (“reader/writer”), to make a speedy credit settlement without the need for signing on a credit card slip. It can be used for both small and large purchases, and comes with a number of security features to prevent unauthorized use, so that it can be used with peace of mind and safety.

 

We are providing the “iD” brand as an open model to credit card issuers, who can offer card members credit settlement services combining conventional plastic cards and use of iD with the “Osaifu-Keitai.”

 

Since the launch of the “iD” in December 2005, the number of subscribers has increased steadily, exceeding 10 million subscriptions in December 2008 and reaching 11.2 million at the end of March 2009. With regard to increasing shops that accept “iD,” we have made shops that play an important role in customers’ day-to-day lives a priority, and settlement on the Internet was made possible in April 2007. The number of stores where “iD” can be used continues to increase steadily including the completion of introduction of “iD” at all McDonald’s shops in four prefectures in the Kanto region and all six prefectures in the Kinki region in March 2009. Going forward, we intend to continue providing “iD” to credit card issuers as an open model.

 

We aim to expand the range of locations in which the “Osaifu-Keitai” through the “iD” is used and bring up mobile phones as “Seikatsu Keitai,” that is, even more fully integrated into the daily lives of our subscribers. In April 2006, as the credit issuer using “iD,” we launched “DCMX mini” and “DCMX” as credit services adequate for small purchases. In April 2007, we further enhanced our menu of credit services tailored to customers’ spending styles, with the launch of “DCMX GOLD,” which allows for purchases in greater amounts and provides a higher level of customer benefits and rewards. In June 2007, in addition to the DCMX Visa card that we have offered since the launch of the services, we started to issue the DCMX MasterCard, allowing customers, to choose a card from

Visa and MasterCard when they sign up for services. As of March 31, 2009, the number of subscriptions has exceeded 8.98 million.

 

By enhancing these credit card businesses, we aim to expand the credit market and acquire a portion of this market, leading to growth in our corporate value.

 

 

• Payment Services and Commercial Transaction

 

LAWSON

 

In March 2006, we reached an agreement with LAWSON, INC. (“LAWSON”) to form a business tie-up through capital participation in LAWSON by DOCOMO, with the intention of providing greater convenience to customers. Through the tie-up, DOCOMO and LAWSON will make use of their respective customer bases and expertise in the mobile communication and convenience store businesses to contribute to enriching the lives of customers by providing new value-added services. Under the tie-up, LAWSON introduced “iD” credit card payment services and “ToruCa” information provisions services at all LAWSON stores.

 

Pursuant to this capital alliance, in April 2006 we acquired 2,092,000 shares of LAWSON, which corresponds to 2.0% of total issued shares, for approximately ¥9 billion.

 

FamilyMart

 

In May 2007, we reached an agreement with FamilyMart, Co., Ltd. (“FamilyMart”) to form a business tie-up and for capital participation in FamilyMart, with the intention of providing greater convenience to customers. In June 2007, pursuant to this tie-up, we purchased 2,930,500 shares of FamilyMart common shares (treasury stock), constituting 3.0% of its outstanding shares, for approximately ¥9 billion. Through the tie-up, DOCOMO and FamilyMart will make use of their respective customer bases, brands, business know-how and infrastructure to provide new services having greater added value and convenience that are closely tied to the daily lives of customers. Under the tie-up, FamilyMart introduced “iD” credit card payment services and “ToruCa” information provisions services at all FamilyMart stores, and a variety of services utilizing mobile phones such as “Osaifu-Keitai” compatible “Famima T Card” with the membership card function and “iD” payments for purchases on FamilyMart shopping site for i-mode.

 

The JV

 

In February 2007, we agreed to establish a new company with McDonald’s Holdings Company (Japan), Ltd. (“McDonald’s”) to jointly promote e-marketing with a focus on “Osaifu-Keitai.” In conjunction with this tie-up, we jointly formed a new company, The JV, Ltd., in July 2007 to plan and implement promotional activities targeting members of McDonald’s new membership club. This company, which merges McDonald’s and DOCOMO’s respective customer bases, brands, and business know-how in the restaurant and mobile phone businesses, will provide customers with “Value,” “Convenience,” and “Fun,” by proposing new lifestyles to be achieved through e-marketing focusing on the “Osaifu-Keitai.” Moreover, “iD” and “ToruCa” were introduced gradually at all McDonald’s locations in Japan from October 2007.

 

OAK LAWN MARKETING

 

In April 2009, we reached an agreement on a capital alliance with the TV shopping company OAK LAWN MARKETING, INC. (“OLM”), and acquired 51% of the common shares of OLM for ¥31 billion. Both companies will seek to revitalize the mobile e-commerce market, which is expected to grow, through this capital tie-up, as well as to enrich our customers’ lifestyles by offering services and products that meet the lifestyle and needs of each and every customer.

CXD NEXT

 

In July 2007, DOCOMO and CASIO COMPUTER CO., LTD. (“CASIO”) established a joint venture called CXD NEXT CO., LTD. (CXD NEXT), to provide electronic settlement-related services for credit services, primarily “iD,” and to provide store support services to enable to manage and analyze sale information. Making use of CASIO’s know-how in store support services, which it has cultivated through the development and sale of a variety of models as a leading manufacturer of electronic registers, and DOCOMO’s know-how in electronic settlement, which it cultivated through development of the mobile credit service “iD,” CXD NEXT will develop new businesses using Internet-based cash registers that focus on small-to-mid-sized companies with multiple retail stores, and will seek to enhance sales of CASIO’s electronic registers and expand the environments for use of “iD” and the “Osaifu-Keitai.”

 

AEON Marketing (tentative name)

 

In March 2009, we reached a basic agreement with AEON Co., Ltd. and AEON CREDIT SERVICE CO., Ltd to form AEON Marketing Co., Ltd. (tentative name, “new company”), which will perform one-on-one marketing activities utilizing mobile phones. The new company will conduct marketing for the AEON Group and implement advanced mobile customer relationship management (CRM).

 

• Broadcasting

 

Nippon Television

 

In April 2006, together with Nippon Television Network Corporation (“NTV”), we formed a seven-year limited liability partnership, D.N. dream partners LLP (“LLP”), with each party contributing ¥5 billion in capital under the tie-up agreement for contents development. This LLP is investing in and developing content such as TV programs with a view to making such content available to mobile phones. DOCOMO and NTV are also jointly studying new business opportunities, including a link between “One-Seg” terrestrial digital broadcasting and i-mode services, as well as content developed by NTV for our conventional services such as i-motion video clip distribution services.

 

In January 2007, we acquired 760,500 shares of NTV, representing 3.0% of the total issued shares. We are collaborating with NTV on various considerations with the goal of creating new markets through the collaboration between communication and broadcasting entities and providing attractive services to customers. In addition, handsets compatible with “One-Seg,” a service providing terrestrial digital broadcast for mobile phones and portable devices, are steadily spreading, and as the market expands, the gap between communications and broadcasting will continue to narrow. Under these circumstances, we have strengthened our partnership with NTV.

 

Multimedia Broadcasting

 

In December 2006, together with Fuji Television Network, Inc., ITOCHU Corporation, SKY Perfect JSAT Holdings Inc. (formerly, SKY Perfect Communications, Inc.), and Nippon Broadcasting System, Inc., we established a limited liability company named Multimedia Broadcasting Planning LLC. (“MMBP”) to research new multimedia services applying the Integrated Services Digital Broadcasting — Terrestrial (ISDB-T) protocol and to publicize its usefulness and thereby encourage the allocation of bandwidth for mobile multimedia broadcasting employing ISDB-T following the termination of terrestrial analog broadcasting. In January 2009, MMBP was reorganized as a Multimedia Broadcasting, Inc. (“Multimedia Broadcasting”). Multimedia Broadcasting, through the multimedia broadcasting services using the ISDB-Tmm protocol proposed by MMBP, aims to effectively use this bandwidth to create new multimedia services that can contribute to the development of a ubiquitous society. Currently, Multimedia Broadcasting is moving ahead with acquiring the necessary licenses, proposing protocols, and planning specific services.

 

Avex Broadcasting & Communications

 

In September 2008, we reached an agreement with Avex Entertainment Inc. on the establishment of a joint venture company, Avex Broadcasting & Communications Inc., with the purpose of the further formation of, and

creating more activity in, the mobile video content market, which was founded in April 2009, and began services in May 2009.

 

• Content and Internet

 

Kadokawa Group Holdings

 

In November 2006, we concluded an agreement for a comprehensive business alliance with Kadokawa Group Holdings, Inc. (“Kadokawa GHD”) and other Kadokawa group companies (Kadokawa Shoten Publishing Co., Ltd. (currently Kadokawa Group Publishing Co., Ltd.), Kadokawa Herald Pictures, Inc. (currently Kadokawa Pictures, Inc.), Kadokawa Mobile, Inc., Herald Enterprise Inc. (currently Herald Cineplex, Inc.), and Kadokawa Media House Inc.) to develop and expand the market for video programming for mobile phones. In conjunction with this agreement, we also agreed to invest in Kadokawa GHD, and in December 2006 acquired 1,031,000 ordinary shares of Kadokawa GHD, representing 3.78% of total issued shares, through a third-party allocation of new shares at a cost of approximately ¥4 billion. With the expansion of high-speed communication networks such as HSDPA, the market for video programming for mobile phones is expected to grow, and an alliance between DOCOMO, which has business expertise and a solid customer base developed through the i-mode service business, and the Kadokawa group, which engages in comprehensive programming development as a mega-content provider for various media ranging from publishing to film, can be used to distribute high-quality video programming and nurture and expand the market for mobile phone video programming. In addition, the capital tie-up will also serve to strengthen cooperation between the companies, and a variety of collaborative measures will be implemented.

 

ZENRIN DataCom

 

In June 2007, we reached an agreement with ZENRIN DataCom CO., LTD. (“ZENRIN DataCom”), a subsidiary of ZENRIN CO., LTD. (“ZENRIN”), and acquired 1,700 shares of common stock of ZENRIN DataCom, representing 10.27% of total issued shares, through a third-party allocation of new shares. Through this tie-up, DOCOMO, which has business expertise and technology developed through the i-mode service business, and ZENRIN DataCom, which has a high-quality cartographic database of ZENRIN and a technology to distribute advanced map data, will work together to promote and expand map services such as the distribution of map information applications for mobile phones and services linked with the location information of the mobile phone, customizing to the diversifying needs of each customer.

 

Google

 

In January 2008, DOCOMO and Google Inc. (“Google”) reached an agreement on forming a partnership that includes providing search services, search-related advertisements, and applications for use by i-mode users. By bringing together the services of Google, the world’s largest search engine, and DOCOMO’s mobile Internet service “i-mode,” used by approximately 48 million customers, the companies aim to provide greater convenience to customers using their services, and to stimulate the Japanese mobile Internet market by developing innovative services. Going forward, we will make Google’s map service a standard feature on i-mode compatible handsets, or otherwise enable Google services to be used on i-mode handsets, and we will work together with Google to provide our customers with even greater convenience across a wide range of mobile Internet services.

 

NTT Resonant

 

In June 2008, we reached an agreement with NTT Communications Corporation (“NTT Com”) and NTT Resonant Inc. (“NTT Resonant”) concerning total investment of approximately ¥10 billion by DOCOMO and NTT Com into NTT Resonant for joint development of new collaborative services between mobile phones and PCs. The three companies are working to develop seamless services on mobile phones and PCs that utilize the unique characteristics of each to facilitate their use in response to customer needs and to enhance the iMenu site search functions.

• Technology Peripheral to Mobile Phones

 

Fuetrek

 

In May 2006, we formed a business and capital tie-up with Fuetrek Co., Ltd. (“Fuetrek”). Fuetrek develops, designs, manufactures, and sells large-scale integrated circuits and semiconductors and develops and licenses sound source and acoustic technologies. Under the capital tie-up, we acquired 1,420 shares of Fuetrek (representing 6.19% of total issued shares). Combined with the holdings of our subsidiary, DOCOMO.com, Inc. (“DOCOMO.com”), our subsidiary, we own 10.37% of Fuetrek’s shares. Fuetrek’s sound source and acoustic products had been used in many FOMA terminals, and with this tie-up, the partnership between us and Fuetrek has been strengthened and we can look forward to improved acoustic functions in our handsets and higher development efficiency as well as greater collaboration with respect to acoustic technologies overall.

 

Gridmark, DPC

 

In June 2008, DOCOMO and Gridmark Limited (“Gridmark”), which carries out R&D and marketing in the dot-code field, established DPC Inc., to plan, market and operate a dot-code business in the field of mobile handsets. We acquired 2,400 common shares in Gridmark (8.9% of outstanding shares) through a third-party allocation and transfer, at approximately ¥300 million.

 

ACCA Wireless (currently Wire and Wireless Co., Ltd.)

 

In August 2007, DOCOMO and ACCA Networks Co., Ltd (“ACCA”) reached an agreement on investment in ACCA Wireless Co., Ltd. (“ACCA Wireless”), and a strategic alliance. ACCA Wireless, which was established as a planning company for the purpose of obtaining a license for ACCA as an operator of a 2.5GHz broadband wireless access system (“BWA”) using mobile WiMAX (“WiMAX”), made application to the MIC in October 2007 for a 2.5GHz BWA license using WiMAX, but because it was not able to obtain this license, the partnership was dissolved in December 2007.

 

Acrodea

 

In February 2008, we reached an agreement with Acrodea, Inc. (“Acrodea”), which develops and sells middleware for mobile phones, to acquire 4,500 Acrodea shares through a third party allocation. In addition, DOCOMO requested that JAIC Advanced-Tech No. 1 Venture Capital Investment, L. P. of which DOCOMO is a limited partner, transfer its 2,800 shares in Acrodea to DOCOMO. Combined with the holdings of DOCOMO.com, we own 13.06% of Acrodea. Prior to this, DOCOMO and Acrodea had built an amicable cooperative relationship, and with this investment, the relationship with Acrodea will be further strengthened, and going forward, we will promote greater efficiency and stability in DOCOMO handsets loaded with Acrodea products.

 

 

• International Calling Service and International Roaming Service

 

“WORLD CALL,” our international calling service, is a service that lets customers make international phone calls to 237 countries and regions (as of March 31, 2009) from their mobile phones. As of March 31, 2009, FOMA subscribers were able to make international videophone calls via our 3G network to 3G subscribers in 49 countries and regions, including the U.K., Hong Kong, Singapore and Australia.

 

With “WORLD WING,” our international roaming service, customers are able to use the DOCOMO mobile phones that they use in Japan, with the same phone numbers and i-mode mail addresses, in the service areas of overseas mobile network operators with which DOCOMO has partnerships. Since introducing them in June 2006, 3G roaming compatible handsets which are compatible with overseas 3G networks, most of the handsets we currently offer are 3G + GSM compatible or 3G compatible, enabling customers to use their phones overseas. “WORLD WING” users are able to make and receive phone calls with the same FOMA phone numbers in 182 countries and regions, and access i-mode packet communication in 138 countries and regions as of March 31, 2009.

In April 2006, we formed an alliance in the Asia-Pacific region with a total of six mobile network operators, including Far EasTone Telecommunications Co Ltd. (operating region: Taiwan), Hutchison Telecommunications (Hong Kong) Limited (operating region: Hong Kong and Macao), KT Corporation (operating region: South Korea), PT Indosat Tbk (operating region: Indonesia), and StarHub Ltd. (operating region: Singapore), to enhance each member’s competitiveness in international roaming and corporate mobile services. In December 2006, Smart Communications, Inc. (operating region: the Philippines) joined the alliance, and it was officially named the Conexus Mobile Alliance (“Conexus”). In addition, with Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited (operating region: India, both) joining the alliance in November 2007 and True Move Company Limited (operating region: Thailand) doing so in June 2008, combined with the additions of Guam and the Northern Mariana Islands to its coverage area, Conexus became one of the largest mobile network operator alliances in the Asia-Pacific region with approximately 210 million subscribers in 12 countries and regions.

 

• International Solutions for Businesses

 

We established DOCOMO China Co., Ltd. (“DOCOMO China”) in Shanghai, China in June 2008 to perform marketing activities directed towards overseas corporate customers. DOCOMO China provides mobile phone collaborative business solutions and solutions relating to information distribution services for corporate customers as well as support for enhancing customer operating efficiency and business activities in China, the world’s largest mobile communication market.

 

• International Investments and Alliances

 

We make investments in and/or enter into agreements with overseas mobile network operators and businesses providing mobile phone related services with the long-term aim of securing growth and revenue opportunities and strengthening our global competitiveness. We plan to leverage our expertise and experience in the Japanese mobile telecommunication market by assisting mobile network operators who are our partners abroad to develop and promote their 3G platform based on the W-CDMA technology and promote the widespread and rapid deployment of mobile multimedia services, thereby achieving our goal of establishing a world of seamless communications.

 

Mobile network operators in other parts of the world have recently had success in promoting their wireless Internet access business, while our i-mode services achieved immediate success among a broad range of segments in Japan, including the consumer segment starting in the 1990s. We believe that our experience with the development and deployment of our i-mode services is a great strength that provides us with the ability and skills necessary to replicate our success in overseas markets in cooperation with our strategic partners. We believe that this will increase the value of our business by generating returns on investments, enhancing service quality and strengthening our competitiveness in the domestic market. Currently, i-mode services are available in 15 countries and regions including Japan, the Netherlands, Taiwan, Belgium, France, Spain, Italy, Greece, Israel, the United Kingdom (including Northern Ireland), Ireland, Bulgaria, Romania, Hong Kong, and the Philippines. International roaming services have also grown in recent years, and we believe that these services will become an important revenue source in the future, and we forecast further business growth in this field going forward.

 

We intend to continue to look outside of Japan for attractive investment and partnership opportunities, such as foreign mobile telecommunication companies and other companies providing mobile telecommunication related services. If we find such investment opportunities, we will look for the optimal investment method according to the circumstances, acquiring either majority or minority stakes, or entering into licensing agreements or collaboration agreements in certain fields, such as W-CDMA-based 3G services.

 

Far EasTone Telecommunications Co., Ltd.

 

In February 2001, we invested approximately NT$17.1 billion (approximately ¥61.3 billion at the date of investment) for a 20% equity stake in KG Telecommunications Co., Ltd. (“KG Telecom”). KG Telecom was a mobile network operator which operated in Taiwan. In July 2001, we increased our equity stake in KG Telecom by purchasing new shares, thereby increasing our equity stake to 21.4%. The amount of our additional investment was NT$1.87 billion (approximately ¥6.7 billion at the date of investment).

Through this business alliance with KG Telecom, we aimed to provide sophisticated wireless broadband services to the Taiwanese market using W-CDMA technology and to provide mobile Internet services in Taiwan based on our i-mode technology and business model. In June 2001, we signed an i-mode license agreement with KG Telecom to license our intellectual property and technology know-how regarding i-mode services. KG Telecom launched i-mode services in June 2002.

 

In October, 2003, we agreed to a plan by KG Telecom to enter into a Share Purchase Agreement with Far EasTone Telecommunications Co., Ltd. (“FET”), the third-ranked mobile network operator in Taiwan. Under the agreement, each KG Telecom share was converted into 0.46332 FET shares plus NT$6.72. As a result, KG Telecom became a 100% subsidiary of FET. Upon completion of the transaction, we became an approximately 5.0% shareholder in FET, and received NT$2.5 billion (approximately ¥8.0 billion at the date of payment) in cash.

 

At that time, we also concluded a memorandum of understanding with FET to collaborate on the W-CDMA 3G and i-mode businesses in Taiwan. This merger enabled us to secure a more solid base in Taiwan and has continued to increase economic value via further development of i-mode services and the 3G business. FET began its i-mode service on the Global Packet Radio Service (GPRS) network in April 2004.

 

In March 2004, we signed a consulting agreement with FET. Under the agreement, we provided technical assistance including assistance for network field testing and coverage optimization for the introduction of FET’s W-CDMA 3G service. FET launched 3G services based on W-CDMA technology in July 2005.

 

Hutchison Telephone Company Limited/Hutchison 3G HK Holdings Limited

 

In December 1999, we acquired a 19% equity interest in Hutchison Telephone Company Limited (“HTCL”) in Hong Kong for approximately US$410 million (approximately ¥42 billion at the date of investment) as part of our business alliance with Hutchison Whampoa Limited (“HWL”) with respect to the development of their mobile Internet services and 3G businesses in Hong Kong. In May 2001, we invested an additional US$30.44 million (approximately ¥3.7 billion at the date of investment) for a 6.4 point increase in our equity stake in HTCL.

 

In July 2001, we agreed with HWL to separate the 3G entity from HTCL, and acquired a 25.4% equity interest in Hutchison 3G HK Holdings Limited (“H3G HK”), for approximately HK$303,190 (approximately ¥5 million at the date of investment).

 

In November 2002, NEC Corporation (“NEC”) acquired a 5% equity interest in both HTCL and H3G HK. As part of this transaction, our interest in both HTCL and H3G HK decreased from 25.4% to 24.1%. We currently hold a 24.1% equity interest in both HTCL and H3G HK.

 

HTCL launched its mobile Internet services in May 2000. In addition, H3G HK acquired a 3G license in September 2001 and launched 3G services in January 2004. H3G HK’s 3G license was transferred to HTCL in June 2005 and 3G services are provided by HTCL at present. In June 2006, we signed an i-mode license agreement with HTCL. Under this agreement, we provided the know-how, related technologies, and patent rights to HTCL for it to develop i-mode services, and HTCL’s i-mode services were launched in Hong Kong in May 2007.

 

Mobile Innovation Co., Ltd.

 

In April 2004, we signed a joint venture and share subscription agreement with Loxley Public Company Limited (“Loxley”), a Thai IT-related trading company, under which we acquired a 40% equity stake in Mobile Innovation Co., Ltd. (“MI”), a location — based service provider, wholly owned by Loxley, for a cash consideration of 21.6 million baht (approximately ¥60 million at the date of investment). In February 2005, we agreed to increase the capital of MI, and invested 12 million baht (approximately ¥30 million at the date of investment). Loxley concurrently invested 18 million baht (approximately ¥50 million at the date of our investment) in MI.

 

In October 2007, we invested an additional 49.80 million baht (approximately ¥180 million on the date of our investment), giving us a 49.9% equity stake in MI. In August 2008, we invested an additional 50.2 million baht (approximately ¥169 million), giving us a 72.6% equity stake in MI.

DOCOMO interTouch Pte. Ltd.

 

In December 2004, we invested US $70 million (approximately ¥7.3 billion as of the date of investment) to fully acquire inter-touch (BVI) Limited, a Singapore-based holding company of Internet providers which supply high-speed broadband connections and applications for travelers at hotels across the Asia-Pacific region, Europe, the Americas and other regions.

 

In February 2007, we decided to reorganize the structure of the subsidiary group and make INTER-TOUCH PTE LTD (currently DOCOMO interTouch Pte. Ltd.) (“interTouch”), one of the inter-touch group’s operational companies in Singapore, a wholly owned subsidiary. The reorganization resulted in interTouch becoming a wholly-owned subsidiary of DOCOMO and the dissolution of three companies, inter-touch (BVI) Limited, INTER-TOUCH (MIDDLE EAST) LIMITED and inter-touch Holdings (Singapore) Pte Ltd. The plan, made in response to the inter-touch group’s rapid business growth, is intended to streamline the inter-touch group’s organizational structure and enhance operational efficiency. inter-touch (BVI) Limited was dissolved in February 2008, and inter-touch Holdings (Singapore) Pte Ltd. was dissolved in March 2008.

 

In December 2007, interTouch reached an agreement with the primary shareholder of MagiNet Pte. Ltd. (“MagiNet”), a high-speed Internet service and video distribution service provider for hotels, to fully acquire the company for approximately US $150 million (approximately ¥16.5 billion). The acquisition was completed in January 2008. In conjunction with this acquisition, we carried out a capital increase in interTouch of US $191 million (approximately ¥21 billion). With this acquisition, interTouch became one of the largest providers of high-speed Internet service for hotels in the Asia-Pacific region, with an annual total of 25 million users in 1,000 hotels in 63 countries across the world. In April 2008, we announced that the name of the company had been changed to DOCOMO interTouch Pte. Ltd. Going forward, under the DOCOMO brand, the company will endeavor to further expand its business, and by providing a full range of services, enhance convenience for overseas travelers.

 

ADVANCED MPAY COMPANY LIMITED

 

We acquired a 30% stake in ADVANCED MPAY COMPANY LIMITED (“mPAY”) for 315 million baht (approximately ¥850 million at the date of investment) in August 2005. mPAY was established with Advanced Info Service Public Company Limited (“AIS”), a Thai mobile network operator, which owned a 70% stake of mPAY.

 

mPAY provides mobile payment services in Thailand, and provides services enabling customers to use their mobile phones to settle shopping transactions, including online shopping via PCs or mobile phones, and make payments for the use of prepaid phone services.

 

In January 2008, we sold all our shares in mPAY to AIS, and currently have no stake in mPAY.

 

KT Corporation

 

In December 2005, we entered into an agreement with Korean mobile network operator KT Freetel Co., Ltd. (“KTF”) on a comprehensive strategic alliance including equity participation, under which we invested approximately KRW 564.9 billion (approximately ¥65.1 billion at the date of investment) to acquire a 10% stake in KTF through a third-party allotment of new shares and purchase of KTF treasury stock.

 

Through the tie-up, we provided technical support to KTF to deploy a nationwide W-CDMA network successfully. Also, the alliance aimed to improve convenience for the increasing number of travelers in both countries through the joint development and offering of roaming services, to seek new business opportunities by fusing together the technical and marketing expertise of the worlds leading providers of cellular services and to examine cost-saving opportunities, such as the joint handset procurements through the combination of our expertise in W-CDMA network operation and KTF’s service development capabilities. In July 2007, as part of the companies’ joint handset procurement project, an announcement was made of the joint procurement of HSDPA compatible USB type terminals. In October 2007, as part of the joint business in the Business & Technology Cooperation Committee established by the two companies, the companies agreed to investment in the KTF-DOCOMO Mobile Investment Limited Partnership, a fund having KTBnetwork Co., Ltd. (“KTB”) as the asset manager that invests in South Korean venture companies in mobile and IT related fields. In conjunction with

this alliance, we invested KRW 13.5 billion (approximately ¥1.7 billion at time of investment decision, a 45% equity stake) in the fund.

 

In addition, in January 2009, in conjunction with the merger between KTF and the Korean fixed-line carrier KT Corporation (“KT”), for the purpose of a strategic alliance with KT, we agreed to exchange 40% of our stake for KT common shares, and the remaining 60% for exchangeable bonds issued by KT. In June 2009, we acquired the above shares and exchangeable bonds, and our equity stake became approximately 2.2%.

 

Philippine Long Distance Telephone Company

 

In January 2006, we entered into an agreement with NTT Communications Corporation (“NTT Com”), Philippine Long Distance Telephone Company (“PLDT”) and First Pacific Company Limited (“FPC”), PLDT’s largest shareholder, on a share acquisition and business tie-up. Under the agreement, we purchased approximately 7.0% of its total common shares from NTT Com, for approximately ¥52.2 billion and established a comprehensive business tie-up with PLDT and its mobile network operator subsidiary Smart Communications, Inc. (“SMART”).

 

We developed a cooperative relationship with PLDT and SMART with the goal of developing W-CDMA services by SMART and the commencement of i-mode services in the Philippines as well as promoting international roaming services between Japan and the Philippines. As part of the tie-up, we concluded an i-mode license agreement with SMART in February 2006. In March 2008, i-mode services in the Philippines commenced.

 

Since March 2007, we have acquired PLDT shares in stages through the open markets, acquiring a total of approximately ¥98.9 billion, shares equivalent to approximately 7.5% of PLDT’s outstanding shares as of March 31, 2008; as a result, combined with NTT Com’s PLDT shares, the NTT group achieved a 20.9% stake in PLDT. Pursuant to the January 2006 agreement, we have the ability to exercise the voting rights of NTT Com, and since we obtained the ability to exercise significant influence over PLDT, we have considered PLDT as an affiliate and accounted for the investment by applying the equity method. We also have designated two directors each to PLDT and SMART. Going forward, we will further strengthen our tie-up with PLDT and SMART and make efforts directed toward joint consideration of services and technologies, enhancement of international roaming services, joint CSR activities, and joint international investments.

 

DOCOMO PACIFIC, INC.

 

In March 2006, we agreed to fully acquire both Guam Cellular & Paging (“Guam Cellular”) and Guam Wireless Telephone Company, LLC (“Guam Wireless”), mobile network operators operating in Guam and the Northern Mariana Islands (including the island of Saipan), for a total amount of US$71.8 million (at the time of investment, approximately ¥8.4 billion). We received approval for the acquisitions from the U.S. Federal Communications Commission (“FCC”) in November 2006. In December 2006, we transferred operations to Guam Cellular from Guam Wireless through a holding company and we integrated operations of the two companies. Through this acquisition, Guam Cellular became our wholly-owned subsidiary. We have endeavored to improve convenience of international roaming services for the large number of Japanese travelers who visit Guam and the Northern Mariana Islands, by enhancing Guam Cellular’s GSM network and introducing packet roaming services by developing its GPRS network. In July 2008, we launched 3G services, based on W-CDMA technology. In October 2008, the company name was changed to DOCOMO PACIFIC, INC.; going forward, under the DOCOMO brand, we will strive for further improvement in quality, and will direct our efforts to providing services offering high convenience to customers.

 

Fidatone Mobile Technology and Service Co., Ltd

 

In January 2007, we decided to make a joint investment with UFIDA Software Co., Ltd.(“UFIDA”), the leading Chinese supplier of enterprise resource planning (ERP) software, which is listed on the Shanghai Stock Exchange, in Fidatone Mobile Technology and Service Co., Ltd. We are now developing a corporate mobile solution services business through a tie-up with UFIDA.

Gobi Fund II, L.P.

 

In May 2007, we signed an investment participation agreement under which we are to invest US $10 million (approximately ¥1.2 billion at time of investment decision) in Gobi Fund II. L.P., a venture capital fund targeting venture firms in China’s digital media related fields. The fund was established by the asset management company Gobi Partners, Inc., which invests in venture firms in China. Through this investment in the fund, we aim to build relationships with a broad range of Chinese venture firms in fields involving cellular phones.

 

AT&T Mobility LLC

 

In July 2007, with the goal of promoting international roaming services, we concluded a business cooperation agreement with AT&T Mobility LLC (formerly Cingular Wireless LLC; “AT&T Mobility”) related to the building of a 3G network in Hawaii. Pursuant to this agreement, we provided technical support relating to AT&T Mobility’s construction of a 3G network in Hawaii, and contributed US $24 million (approximately ¥3 billion) in funds. In July 2008, construction of the network in Hawaii was mostly completed, and now customers can enjoy a high-speed telecommunication environment, thanks to the 3G roaming services using W-CDMA technologies provided by AT&T Mobility.

 

U Mobile Sdn. Bhd.

 

In December 2007, we agreed on the acquisition of common shares representing 16.5% of the outstanding shares in U Mobile Sdn. Bhd. (“U Mobile”), a Malaysian mobile network operator, through a third-party allocation of shares, at a cost of US $100 million (approximately ¥11 billion at the time of investment) with the objective of developing an environment for the provision of international roaming services in Malaysia and further raising customer convenience. We subsequently completed the share acquisition in March 2008.

 

Axiata (Bangladesh) Limited

 

In September 2008, we acquired a 30% stake in TM International (Bangladesh) Limited (“TMIB”), a mobile network operator based in Dhaka, Bangladesh, for approximately US$350 million (approximately ¥37 billion). In addition, in November of the same year, we made an additional investment of approximately US$30 million (approximately ¥3 billion) to increase our stake. Through the investments, we intend to participate in TMIB’s management and actively draw on our expertise to enhance the company’s business in the fast-growing Bangladeshi mobile telecommunication market. In May 2009, the company name was changed to Axiata (Bangladesh) Limited.

 

Blue Ocean Wireless Limited

 

In September 2008, we acquired through a third-party allocation approximately 11.5% of the outstanding shares of Blue Ocean Wireless Limited, which provides GSM communication services to the merchant maritime sector, for approximately US$10 million (¥1.1 billion at the time of investment). Through this investment, we will strive to promote the use of the new mobile communication means of maritime mobile communication, and will strive for further expansion of global mobility.

 

Tata Teleservices Limited

 

In November 2008, we reached agreement on a capital alliance with Tata Sons Limited (“Tata Sons”), the holding company of Tata group, and the Indian telecommunication carrier Tata Teleservices Limited (“TTSL”), which is a unit of Tata group. Based on this agreement, we acquired approximately 26.5% of TTSL’s stake for approximately 128.1 billion rupees (approximately ¥252 billion) in March 2009. We also made a tender offer for shares of Tata Teleservices Maharashtra Limited (“TTML”), a TTSL affiliate, and acquired approximately 12.1% of TTML shares for a price of approximately 5.7 billion rupees (approximately ¥11.1 billion) in March 2009. Through this strategic investment and alliance, the three companies are aiming to expand their business in the Indian market, which is expected to grow at a fast pace.

• Overseas Development of i-mode

 

As part of the overseas development of i-mode, the Bulgarian company Cosmo Bulgaria Mobile E.A.D. launched i-mode services in September 2006. In addition, COSMOTE Romanian Mobile Telecommunications S.A. (“Cosmote Romania”) in Romania and Hutchison Telephone Company Limited in Hong Kong started i-mode services in May 2007 and SMART launched i-mode services in March 2008. Also, Wind Telecomunicazioni S.p.A. (“Wind”), which provides i-mode services in Italy, launched i-channel services in November 2007.

 

In September 2007, we developed application software that enables foreign i-mode operators to offer greater handset variety to their customers, and following the introduction by Bulgaria’s Globul, operators such as Italy’s Wind, Romania’s Cosmote Romania, the Philippines’ SMART and Taiwan’s FET commenced sales of handsets loaded with i-mode application software.

 

India’s Hutchison Essar Ltd. (currently Vodafone Essar) executed an i-mode license agreement with us but later cancelled that agreement in May 2007 because of changes in its business environment. In addition, Australia’s Telstra Corp., Russia’s Mobile TeleSystems OJSC, Germany’s E-Plus Mobifunk GmbH & Co. KG and Singapore’s StarHub Ltd., all of which executed i-mode license agreements with us and had been providing i-mode services, terminated the provision of such services in December 2007, February 2008, March 2008, and March 2009, respectively, because of changes in strategy.

 

 

We currently provide our services on several different networks including 2G and 3G networks. Each of these networks is composed of four basic components: base stations, antennas, switching centers and transmission lines. When a person uses a mobile phone (or other portable device), an antenna on top of a base station receives the signal. The signal then travels via fixed transmission lines to a switching center, which routes the signal to another base station in the vicinity of the intended recipient of the signal. In general, our 2G network and 3G network use separate base stations, antennas and switchboards, but we are moving ahead with providing common antennas and transmission lines for the 2G and 3G networks in our efforts to reduce network costs.

 

In order to establish and maintain our high-quality network economically and efficiently, we purchase high-quality network equipment at low costs from approximately 70 suppliers inside and outside Japan in accordance with our procurement policies, which stress openness and fairness.

 

At new procurement opportunities, we obtain high-quality equipment at competitive prices by receiving a wide range of proposals from domestic and international suppliers through our website.

 

• 2G Network

 

Our 2G network is an integrated network of base stations, switching centers, signal transfer points, mobile-service control points and a mobile communication information storage system that routes calls from the calling party to the called party. The various components of the network are connected primarily by microwave transmission, our own trunk and other fixed lines and fixed lines leased from NTT.

 

Operators need the licenses, which are issued by the Japanese government, to use radio spectrum bandwidth, so the capacity of our cellular network is limited to the bandwidth that the Japanese government has made available to us. The Japanese government has currently allocated 41MHz x2 (uplink and downlink) for the use of our 2G Network. We have been allocated frequency spectrum, of which 18MHz x2 is in the 800MHz band for the provision of service nationwide.

 

• 3G Network

 

We developed our 3G network based on the IMT-2000 standards of the International Telecommunications Union, or ITU, and launched commercial service of our 3G network in October 2001. IMT-2000 indicates a third-generation (3G) mobile communication system which offers data communication at a speed higher than the conventional second-generation (2G) system as well as international roaming services. In May 2000, ITU recommended five technologies as the IMT-2000 standard and added one technology in 2007. The technology

adopted in our 3G network, Wideband Code Division Multiple Access, or W-CDMA, is a type of IMT-2000 Direct Spread (DS), one of the six technologies recommended by ITU. Enough overseas operators have adopted a W-CDMA system compatible with our W-CDMA technology and commercialized the services, and we believe that we will be able to offer our services globally and benefit from economies of scale.

 

Our 3G network is an integrated network of base stations, various switching centers, and information storage systems. We are actively moving ahead on the migration of our customers from our 2G to our 3G network and adding equipment and infrastructure for our 3G network in addition to our existing 2G network. We have been constructing an IP router network based on an optical fiber relay network aiming to transmit huge volumes of data efficiently and less costly. The Japanese government has allocated a total bandwidth of 335MHz as radio frequencies available for use in the 3G network (including frequencies that are planned to be used in the future). Of this, we use 20MHz x2 (for uplink and downlink) in the 2GHz band across Japan. In the 800MHz band, which is in the process of reallocation, we currently use 5MHz x2 in regions where interference with existing systems can be avoided. Further, in the 1.7GHz spectrum, we use 15MHz x2 in the Kanto, Kansai, and Tokai areas. Therefore, our 3G network operates on the three bands of 2GHz, 800MHz and 1.7GHz.

 

In the year ended March 31, 2009, in order to improve area quality, we installed boosters compatible for 2GHz and 800MHz that can cover areas where FOMA signals have difficulty of penetrating, such as in building shadows and at the edges of areas. These boosters cover areas with a radius of several hundred meters and are less expensive to install than conventional base stations, and we are continuing with such installation to meet customer needs.

 

3G Standardization Activities

 

In 2000, ITU recommended standard specifications for 3G mobile communication systems. ITU collectively refers to 3G systems as IMT-2000 (International Mobile Telecommunications for the year 2000). Currently, a total of six technological characteristics are listed, including one characteristic that was added in 2007 to the recommendations setting forth the IMT-2000 standard specifications.

 

At this time, we believe that the following two technologies have achieved the most commercial success:

 

 

LTE (Long Term Evolution) has been discussed in 3GPP (3rd Generation Partnership Project), a standardization association of W-CDMA, and we have played a key role in the discussion. In response to specifications on LTE which were mostly finalized during the meeting of 3GPP held in March 2009, we launched the development of LTE for its commercialization. In tandem with these developments, we continue to vigorously participate in the 3GPP standardization activities in order to finalize LTE test specifications and investigate LTE-Advanced, a successor to LTE.

 

We were the first company in the world to launch 3G services based on W-CDMA technology. Many foreign companies in which we have invested, including HTCL, FET, KT and PLDT, and our international strategic allies, including operators which are members of Conexus Mobile Alliance, have already launched 3G services based on W-CDMA. One of our competitors in Japan, SOFTBANK MOBILE Corp. (“SOFTBANK MOBILE,” formerly Vodafone K. K.), launched their 3G services based on W-CDMA in December 2002.

 

cdma2000 1x was first commercialized in South Korea in 2000. Our competitor, KDDI CORPORATION and its subsidiaries (“KDDI group”), launched its 3G commercial services based on cdma2000 1x in April 2002 in major cities in Japan.

 

In an effort to promote and encourage the worldwide implementation of W-CDMA, in April 2002, we announced that we would begin licensing patents at reasonable and non-exclusive terms for our proprietary W-CDMA technology on which our FOMA system is based. Patents will be licensed to manufacturers which supply 3G products to mobile network operators. We believe that widespread adoption of W-CDMA technology will reduce procurement and production costs and contribute to lowering fees for 3G services and products.

 

In order to respond to swiftly growing demand for wireless telecommunication and to diversifying customer needs, we have upgraded our research and development capabilities and streamlined our research and development operations. As part of these activities, we built a center for research and development in Yokosuka Research Park in March 1998. We added three facilities in March 2002, October 2003 and December 2004. This center is a highly advanced research and development center near Tokyo specializing in mobile telecommunication technology. With state-of-the-art testing facilities, the center is the base for research and development of basic technologies, 3G, 4G and other mobile communication systems and a variety of new products and services.

 

Research and development is performed primarily at our own facilities. Research and development expenditures in the year ended March 31, 2009 were 100.8 billion yen. Our R&D Center is responsible for research and development. Our R&D Center includes:

 

 

Furthermore, 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 handsets and network equipment.

 

In addition, outside the R&D Center, the following other departments have joined development activities; Product Department, Frontier Services Department, Ubiquitous Services Department, Services Platform Department, Solution Business Department, and Network Technical Support & Operations Center.

 

As to our overseas subsidiaries, we established DOCOMO Communications Laboratories USA, Inc., which engages in research and development of network technology, handset software and media encoding. In July 2005, we established DOCOMO Capital, Inc., whose purpose is to invest in venture businesses that have leading-edge and innovative technologies applicable to mobile communication. We also set up DOCOMO Communications Laboratories Europe GmbH, which primarily researches network technologies, wireless technologies, next-generation IC/USIM card technologies, security technologies and standardization activities. In November 2003, we established DOCOMO Beijing Communications Laboratories Co., ltd. to engage in the leading-edge research, in particular fourth-generation (4G) wireless technologies and beyond. We also established DOCOMO Technology, Inc., which primarily carries out research and development to enhance our PDC system, IMT-2000 system and other existing systems and supplements our fundamental research and development activities.

 

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.

 

In April 2003, we and other mobile network operators in Japan agreed to conduct a joint research on the possible biological effects of exposure to radio waves from mobile phone systems. In April 2005 and January 2007, interim reports were issued, and at present research is still ongoing in collaboration with the MIC.

 

IMT-2000

 

We have continued research and development of the 3G system through our IMT-2000 related research. This includes further research and development of the W-CDMA technology as well as research and development of new products, services and applications for the 3G system. Currently, we focus on increasing transmission capacity and capabilities, reducing network costs, downsizing base station equipment, improving functionality of switches,

reducing handset size and weight, adding advanced functions to handsets, extending battery life, improving mobile multimedia services and developing video mail and international roaming services.

 

Another research and development theme is an IP-based network. The rapid increase of IP-based applications and the traffic they generate require communications methods for mobile networks that are both efficient and highly compatible with IP traffic. To meet these requirements, we have initiated research aimed at implementing an IP-based network that can be constructed at a low cost with generalized network routers, concerning development of IP-based routing and Quality of Service (QoS) technologies for multimedia traffic, as well as the development of new IP-based mobility control technologies.

 

LTE

 

We have also undertaken the development of LTE. We began recruiting manufacturers for LTE equipment development in July 2006 and commenced development geared towards commercial application. In September 2007, we succeeded to create a prototype of a Large Scale Integration (LSI) that uses our original technology to achieve high-performance signal separation of MIMO multiple signals at a downlink speed of 200 Mbps with low power consumption of under 100 mW. With this prototype, we are able to mount LTE high-speed signal transmission technology with power consumption suitable for use in portable devices. Indoor experiments started in July 2007 to confirm basic system performance and optimize the system. Outdoor trials with LTE systems began in February 2008 to determine the performance of actual wireless systems and further optimize the system, successfully achieving a downlink packet data transmission speed of 250 Mbps. In December 2008, we successfully created a prototype of low power consumption LSI that achieves a data reception processing speed of 100 Mbps, which is a requirement for LTE. Going forward, we will continue research and development of LTE and IMT-Advanced based on these prototype LSI chips and actively cooperate with the international standardization.

 

4G Mobile Communication System

 

We have conducted research regarding other advanced technologies, including fundamental research on a 4G mobile communication system aiming at further enhancement of cellular services. ITU has set forth as a requirement for 4G systems the ability to support transmission speed of up to 100Mbps for downlink at high-speed movement and 1Gbps at low-speed movement. If such a system is realized, high quality video equivalent to high-definition television will be provided and will allow high-speed transmission of large-capacity data on a bandwidth of approximately 100MHz. We actively participate in the international standardization movement for 4G systems.

 

In the summer of 2002, we began practical evaluations of key technologies for our 4G mobile communication system, as well as implementing an experimental system to demonstrate their benefits. In October 2002, we successfully completed a 100Mbps downlink and a 20Mbps uplink transmission experiment in an indoor environment using an experimental 4G mobile communication system. In May 2003, the Kanto Bureau of Telecommunications granted us a preliminary license to conduct field trials of 4G mobile communication systems. In August 2004, we successfully completed experiments on real-time 1Gbps packet transmission in downlink. In May 2005, following the experiments in an indoor environment, we successfully realized outdoor experiments on real-time 1Gbps packet transmission in downlink, followed by 2.5Gbps packet transmission in downlink, in December 2005. In February 2007, we successfully tested packet transmissions with a maximum downlink speed of 5Gbps outdoors. Currently, we continue to evaluate and improve these high-speed transmission technologies through field trials.

 

Development of Handsets

 

With respect to handset procurement costs, we continue to work to reduce the costs even though the enhancement of handset performance is driving up the costs. In the medium term, we will make further efforts to reduce handset procurement costs by simultaneously reviewing the handset development cycle, raising the efficiency of software development, and using shared components with an eye towards global deployment.

 

We also took the following measures to raise the efficiency of chip set and software development and for operating system standardization. By investing approximately ¥12.5 billion from the year ended March 31, 2005 to the year ended March 31, 2007 in the development of LSI technology relating to FOMA handset chipsets, having

manufacturers incorporate our requirements from the LSI specification review stage and striving for one-chip LSI, we shortened development times and costs with the introduction of one-chip. In addition, in the second half of the year ended March 31, 2008, we jointly developed a mobile phone platform that integrates the baseband LSI, the application processor one-chip LSI, and core software including the OS platform. Even after the year ended March 31, 2008, we continue to work in the joint development of a mobile phone platform compatible with HSDPA cat.8 and having an even faster processor, achieving greater functionality and cost efficiency.

 

To promote greater global collaboration concerning Linux^® platforms, we participated in the formation of the LiMo Foundation with six companies including Vodafone Group and Motorola, Inc. in January 2007 and we are a founding member of the Symbian Foundation, a non-profit organization that promotes the development of Symbian OS^tm-based software platforms for mobile handsets.

 

Further, we participate in the Open Handset Alliance^tm, which includes Google, and in cooperation with Google, we plan to release handsets loaded with Android, a software platform for mobile handsets, including commercialization for us. By having a standardized platform for mobile handsets, we anticipate reductions of development costs and shortening of development terms, and this in turn will lead to the promotion and spread of W-CDMA services across the world, and for this reason we have been actively involved in these activities.

 

In April 2008, we launched development of operator packs to be used in the development of FOMA handsets to achieve greater efficiency in the development of FOMA handsets, encourage mobile handsets manufacturers to participate in FOMA handsets development, and improve the international competitiveness of domestic handsets manufacturers.

 

The operator pack is an application software set for the Linux^® operating system that complies with LiMo^tm specifications for DOCOMO’s proprietary services including i-mode and i-appli. The operator pack will make use of such properties as the middleware (MOAP*: Mobilephone Oriented Application Platform) and application software we have developed. We jointly develop the operator pack with Access Co., Ltd. (“Access”). The operator pack, combined with a global handset software platform containing a suite of basic functions such as calling, will enable us to provide a variety of services for our cellular services. We are planning to install the operator pack on FOMA handsets starting in the second half of 2009 and will recommend that handsets manufacturers use the operator pack.

 

 

In the case that the rights for FOMA handset patented technologies and know-how, in which we invested development expenditures on handsets manufacturers, are used in handsets by the manufacturers and the handsets are supplied to other 3G operators, we will receive royalties from the manufacturers. In December 2005, in order to promote cooperation in technological development focusing on browser technology, we invested approximately additional ¥15 billion in Access. Also in December 2005, in an effort to strengthen our cooperation in handset middleware centered on Java technology, we invested approximately ¥13 billion in Aplix Corporation. In March 2008, with a view towards greater technical cooperation in the field of user interfaces and other terminal middleware, we invested approximately ¥1.8 billion in Acrodea, and received a distribution in kind of Acrodea shares held by JAIC Advanced-Tech No. 1 Venture Capital Investment, LP of which we are a limited partner. Advanced handset capabilities and a wide variety of model choices play an important role in the success of 3G services. By investing in FOMA handset expansion, we expect to motivate manufacturers to produce advanced value-added 3G handsets, promoting the development of 3G services and mobile multimedia as we have already seen with the popularity of our 90xi series.

 

Notes:

1: Linux^® is a registered trademark of Linus Torvalds in the U.S. and other countries.

 

 

We employ various computerized, fully integrated information systems to support key functions, including procurement, billing, financial accounting, customer service and marketing.

 

• Customer Information System (ALADIN)

 

One of the most important systems among these is ALADIN, which is our proprietary nationwide operating system. ALADIN has five primary functions: customer management, phone number management, information processing and storage, sales information management, and credit investigation. ALADIN manages information and data concerning our nationwide FOMA and mova subscribers and provides authorized customer service personnel in docomo Shops and our telemarketing center with online access to network data so that they can properly address customer inquiries.

 

ALADIN enhances the efficiency of our operations by simplifying the process of registering customer information, automating phone number registration, enabling automatic credit reference checks and other functions. For example, ALADIN controls telephone number allocation which makes it possible for handsets to be assigned telephone numbers and activated immediately upon signing up for cellular service and also provides an opportunity to conduct reference checks in order to prevent the assignment of a telephone number to a subscriber who does not meet our payment history and other requirements. ALADIN maintains and continually updates a list of subscribers that had credit problems.

 

ALADIN and its related systems are also used to collect customer data so that our management and our marketing staff can monitor and analyze the usage of services, market segments and subscriber satisfaction, and utilize those data to develop a plan for network expansion and appropriate marketing strategies.

 

We have implemented various measures to ensure thorough and adequate control of customer information during the use of the ALADIN customer information system by our staff. Such measures include fingerprint authentication for system login and each search of customer information, regular inspections of locations where ALADIN terminals are installed to check how the system is used and managed, examination of access logs and regular information management training for employees who manage this system.

 

• Enterprise Information System (DREAMS)

 

In April 2002, we and our service subsidiaries introduced an enterprise information system which we call “DREAMS,” and as of March 2009, our 27 service subsidiaries had implemented this system. This system enables us to consolidate the flow of operations, cash, goods and information throughout our company and our service subsidiaries. This system allows us to realize real-time and effective management. Specifically, this system gives us the ability to understand real-time information and thereby make timely decisions, allows us to perform electronic approval to reduce indirect operations, and allows us to effectively manage capital among companies.

 

 

Adhering to our Corporate Social Responsibilities (CSR) message — “We connect people to people, and people to their worlds. We open the door to the future,” we will listen to each individual customer and to society, and will drive innovation toward the future to create abundance and convenience in life and culture. We have taken various actions in areas of key importance, such as global environmental protection, promotion of universal design products and services, realization of a safe and secure mobile society and disaster preparedness and response.

Among these activities, those that are directly related to the products and services offered by our group have been promoted under the “docomo Anshin Mission” aimed at delivering peace of mind. The concrete actions undertaken during the year ended March 31, 2009, include the followings:

 

• Global environmental conservation initiatives

 

As a part of our initiatives to reduce greenhouse gas emissions by cutting electric power consumption by mobile network equipment, we launched the ICT Ecology Project in February 2009 and began testing cutting-edge technologies.

 

We collected used cellular handsets (a cumulative total 69.0 million units as of March 31, 2009) and continued our forest improvement initiatives of the “docomo Woods” reforestation Program (43 locations on a cumulative basis as of March 31, 2009).

 

In collaboration with the Philippine carriers, Philippine Long Distance Telephone Company and Smart Communications, Inc., we carried out tree-planting activities in the Philippines. Some of the funds for these activities came from sale of metal recovered from recycled cell phones collected at docomo Shops and other locations.

 

 

• Adoption of Universal Designs

 

At docomo Shops, we installed entryway ramps, installed wheelchair-accessible bathrooms, and took other measures to create barrier-free environments (in the year ended March 31, 2009, 149 docomo Shops were made barrier free).

 

In accordance with the universal design concept, we continued working to expand the number of handsets and functions that seniors, children, and the disabled can use with peace of mind. Cumulative nationwide sales of the “Raku-Raku PHONE” series, which has been extremely well received by numerous customers since its launch in 1999, surpassed 15 million units in March 2009.

 

• Creating a Safe and Secure Mobile Society

 

We hold Mobile Phone Safety Classes to teach proper mobile phone use and etiquette as well as how to deal with phone-related problems (as of March 31, 2009, a total of 9,200 classes were held with approximately 1.49 million persons attending, of which approximately 4,600 classes were held in the year ended March 31, 2009 with approximately 790,000 persons attending. In addition, we strengthened our efforts by providing video educational materials of the Mobile Phone Safety Classes to schools and communities free of charge. In April 2009, we enhanced the Mobile Phone Safety Classes by adding a program designed for seniors to protect themselves against crimes such as fraud where the victim is deceived into remitting money to a bank account, as well as other problems.

 

We are also promoting the use of access restriction services (filtering services).

 

We established the “docomo Anshin Hotline,” a dedicated call center, to provide consultation regarding billing plans and various services to help reduce anxiety regarding the use of cellular phones by children.

 

• Social Contribution Activities

 

We supported the healthy education and development of children by holding various sports clinics as part of our youth development programs.

 

Through the “Mobile Communication Fund,” a non-profit organization that we established in July 2002, we award commendations including the presentation of the “docomo Mobile Science Prize” (four times in the year ended March 31, 2009) to recognize outstanding research results and papers relating to mobile communication, and support foreign students from Asian countries (20 students from seven countries in the year ended March 31, 2009).

 

Cellular phones serve as an important communication infrastructure indispensable to people’s everyday life, and are expected to fulfill a significant role in the event of earthquakes, storm and flood damages or other natural disasters, providing means for communications for rescue activities and/or national and local government institutions. Believing that taking appropriate measures for disaster damage prevention is an important part of our CSR as a mobile network operator, we set forth “three principles for disaster damage prevention,” and have worked to construct a communication network highly resistant against natural disasters, and to secure and enhance the safety and reliability of our networks.

 

Moreover, we established a Business Continuity Plan, which places emphasis not only on the restoration and protection of our communication network but also on the maintenance of the business operations of the Company. In the Business Continuity Plan, each organization prioritizes their business activities to designate the order in which such activities are to be restored to resume normal business operations at the earliest possible opportunity within a previously designated target time period. We intend to continually update the plan, including reflecting the results of education, training and monitoring of the plan.

 

• Three Principles for Disaster Damage Prevention

 

Enhancement of System Reliability

 

To ensure that our mobile communication systems function properly in the event of a disaster, we have reinforced our facilities and equipment by applying earthquake resistant reinforcement to our buildings/antenna towers, anchoring our machines/equipment and strengthening their earthquake resistance, accommodating cables in shielded tunnels, and laying our communication cables underground. We have also endeavored to enhance the reliability of our networks by providing backups to our facilities and circuits through the use of multiple/dual routes or loop structure in our relay transmission lines (middle-distance transmission lines), using redundant configurations in our communication facilities or installing them in dispersed locations, and increasing the use of communication satellites.

 

Securing Important Communications

 

As a designated public institution that is required to cooperate with national/local government institutions in their disaster damage prevention efforts, we have established a priority telephone system allowing institutions engaged in disaster damage prevention activities to use our circuits with higher priority in the event of a disaster. We have also strived to ensure that important communications are protected by ensuring efficient network control and lending cellular phones and/or other devices to municipal governments and/or other institutions in the event of a disaster.

 

Early Recovery of Communication Services

 

With the goal of recovering mobile communication services at the earliest possible time following a disaster, we have employed various measures, including the preparation of hardware such as the deployment of mobile base station equipment, and mobile power supply vehicles and the securing of restoration materials, as well as the creation of operation manuals for disaster situations, organizing “Disaster Management Headquarters” and conducting drills for disaster damage prevention.

 

• Organizational Structure for Disaster Damage Prevention

 

We will establish “Disaster Management Headquarters” at our head office or branches, depending on the scale of the disaster or damage. The “Disaster Management Headquarters” will collect information through collaboration with our regional offices, service subsidiaries, or NTT group companies that have not been affected by the disaster, to develop and coordinate the restoration work, relief plans, etc. Each team in the “Disaster Management Headquarters” will lead and supervise the restoration/relief efforts. Depending on the magnitude of the disaster, we will cooperate with the Cabinet Office, MIC, and/or emergency management organizations of the national government, to assist the restoration efforts and other actions undertaken by the Government. We will also

supply information to our subscribers by providing the media with concrete explanations on the damages and/or restoration status.

 

To introduce some of the various actions we have undertaken to respond to disasters, in December 2007, we began offering the “Emergency Reports ‘Area Mail’,” which simultaneously delivers emergency earthquake reports from the Meteorological Agency and disaster and evacuation information from the national and local governments to “Area Mail” compatible phones in areas prone to damage, without regard to impact from network congestion. Since the launch of this service, emergency earthquake information from the Meteorological Agency has been distributed to compatible mobile phones nine times. Also, nine municipalities have introduced and used the system as a means of disseminating disaster and evacuation information to residents.

 

In connection with the Iwate Miyagi Inland Earthquake of June 2008, we promptly deployed mobile power supply vehicles and motor power generators to base stations where the power was out, to ensure service in coverage areas. After the earthquake, we provided such services as free cellular phone rental and recharging at evacuation shelters.

 

 

With the rapid growth of the mobile telecommunication industry in Japan, the increasing number of subscribers and the deregulation of the industry, we are facing increased competition. We have responded to the gains made in recent years by competitors with a comprehensive approach, including revisions in our billing plans, releases of attractive handsets, and improvement in network quality. In addition to existing mobile network operators, other companies have also expressed their intention to enter the mobile phone market. Of these companies, SOFTBANK CORP. (“SOFTBANK CORP”) acquired Vodafone’s Japanese unit in April 2006 and began providing services under the SOFTBANK MOBILE brand in October 2006, and EMOBILE Ltd. (“EMOBILE”) began offering mobile data services using the HSDPA protocol on March 31, 2007, and voice communication services on March 28, 2008. Also, MVNOs by new businesses began full-scale market entry. Disney Mobile was started in March 2008, and Japan Communications Inc. began providing services in August 2008.

 

Mobile Number Portability (MNP) was introduced among domestic mobile network operators in October 2006. MNP allows mobile phone users to keep their current phone numbers even if they switch mobile network operators.

 

Furthermore, in addition to direct competition with other mobile network operators, we believe that the telecommunications industry in Japan is organizing itself into integrated groups of telecommunications service providers that will offer local, long-distance and international services as well as mobile and other services. While we believe that we have certain competitive advantages over these groups, including our current market leadership position, our research and development capability and our affiliation with NTT, the effect of industry consolidation is difficult to predict and no assurance can be given that we will be able to continue to protect our current market position.

 

• Cellular Competition

 

There are presently four mobile network operators in Japan: DOCOMO, the KDDI group, SOFTBANK MOBILE, and EMOBILE. As of March 31, 2009, we had a market share of 50.8%, the KDDI group had a market share of 28.7%, SOFTBANK MOBILE had a market share of 19.2% and EMOBILE had a market share of 1.3%. These mobile network operators have all received permission and licenses from the Japanese government for the establishment of 3G services in Japan.

 

The KDDI group is the second largest mobile network operator in Japan with approximately 30.8 million subscriptions as of March 31, 2009. The KDDI group was established by the merger of the previous telecommunications carriers KDD, DDI and IDO on October 1, 2000. Its cellular services businesses are a result of an alliance between three formerly independent mobile network operators, DDI cellular and its related subsidiaries and IDO. They offer nationwide services using cdmaOne technology as well as PDC technology. The KDDI group launched its 3G services through cdma2000 1x in major cities in Japan in April 2002. On October 1,

2005, KDDI merged three companies of TU-KA group and began to accept contract changes from TU-KA cellular services to au (the service brand name for cellular services by KDDI group) cellular services, enabling TU-KA subscriptions to carry over the same mobile phone number they were using in TU-KA cellular services. Furthermore, on February 20, 2006, KDDI added another privilege which enables TU-KA subscriptions to carry over the same e-mail address, promoting the migration of the users to au cellular services and terminated TU-KA cellular services as of March 31, 2008. TU-KA cellular services provided 2G services, and the number of subscribers on March 31, 2009 immediately before the termination of services was 234,000. The KDDI group has approximately 30.5 million 3G subscribers, and its network construction costs have been lower than ours because of their ability to use most of their existing cdmaOne networks.

 

SOFTBANK MOBILE operates nationwide and is the third largest mobile network operator with approximately 20.6 million subscriptions as of March 31, 2009. SOFTBANK CORP acquired the Japanese subsidiary of the worldwide Vodafone group in April 2006 and began providing mobile phone services under their own brand name from October 2006. The Japanese Vodafone subsidiary began offering 3G services in December 2002, based on the same standard W-CDMA (DS-CDMA) technology as ours. SOFTBANK MOBILE had approximately 18.70 million W-CDMA 3G subscriptions as of March 31, 2009. SOFTBANK MOBILE also offers international roaming service with GSM networks overseas.

 

Competition in the mobile communication industry has led the three mobile network operators (excluding EMOBILE) to enact similar rate plans and promotions. For example, KDDI group and SOFTBANK MOBILE both offer plans and services that are similar to our “Family Discount,” “Two-Month CarryOver” and “Pake-hodai double” services. SOFTBANK MOBILE introduced the “White Plan” service that allows unlimited free calls among SOFTBANK MOBILE subscribers between 1:00 a.m. and 9:00 p.m.

 

Regarding potential competition from fixed-line telecommunication services companies, our management believes that fixed-line telecommunication services and cellular communications services are not necessarily competitive with, but rather are primarily complementary to, each other — customers typically use fixed-line networks when they are at their homes or offices and cellular networks when they are outside. However, with the expansion of services offered by both fixed-line and mobile network operators, improvements in fixed-line and cellular technology, rate reductions in cellular services, deregulation, competition within the telecommunications industry and other developments (including technological developments that may enable us to lower the cost and further improve the capacity of cellular communication), there may be direct or indirect competition or conflicts of interest between us and other NTT subsidiaries.

 

• i-mode Competition

 

The competitors of i-mode are “EZweb” provided by the KDDI group, “Yahoo! Keitai” provided by SOFTBANK MOBILE and “EMnet” provided by EMOBILE. As with i-mode, KDDI group’s “EZweb,” SOFTBANK MOBILE’s “Yahoo! Keitai” services and EMOBILE’s “EMnet” services allow their users to connect to the Internet, send and receive e-mails, download games, music and video content, and also utilize navigation programs. We expect increasing competition in the areas of content offering and e-commerce services.

 

 

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

 

• The Telecommunications Business Law

 

Under the Telecommunications Business Law, we are subject to a registration requirement as telecommunications operators. Depending on the scale of telecommunications circuit facilities operated and the scope of the areas where the telecommunications circuit facilities are located, telecommunications carriers are subject to either a registration requirement or a notification requirement.

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

 

 

 

 

The asymmetric regulation

 

Furthermore, our group is subject to the asymmetric regulation provided in the Telecommunications Business Law. This regulation is based on the distinction of (i) Category I-designated telecommunications facilities (e.g., local fixed-line systems) and (ii) Category II-designated telecommunication facilities (e.g., mobile communication systems), each designated by the Minister of MIC. The Minister of MIC may designate as Category II-

designated facilities the transmission lines and other telecommunications facilities of a telecommunications carrier if its market share of the number of mobile terminal facilities within the same service area exceeds 25%. Our telecommunications facilities were designated as Category II-designated facilities in February 2002. The Minister of MIC may designate a telecommunications carrier installing Category II-designated facilities as a telecommunications carrier to whom the prohibition of anti-competitive behaviors by designation shall apply, if the percentage of such carrier’s revenue from telecommunications service using the Category II-designated facilities to the total revenue from all business activities of the provision of the same type of telecommunications service within the same area exceeds 25% and it is deemed necessary to ensure fair competition with other telecommunications carriers. Our revenue percentage in all service areas exceeds the 25% threshold and we were so designated in May 2002.

 

Under the asymmetric regulation described above, we and other telecommunications carriers that have installed Category II-designated telecommunications facilities are subject to the prohibition of anti-competitive behaviors, such as abuse or provision of proprietary information obtained from competitors through interconnection for other purposes, unduly favorable treatment of specific carriers and undue compulsion or intervention upon other carriers, manufacturers or suppliers of telecommunications equipment, and are obligated to compile and disclose financial statements pertaining to telecommunications and other businesses. In addition, telecommunications carriers that have installed Category II-designated telecommunications facilities are obligated to establish and notify to the Minister of MIC the Article of Agreement Concerning Interconnection prior to implementation and to make them available for public inspection. The Minister of MIC may order changes be made to the Article of Agreement Concerning Interconnection. Agreements pertaining to the interconnection between Category II-designated facilities and other telecommunications carriers cannot be entered into or amended without complying with the Article of Agreement Concerning Interconnection.

 

For other recent discussions concerning the Telecommunications Business Law, please see “Proposals concerning the Telecommunications Business Law and the Radio Law” below.

 

• The Radio Law

 

Outline

 

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

 

Article 4 of the Radio Law requires that any person who intends to establish a radio station shall obtain a license from the Minister of MIC. This requires mobile network operators to obtain a license in connection with individual base stations and handsets. However, with respect to increases in the number of base stations and sales of handsets within the already allocated spectrum, a technical standards verification system and other systems have been introduced to expedite the process by MIC. Under Article 6 of the Radio Law, persons wishing to obtain a license for a radio station must submit an application to the Minister of MIC together with documents setting forth matters such as purpose and the reason for requiring the establishment of a base station, communications counterparties, communications matters, locations where radio equipment are to be installed, and frequencies to be used. Under Article 7 of the Radio Law, the Minister of MIC, upon receiving an application for a license, shall examine it to determine whether it satisfies, among others, the following criteria: conformity of the construction design to technical standards, the availability of the frequencies requested, and conformity with the fundamental standards for radio station establishment such as the applicant’s business need for the license. Generally, however, the Minister of MIC submits such important matters as spectrum allocation to new operators and new systems to the Radio Regulatory Council for consultation and will grant the license only after obtaining the Council’s reply thereto.

 

Article 17 of the Radio Law requires a licensee to obtain prior permission from the Minister of MIC for changes in the operations, including changes of the person with whom radio communications is conducted and location of radio equipment, and for the initiation of construction to modify any radio equipment. As with licensing, regulatory requirements with respect to the location of radio equipment and construction to change radio equipment for use within the allocated spectrum has been simplified by implementing a certification procedure.

Article 26 of the Radio Law also provides that a list setting out current frequency assignments and frequencies available for future assignment shall be made public for the convenience of any person that would like to establish a radio station. The frequency or spectrum allocated for a certain use, such as cellular, PHS or paging services is stipulated by a ministerial ordinance of MIC. From within the assigned frequency or spectrum for a certain service, MIC by issuing a circular allocates a spectrum to the mobile network operators providing such services. In accordance with Article 4 of the Radio Law as noted above, the operators then apply for a license for radio stations (i.e. base stations and handsets) that use frequency from within their allocated spectrum.

 

Spectrum Allocation

 

Spectrum is allocated to mobile network operators by MIC, which is the regulating authority with respect to radio frequencies and the allocation of spectrum in Japan, pursuant to the Radio Law. As spectrum capacity is limited, spectrum is a highly valuable resource. MIC currently allocates 41MHz x2 for 2G network. Three mobile network operators including us have been allocated spectrum for 2G network. We have been allocated a frequency spectrum of 18MHz x2 in the 800MHz band. The KDDI group has collectively been allocated 13MHz x2 in the 800MHz band for 2G network use. SOFTBANK MOBILE has been allocated 10MHz x2 in the 1.5GHz band.

 

Radio frequencies for 3G networks have been allocated as stated below:

 

On June 30, 2000, we, KDDI and Vodafone (currently SOFTBANK MOBILE) respectively obtained approvals from MPT (currently MIC) which allow each company to use the 2GHz band. All three companies have each been allocated 15MHz x2 of spectrum.

 

In May 2004, MIC announced its allocation policy allowing us and Vodafone each to use an additional 5MHz x2 of spectrum in the 2GHz band. KDDI is expected to be allowed to use an additional 5MHz x2 of spectrum after the interference problem with PHS systems is technically resolved.

 

In February 2005, MIC announced its policy to allocate spectrum in the 800MHz band to us and KDDI respectively, which allows each company to use 15MHz x2 of spectrum after completing the migration of existing systems operated in the 800MHz band to other frequency bands.

 

In August 2005, MIC announced its policy for new allocation of 35MHz x2 in the 1.7GHz band (of which, 15MHz x2 is nationwide, only for new businesses, and 20MHz x2 is for Tokyo, Nagoya and Osaka, for both new and existing businesses) and 15MHz x2 in the 2GHz band (nationwide, for new businesses only). As of April 2006, in the 1.7 GHz band, BB Mobile (a subsidiary of SOFTBANK CORP, currently SOFTBANK MOBILE) and EMOBILE (subsidiary of eAccess), as new businesses, were each allocated 5MHz x2 nationwide, and we, as an existing business, were allocated 5MHz x2, and IP Mobile was allocated 15MHz in the 2GHz band. However, because through the acquisition of Vodafone by BB Mobile, the assumptions that were in effect at the time of attestation of the establishment plan were no longer operative, BB Mobile, on April 28, 2006, reported to MIC that it wanted to return the attestation, and in May 2006, MIC referred the matter of revocation of attestation of the establishment plan to the Radio Regulatory Council and canceled the attestation. Moreover, IP mobile also offered the return of attestation on October 30, 2007, and MIC canceled the attestation in December 2007 according to the report of the Radio Regulatory Council. We satisfied the conditions for the allocation of additional spectrum relating to the 1.7GHz band for use in Tokyo, Nagoya, and Osaka specified in the allocation guidelines, and 5MHz x2 were allocated for use in these cities in July 2006 and June 2008. Currently, we have been allocated a total of 15MHz x2.

 

Furthermore, MIC announced guidelines for establishing specified base stations relating to the introduction of 3.9 generation mobile communication systems in April 2009, and 10MHz x2 in the 1.7GHz band (for nationwide use by new carriers only) that had not been allocated and 35MHz x 2 in the 1.5GHz band that had been used for 2G networks but were reorganized and became available for allocation. These frequencies will be allocated to carriers that wish to use them for the installation of new 3.9 generation mobile communication systems. We submitted a specified base station plan to the MIC in May 2009, as a result of the review, MIC approved the plan in June 2009 and we have been allocated spectrum 15MHz x2 in the 1.5GHz.

Recent Amendments

 

Under partial amendments to the Radio Law that became effective in April 2008, a system for conciliation and mediation by the Telecommunications Dispute Resolution Committee for disputes relating to radio stations was established. The system promotes negotiations to solve the long-standing problems of mixing of signals between new entrants setting up radio stations and existing carriers.

 

Under amendments to the Radio Law that took effect in May 2008 and in October 2008, a review of usage and rates was undertaken with respect to charges for radio spectrum use. Radio spectrum use fees had been used as a source of funds to provide subsidies to support transmission line costs for “wireless system dissemination support businesses” which promote the bringing of services to hard to reach locations in depopulated regions, but subsidies have been expanded to include tower construction, and as “mobile phone, etc. area development support businesses,” a system was introduced to subsidize costs for transmission lines to mobile phone base stations and tower construction.

 

Under partial amendments to the Radio Law that became effective in October 2008, a system was created allowing persons other than licensees to perform the operations of repairing or moving ultra-small base stations for mobile phones (Femtocell base stations).

 

For other recent discussions concerning the Radio Law, please see “Proposals concerning on the Telecommunications Business Law and the Radio Law” below.

 

• Proposals concerning the Telecommunications Business Law and the Radio Law

 

Besides the points already covered in the amendments or the proposed amendments to the Telecommunications Business Law and the Radio Law, several other changes have been recommended by various governmental bodies.

 

Three-Year Program for Promoting Regulatory Reform

 

The Regulatory Reform Committee recommended in its report dated December 12, 2000 that, among other things, the introduction of a spectrum auction system be considered and discussed. The Government on March 30, 2001, launched the Three-Year Program for Promoting Regulatory Reform. The Regulatory Reform Committee was terminated on March 31, 2001. The General Regulatory Reform Council, a body established under the Cabinet Office, has since then been in charge of promoting regulatory reform. On March 28, 2003, it published the Three-Year Program for Promoting Regulatory Reform. In relation to the mobile telecommunication area, most of the issues in the Three-Year Program have already been reflected in the amended Telecommunications Business Law while an optimum spectrum reallocation system is still under consideration.

 

New IT Revolution Strategy

 

As part of the “New IT Revolution Strategy” determined on January 19, 2006 by the Government’s IT Strategy Headquarters the following proposals were made in connection with mobile communication:

 

 

Emergency Calling Functions

 

As part of the “technical requirements for caller location notification functions for emergency calls from cellular phones” announced by MIC’s committee on advancement of emergency calling functions on June 30, 2004, the following provision was proposed:

 

 

Regarding the provision of a location information notification feature for emergency situations, we are working with relevant ministries in order to successfully implement the proposal in consideration of user convenience and the demands of society with due consideration to the protection of privacy and communication confidentiality.

 

NTT Group’s Voluntary Action Plan

 

Both the Three-Year Program and the New IT Revolution Strategy stated that the Japanese government expects that NTT will establish a voluntary action plan for promoting competition, including:

 

 

In response, on October 25, 2001, NTT together with NTT East and NTT West announced “NTT’s Strategy concerning Current Management Issues.” In relation to its group operations, in that release NTT stated that:

 

 

In the report released on June 6, 2006, an MIC panel on the future of telecommunications and broadcasting services proposed conducting a thorough review of the legal system for telecommunications by 2010 for promotion of fair competition among telecommunications carriers. It also called for discussions of measures aimed at eliminating regulations restricting the operations of NTT East and NTT West, as well as abolishing the holding company and separating the capital ties within the group in an integrated manner. Further, it proposed a swift start to discussions necessary for the above proposals.

 

In response to the report released from the MIC panel, NTT released a statement on June 6, 2006, saying that it planned to exert its utmost efforts to achieve the goals stated in its medium-term business strategy and that it would not be able to accept the proposals in the report because they would interfere with the smooth implementation of such strategy.

On June 20, 2006, the consensus between the Japanese government and ruling parties on the future of telecommunications and broadcasting services was released. In the statement, they concluded that, in the telecommunications industry, they would promote such fair competition rules as those on opening of networks that are necessary for realizing advanced yet inexpensive information communication services and would discuss the organizational issue of NTT in 2010 after assessing the status of the diffusion of broadband and the trend of medium-term business strategy of NTT.

 

Fair Competition

 

One of the purposes of the Telecommunications Business Law is promoting fair competition in the telecommunications business, and accordingly MIC implements various measures. MIC and the Fair Trade Commission jointly published in November 2001 the Guidelines for Promotion of Competition in the Telecommunications Business Field for the purpose of the Antimonopoly Law and the Telecommunications Business Law in order, principally, to enhance the transparency of telecommunications carriers, to clarify actual practices for which telecommunications carriers having market power are prohibited and to clarify practices leading to orders to change charges or orders to improve business activities under the Telecommunications Business Law.

 

On June 6, 2002, MIC’s study group on new business models and grand design of the competitive environments for the new information and communications era compiled and released its final report regarding how competitive environments in the telecommunications business fields should be established in the broadband age. The report indicates the necessity of introducing new regulations in order to facilitate participation of content providers, portal site providers and Internet service providers to the i-mode service market. In addition, equal treatment among content providers has been required by the aforementioned joint guidelines published by MIC and the Fair Trade Commission. In November 2002, we started providing Internet service providers with open access to the interface with our PDC-P packet network used for i-mode-compatible PDC handsets. Open access to the interface with our IMT-2000 packet network used for FOMA i-mode handsets has also been allowed since March 2003.

 

The Right to Set Charges for Calls

 

In November 2002, in connection with an application by Heisei Denden to MIC concerning terms and conditions of interconnection between Heisei Denden’s telecommunications facilities and our telecommunications facilities, MIC decided, following a recommendation by the Telecommunications Dispute Settlement Commission, that it is appropriate for Heisei Denden to set user charges for calls generated from Heisei Denden’s facilities to our facilities. This is a case of a fixed-line operator being given the right to set charges for calls made from fixed-line phones to cellular phones. In addition, in December 2002, MIC set up a study group regarding the setting of charges with respect to intermediate interconnection services and calls made from IP telephones to cellular phones.

 

As a consequence, in June 2003, it was announced in the study group report and the administrative policies of MIC that the charges for inter-exchange calls (outbound calls from the fixed-line telephones of NTT East and NTT West to cellular phones connected via the facilities of inter-exchange operators) will be set by inter-exchange operators if the caller selects the inter-exchange operator for each call, and the charges for calls made from IP phones to cellular phones will be set by the IP phone operator. Following this announcement, intermediate interconnection services were introduced in April 2004. While, as a transitional measure, mobile network operators were allowed to set user charges for the portion of an inter-exchange call serviced by mobile network operators during the year ended March 31, 2005, effective April 2005, interconnection fees have been applied instead for the said portion of an inter-exchange call.

 

Radio Spectrum Use

 

The study group on policies concerning the effective radio spectrum use of MIC that was established in January 2002, published its first report in December 2002. Its proposals included the introduction of a compensation scheme for licensees who shoulder losses resulting from a short-term reallocation of spectrum or a shift to fiber-optic cables instead of an alternative spectrum. That proposal was reflected in the Amendments to the Radio Law that passed the Diet in May 2003. The report also proposed that a comparative examination system based on market

principles and licensing procedures is desirable instead of an auction system which could seriously hinder effective use of radio spectrums as shown by the extremely high bidding that occurred in various European countries. The report also proposed deregulation on experimental radio stations. In September 2003 and December 2003, the study group published its second and third reports, including discussion of such topics as an after-the-fact registration system (including exemption from prior licensing) primarily for public wireless LAN services, and discussions about cost burdens. They released a final report October 2004 proposing basic policy regarding amendment of the scheme for spectrum user fee. In this report, in order to secure the fairness of the burden for spectrum user fee imposed to every licensee, reexamination of the fee scheme for each type of radio station and imposition of spectrum user fee charged depending on areas and ranges of spectrum used as a radio spectrum exclusive for wide-range areas (a frequency mainly used in radio stations which are built considerably in wide-range area by same licensee) were incorporated. Also, in order to bridge the digital divide, a system to financially assist, with a certain criteria, the expense of the cable transmission line to the mobile base station in rural areas and allocation of funds for the research and development of effective use of spectrum are incorporated. The proposed measure was approved and materialized in the Diet in October 2005, and it was reflected in the amended Radio Law proclaimed and enforced in November of the same year (reexamination of the charging scheme was enforced in December of the same year).

 

Evaluation of Competition in the Telecommunications Field

 

MIC announced its “basic approach of competition review in the telecommunications field” and “details of the implementation for the year ended March 31, 2004 of the evaluation of the state of competition in the telecommunications field” in November 2003. MIC has performed analyses of four areas including the areas of fixed-line phone, Internet access services, mobile communication, and corporate network services annually from the year ended March 31, 2004. Analysis and evaluation on the state of competition will first be made based on an analysis using quantitative indices, and in the event it is judged that progress of competition cannot be sufficiently achieved with quantitative analysis only, qualitative analysis, including factors affected by circumstances that are indicated by qualitative indices, will also be employed.

 

In October 2006, MIC designated the three years from fiscal year 2006 to fiscal year 2008 as the second phase for competition review, and formulated the “basic policy for competition review in the telecommunications field for fiscal years 2006-2008,” based upon which it announced in October 2007 “particulars for competition review in the telecommunications field for fiscal year 2007.” The stipulated implementation particulars included matters ranging from the domains subject to analysis in the fiscal 2007 competition review to the analysis and review of competition conditions.

 

In September 2008, MIC announced its “competition review in the telecommunications field for fiscal 2007”. In this report, MIC’s evaluation of the mobile communication field was as follows:

 

 

New Competition Promotion Program 2010

 

In October 2005, MIC established a “Panel on Competition Rules corresponding to the development of IP” for the purpose of clarifying basic policy regarding competition rules in light of developments in IP and the direction in which review of connection and rate policies is to proceed. A final report was released in September 2006.

 

In light of this report, MIC announced in September 2006 the New Competition Promotion Program 2010, which concerns measures to be implemented by the early 2010s from the viewpoint of ensuring fair competition. Further, in October 2007, MIC revised the program in order to more accurately address the rapid changes in market environment. The outline of the program is as follows:

 

 

Based on the New Competition Promotion Program 2010, MIC plans to implement the required system changes by the early part of the decade starting in 2010. The status of the main changes affecting our group is described below.

 

Review of the designated telecommunications facilities system (dominant regulations)

 

On April 18, 2007, MIC formulated the “guidelines for operation of the competition safeguard system” with the purpose of verifying the scope of designated telecommunications facilities and the validity of NTT group’s successive fair competition requirements on a regular basis (once per year).

 

Further, MIC is planning to undertake a comprehensive review of the currently designated telecommunications facility system, from the viewpoint of the fair operation of the dominant regulations in light of market integration associated with developments in IP related trends. Specifically, under the auspices of the “panel for network neutrality,” established in November 2006, a working group on “new competition rules” was established, with the purpose of examining the direction in which review of dominant regulations should proceed. In the report of the panel released in September 2007, a new regulatory framework was proposed for the Next Generation Network (NGN) of NTT East and NTT West, for platforms as vertical market control, and for FMC as horizontal market control.

 

Promotion of competition in the mobile telecommunication market

 

On February 13, 2007, with a view toward a more dynamic mobile telecommunication market achieved by promoting new entry by MVNO operators, MIC issued its revised “guidelines regarding the application of the Telecommunications Business Law and the Radio Law to MVNO” (“MVNO Guidelines”). Under the revised 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.

Further, in order to carry out an examination with a view towards improving economic vitality and user interests through the growth of new mobile businesses, a “mobile business study group” has been meeting since January 2007. In light of the final report of the study group, on September 21, 2007, MIC released the “Mobile Business Vitality Plan.” The following are the main points of the “Mobile Business Vitality Plan”:

 

 

 

Further, since March 2008, the “Mobile Business Vitality Plan Assessment Meeting” has been held and the progress of the vitality plan has been evaluated on a regular basis.

 

Adoption of Open Platforms

 

In conjunction with the increased use of broadband and IP, we are reinforcing the collaboration among the authentication, billing and other functions that are essential for the efficient broadband distribution of content and applications. A report by the Communications Platform Study Group that discussed relevant issues and addressed the direction of future policies concerning the development of the market environment for encouraging the creation of new business was released in November 2008. In the year ending March 31, 2010, it is expected to reach certain conclusions in various study groups, trials, and forums concerning investigations into enhancing interoperability among authentication and billing functions as well as optimal environmental development and content distribution effects to achieve diversification of mobile platforms.

 

Review of the Universal Service System

 

In November 2005, MIC announced its response with respect to the report on the universal service system, and it was decided that in order to maintain subscriber telephones of NTT East and NTT West, carriers connecting with NTT East and NTT West would share cost burdens in accordance with their ratio of telecommunication numbers handled. The universal service system was introduced in June 2003, but in the three years following its introduction, through 2005, no funds were actually utilized. An amended ministerial order came into effect on April 1, 2006, and starting in January 2007, in order to ensure provision of universal service by NTT East and NTT West, a portion of such costs would be borne by all telecommunications companies, including our group, that provide services through connections to universal service, with such costs to be apportioned according to number of telephone numbers owned by each telecommunications company. In light of the intent of the system, our group is requiring its customers to assume an equitable portion of the costs in proportion to the number of telephone numbers they use, and starting with February 2007 bills (for usage in January 2007), its customers have been billed universal service fees.

 

The March 2007 report of the Telecommunications Deliberation Council stated that it would be appropriate to carry out a review of the rules for computing subsidies under the universal service system for the year ended March 31, 2008 and beyond. In response, the Universal Service Subcommittee commenced deliberation of these

rules. In September 2007, the rules for computing subsidies and costs for the provision of the universal service system were revised, and the subsidy computing method was changed from the conventional method of using the national average cost as a benchmark, to a method where the benchmark is the total of the national average cost and twice the standard deviation.

 

Further, in regards to the universal service system, starting in January 2007, a “study group regarding the future image of the universal service system” began meeting, with a view towards the building of a new system in line with future environmental changes. In December 2007, the study group released its report on the universal service system of the future, in light of advances in IP technology. This report stated that, as an approach to reviewing the range of services encompassed by universal services from the beginning of 2010 and onwards, it would be appropriate to use as the standard a situation where, without regard to type of services, services that are provided through an access network and meet certain requirements are available (universal access).

 

Examination Regarding Network Neutrality

 

The Panel on Internet Policy has been meeting with the purpose of selecting and organizing policies for ensuring network neutrality and promoting sound development of the Internet, as seen from the diverse viewpoints of a range of stakeholders and in the midst of dramatic changes in network structure and market environment. The panel released a final report with the following three fundamental principles on February 23, 2009:

 

 

Study Group for Comprehensive Legal System for Communications and Broadcasting

 

In August 2006, MIC established the Study Group for Comprehensive Legal System for Communications and Broadcasting. With studies conducted from the viewpoint of experts, the Study Group aims to embody a studied framework of the law system in anticipation of the integration and alliance of communications and broadcasting. In December 2007, the Study Group released a report advising a fundamental review of the current legal framework, with the goal of a layered legal system. Starting in February 2008, the Committee Considering a Comprehensive Legal System for Telecommunications and Broadcasting has continued making specific policy considerations, with the goal of submitting a bill to the ordinary Diet session of 2010.

 

Review of Interconnection Rules in Response to Changes in the Telecommunications Market Environment

 

In the mobile telecommunication market, the number of mobile phone subscriptions has surpassed 100 million and the importance of mobile phones as fundamental infrastructure for business and day-to-day activities is increasing at a tremendous pace. In the fixed-line broadband market, the numbers of FTTH and DSL subscriptions switched positions in the first quarter of the year ended March 31, 2009, with FTTH taking the dominant position. In conjunction with these developments, the business format of using the networks of other operators is accelerating, and further development of the communications platform market and the content distribution market can be expected in the future.

 

In response to these market changes, the MIC’s Telecommunications Council is investigating optimal interconnection rules from the perspective of maintaining a fair competitive environment in the telecommunications markets and is expected to issue a response at the end of September 2009. The key issues under investigation are as follows:

 

 

 

We reduced access charges applicable in the year ended March 31, 2009 by at least 10% compared to the previous fiscal year by such measures as implementing cost reductions.

 

• Information Security Management

 

In order to protect customer information, in conjunction with the full implementation of the Law on the Protection of Personal Information, we established the position of Chief Privacy Officer (CPO) and strengthened the system for protection of personal information, and we are making efforts to construct a company-wide information security system.

 

In addition, we agreed to take efforts to prevent personal information leaks by handling and managing all terminals and external storage devices containing personal information, periodically educating and training our employees, confirming matters for compliance in information management with all entities to which we outsource services, instructing and supervising such entities, strengthening the security technology in all our systems, establishing system security standards and developing, operating and managing systems in compliance with such standards.

 

• Law to Prevent Unauthorized Use of Mobile Phones

 

In April 2006, with the enforcement of the Law to Prevent Unauthorized Use of Mobile Phones, we coped with imposition of identification and recording the documents verifying the customer’s proof of identity at the time of new contracts and reviewed an operative manual in order to comply with the law as a mobile network operator. In addition, we carry out the training for all the members performing duties such as identification and make an effort to ensure proper operation of such duties.

 

• Law to Promote a Healthful Internet Environment for Youth

 

In April 2009, with the enforcement of the Law to Promote a Healthful Internet Environment for Youth, we implemented a number of measures, including a review of an operative manual for application of basic rules for filtering when subscribers under 18 years of age access to the Internet using mobile phones in order to comply with the law as a mobile network operator. In addition, we moved forward with initiatives to protect youth, including mobile phone safety classes to help prevent youth from becoming involved in crimes through mobile phones.

 

 

NTT is our parent company and owned 66.19% of our voting rights as of March 31, 2009. The government of Japan, in the name of the Minister of Finance, owned 40.16% of the voting rights of NTT as of the same date. The government of Japan, acting through 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.

 

On July 1, 1999, NTT was reorganized into a holding company structure. The former NTT parent company transferred its local and long-distance businesses to three new wholly-owned subsidiaries: Nippon Telegraph and Telephone East Corporation, Nippon Telegraph and Telephone West Corporation, and NTT Com. NTT East and NTT West operate regional telecommunication services in eastern Japan and western Japan, respectively, and NTT Com operates long distance telecommunication and other network services throughout Japan. NTT Com also offers international telecommunications services. We continue to be a direct subsidiary of NTT after the reorganization.

Although NTT owned 66.19% of our voting rights as of March 31, 2009, 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, 2009, we had sales of ¥57,279 million to NTT and its subsidiaries and had cost of services, selling, general and administrative expenses and capital expenditures of ¥236,004 million, ¥131,849 million and ¥70,840 million, respectively, to NTT and its other subsidiaries, compared to sales of ¥65,126 million and cost of services, selling, general and administrative expenses and capital expenditures of ¥247,016 million, ¥138,709 million and ¥78,112 million, respectively, in the year ended March 31, 2008. We also had receivables of ¥12,510 million from NTT and its subsidiaries and payables of ¥73,476 million to NTT and its subsidiaries at March 31, 2009, compared to ¥15,197 million and ¥75,516 million at March 31, 2008.

 

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

 

 

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 profits; increases in share capital; investments, including international investments; loans and guarantees; and establishment of businesses plans. In addition, Mr. Hiroshi Tsujigami, a full-time employee of NTT, serves part-time on our board of directors.

 

The Deregulation Committee (succeeded to by the Regulatory Reform Committee), an advisory committee set up by the decision of the Japanese Cabinet dated December 20, 1997, issued a report on December 15, 1998, with respect to government deregulation in a number of sectors of the Japanese economy. This report recommended the complete privatization of NTT at some point in the future, together with the elimination of monopolies in the regional telecommunication markets, and recommended that effective action should be taken to promote substantive competition between NTT East and NTT West. This report also included a recommendation that in

the future the reorganized NTT be required to reduce its ownership of our shares to the level where competition between us and NTT East and NTT West is facilitated. On March 30, 1999, the Japanese government revised its Three-year Program for Promoting Deregulation stating, among other things, which based on the Deregulation Committee’s report and in connection with NTT’s ownership of our shares, it would carefully watch competition between us and NTT East and NTT West. On March 31, 2000, in its decision to further revise the Three-year Program, the Japanese government stated that it would continue to consider NTT’s ownership of our shares taking into account the competition among cellular phone companies and the competition between us and NTT East and NTT West. Furthermore, on December 12, 2000, the Regulatory Reform Committee issued a written opinion stating that NTT’s ownership of our shares should be reduced to the level at which fair competition among us and other NTT companies is ensured, and that the “firewall” regulation that restricts the sharing of management and other personnel among us and other NTT group companies should be strengthened.

 

On December 21, 2000, the Telecommunications Council, then an advisory committee of the MPT, issued its first formal report concerning initiatives to promote competition in the telecommunications industry and to promote information technology generally. In this report, the Telecommunications Council stated its view that NTT’s ownership of our shares should be reduced as much as possible through the listing of us on foreign stock exchanges, among other means, and that there should not be common directors of NTT and DOCOMO.

 

The Japanese government, on March 30, 2001, launched its Three-year Program for Promoting Regulatory Reform. In that program the Japanese government expected NTT as well as NTT East and NTT West would prepare and publish a voluntary action program for promoting competition, including a realization of competition within the NTT group by decreasing NTT’s ownership of our shares. In response, on October 25, 2001, NTT together with NTT East and NTT West announced “NTT’s Strategy concerning Current Management Issues” and stated in that release that simultaneous holding of executive positions between NTT East or NTT West and our company would remain unimplemented and that NTT’s investment ratio in our company and the simultaneous holding of executive positions would continue to be considered from the standpoint of maximizing its shareholders’ profits, taking into account operational necessities and stock market trends. On October 29, 2002, NTT made a report to MIC on the current status of implementation of the voluntary action plan released in October 2001. In the report, NTT stated that it sold 551,000 shares of our company in July 2002, in conjunction with our planned share reacquisition and that the system of concurrent appointment of directors for NTT and our company was discontinued at the general meeting of shareholders in June 2001.

 

In June 2006, an advisory panel on the future of telecommunications and broadcasting made a final report. In the report, it says that, in order to promote fair competition in the telecommunications industry, the study group proposed that MIC make a drastic review of legislation related to telecommunication by 2010. The study group also proposed that, keeping issues such as abolishment of the regulations on the scope of the business of NTT East and NTT West, abolishment of a holding company, and separation of equity links, etc. in mind as a whole mission, MIC take necessary measures to realize issues and start necessary investigation immediately. On June 6, 2006, corresponding to this report, NTT made a statement that, with the aim to establish a safe and secure next-generation network under current structure and provide optimal services to approximately 30 million customers by fiscal 2010, NTT will make its utmost effort to realize medium-term management strategies, and that NTT cannot accept the proposal as it may disturb smooth promotion of their medium-term management strategies.

 

The Japanese government has not decided what action, if any, it will take with respect to NTT’s ownership of our shares. 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 percentage in us at 51% or above.

 

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.

 

 

Our property includes buildings which contain wireless telecommunication equipment. As of March 31, 2009, we and our regional offices owned 3,476,103 square meters of land and 1,562,518 square meters of office space,

buildings containing switching centers, company dormitories and warehouses throughout Japan. In addition, as of March 31, 2009, we leased approximately 8,301,972 square meters of land mainly for base stations and transmission facilities.

 

Additional information can be found in “Capital Expenditures” of Item 5.B.

 

 

As of March 31, 2009, DOCOMO and its subsidiaries had 21,831 employees representing a decrease of 269 employees since March 31, 2008. As of March 31, 2008, 2007 and 2006 we had 22,100, 21,591, and 21,646 employees, respectively. The average number of temporary employees for the year ended March 31, 2009 was 6,459.

 

Of our 21,831 employees on March 31, 2009, approximately 1,340 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, 2009, approximately 1,400 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.

 

 

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 twelve 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.

 

 

As of March 31, 2009, NTT, our parent company, was our largest shareholder and owned 66.19% 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 subsidiaries as of March 31, 2009.

 

 

The information required by this item is set forth in Item 4.B. of this annual report.

 

 

Not applicable.

 

 

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 annual report.

We will discuss the following matters in this Item 5:

 

 

 

Our Business

 

We are the largest cellular network operator in Japan in terms of both revenues and number of subscriptions. As of March 31, 2009, we had approximately 54.60 million subscriptions, which represented 50.8% of all cellular subscriptions in Japan. We earn revenues and generate cash primarily by offering a variety of wireless voice and data communications services and products. In cellular services, which account for the majority of our revenues, we provide voice communication services as well as “i-mode” services, which enable our subscribers to exchange e-mails and to access various sources of information including the Internet via our nationwide packet communications network. In addition to cellular services, we presently provide wireless LAN services nationwide, a mobile credit payment platform and mobile credit payment services.

 

We have been the market leader in the Japanese mobile communications industry as the demand for mobile communications has grown very rapidly. Now that a cellular phone has already become a part of daily life in Japan, it is difficult to duplicate the speedy growth we experienced in the first decade of our operations. However, in order to achieve sustainable growth and establish new sources of revenues, we are committed to upgrading our cellular communications services from a telecommunication infrastructure to a life-style infrastructure so that cellular services will be rooted even more deeply in the daily lives of our subscribers and further enrich their lives and businesses.

 

Trends in the Mobile Communications Industry in Japan

 

According to a release from the Telecommunications Carriers Association, the mobile communications market in Japan saw a 4.71 million net increase in cellular and PHS subscriptions for the year ended March 31, 2009. As of March 31, 2009, the total number of wireless subscriptions including cellular and PHS reached 112.05 million and the market penetration rate reached 87.7%. The annual growth rate of cellular subscriptions dropped to 4.6% for the year ended March 31, 2009 after a temporary rebound in a recent downward trend from 5.4% to 6.2% for the years ended March 31, 2007 and 2008, respectively. However, given the maturity of the market and the declining population trend, we expect that the growth rate of cellular subscriptions in Japan will be limited in the future.

 

As of March 31, 2009, cellular services were provided by four network operators including us and their subsidiaries in Japan. In addition to providing cellular services, the network operators also collaborate with handset manufacturers to develop handsets compatible with the specifications of their wireless services and then sell them primarily to agent resellers, who in turn sell such handsets to the subscribers. As for cellular services, since the year 2001, when we first launched “FOMA” services, our third generation (“3G”) cellular services based on W-CDMA

technology, our competitors have followed us in the launch of their 3G services. The network operators have been in an intense competition in pursuit of the acquisition of new subscribers and the migration of their current subscribers to 3G services. As of March 31, 2009, the number of 3G service subscriptions in Japan reached 99.63 million, which represented 92.7% of the total number of cellular subscriptions.

 

Competition among the network operators in Japan has become more intense under present market conditions as the needs of subscribers diversify and growth in new subscriptions slows. The network operators in Japan have been eager to differentiate themselves as they pursue the acquisition of new subscriptions and encourage the migration of their current subscribers to 3G services. The differentiation efforts include:

 

 

Recently, domestic deregulation of the industry has accelerated competition among cellular network operators, who have already implemented discounts in their service charges. Mobile Number Portability, which enables subscribers to switch subscriptions from one operator to another without changing their telephone numbers, was introduced in October 2006. In September 2007, the Mobile Business Study Group, which was appointed by the Ministry of Internal Affairs and Communications, concluded a report in which it proposed certain actions to be taken by regulatory authorities including (1) reformation on methods of cellular handset sales, (2) promotion of new MVNO entrants to the market and (3) development of the market environment to invigorate the mobile business. Although some of these proposals have been already implemented, further implementation of these proposals by the regulatory authorities is expected to change revenue structures and business models of incumbent cellular network operators including us.

 

It is possible that innovations in Internet technology will have a material impact on the mobile communications industry as well. IP (Internet Protocol) phone, voice communications based on IP technology, is becoming a popular means of fixed line communications as a result of the penetration of local broadband access. If IP phone technology is applied to the mobile communications field, we expect that it will have a material impact on the current revenue structure of the mobile communications industry. The penetration of local broadband access and cellular phones has produced an expectation for new services in the future, converging fixed and mobile communications. A “Fixed-Mobile Convergence” concept has already been partially realized when some network operators issued a single bill for both fixed and mobile subscriptions or others enable their subscribers to access common contents or e-mail accounts via both a PC and a cellular phone. The demand for a seamless service between the fixed and mobile network and a common handset compatible with both fixed and mobile network service will possibly increase in the future. In the field of high-speed wireless networks, WiMAX has been standardized by the Institute of Electrical and Electronic Engineers in the United States. In Japan, two network operators were licensed to operate a 2.5GHz wide-band wireless broadband system in December 2007 and plan to launch commercial services during the year 2009.

 

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

Operating Strategies

 

We recognize that the cellular market in Japan has already entered into a phase of saturation as total cellular subscription exceeded 100 million in December 2007. In a phase of saturation, it is necessary to attract subscribers of competitors as it is difficult to rely on those who have not owned a cellular phone as a driving force of acquisition of new subscriptions. It is also indispensable to minimize the loss of subscriptions to competitors subsequent to intensified competition. As a market leader, we have put a top priority on the retention of our current subscriptions.

 

In November 2007, we abolished “handset sales incentives”, which were one of the components of commissions we pay to agent resellers, and introduced a new handset sales method or “Value Course”, and a discounted billing plan or “Value Plan”. Subscriber acquisitions by offering inexpensive discounted handsets by applying the “handset sales incentives” was an adequate business model for the penetration of cellular subscription in a growing market. However, as the market has moved into a matured phase, such business model lacked transparency on the cost allocation of handsets and network services, brought about unfairness on cost allocation among subscribers dependent on the duration of subscriptions and put downward pressure on the operating income of network operators.

 

“Value Course” is a new handset sales method, where purchase of a handset not discounted by the “handset sales incentive” awards the subscriber with a subscription to a billing plan with discounted basic monthly charges called “Value Plan”. Payment in installments is available for purchase of a handset in this “Value Course”. If a subscriber chooses to make installment payments, under agreements entered into among the subscriber, the agent reseller and us, we provide financing 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. Because equipment sales are recognized upon delivery of handsets to agent resellers, the advance payment for the purchased handset to agent resellers and the subsequent cash collection of the installment receivable for the purchased handset from subscribers do not have an impact on our equipment sales, but do have an impact on cash flows from operating activities. While we simultaneously introduced another handset sales method called “Basic Course”, where a subscriber purchases a handset discounted by our direct subsidy specifically designed for “Basic Course” and undiscounted billing plans are applied, more than 90% of subscribers opted for “Value Course” under the new handset sales method and the number of subscribers to “Value Plan” exceeded 20 million as of March 31, 2009. In August and September 2007, we also introduced new discount services called “Fami-wari MAX50”, “Hitoridemo Discount50” and “Office-wari MAX50” (“new discount services”), all of which discount basic monthly charges by half upon the commitment of a two-year subscription, and more than 60% of our subscribers utilized these new discount services as of March 31, 2009. We expect to realize the extension of subscriptions of current subscribers and a continued decline in our churn rate through these new handset sales methods and new discount services. Please refer to “B. Liquidity and Capital Resources” for the impact of the introduction of “Value Course” on our financial position.

 

In April 2008, we announced “New DOCOMO Commitments” re-positioning where we will stand in the future, and, taking this opportunity, changed our corporate branding. We reorganized our group structure in July 2008 by integrating eight regional subsidiaries for the purpose of enhancing the speed and effectiveness of our operations. We also announced our future business direction based on a new action plan “DOCOMO’s Change and Challenge to Achieve New Growth” in October 2008. “DOCOMO’s Change” includes concrete actions to revisit every aspect of business from the customer’s perspective from customer relations to handsets and networks based on a thoroughly hands-on approach to serving customers at all levels of our group under “New DOCOMO Commitments”. “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 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.

Operating Trends

 

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

 

Revenues

 

Wireless Services

 

We earn our wireless services revenues primarily from basic monthly charges, calling charges for outgoing calls, 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 the third generation FOMA services, the second generation mova services and other services. FOMA’s packet transmission technology allows our subscribers to transmit more packets per minute and the per-packet charges for data communications of FOMA services are set lower than those of mova services. As mova subscribers have been steadily migrating to FOMA services, we have decided to discontinue mova services on March 31, 2012 and focus our business resources on FOMA services. We will continue our efforts to induce existing mova subscribers to migrate to FOMA services.

 

As of March 31, 2009, the number of FOMA subscriptions reached 49.04 million or 89.8% of our total number of cellular subscriptions, the largest number of 3G subscriptions among cellular operators in Japan. 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 depending on connection time. Our packet communications revenues, which are currently dominated by i-mode revenues, accounted for a greater portion of our wireless services revenues for the year ended March 31, 2009, representing 39.4% of wireless services revenues, as compared to 33.0% and 28.8% for the years ended March 31, 2008 and 2007, respectively. As a result of the continued migration of mova subscribers to FOMA services, the portion of FOMA packet communications revenues increased to 95.9% of the total packet communications revenues for the year ended March 31, 2009 from 91.3% and 78.2% for the years ended March 31, 2008 and 2007, respectively.

 

Our top operational priorities include maintaining our current subscribers and the level of our average monthly revenue per unit (“ARPU”) despite the increasingly competitive market environment in which we are operating after the introduction of Mobile Number Portability. Our cellular services revenues are essentially a function of our number of active subscriptions multiplied by ARPU.

 

Our number of subscriptions continues to grow while the growth rate of subscriptions has declined. Our subscription churn rate, or contract termination rate, is an important performance indicator for us to achieve retention of our current subscriptions. The churn rate 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 revenues by decreasing the amount of revenues we are able to collect from each subscriber on average. In order to keep our churn rate low, we have focused on subscriber retention by implementing certain measures including offering discounts for long-term subscribers. During the year ended March 31, 2009, we have taken measures such as lowering basic monthly charge of “Type SS Value” billing plan, introduction of new packet flat-rate services “Pake-hodai double” and “Biz-hodai double”, enhancement of services for the loyalty membership program “docomo Premier Club”, rollout of newly organized handset series, expansion of FOMA high speed areas (achieved 100% POP coverage) and on-site visits and investigations in response to customers’ claims for network area quality, normally within 48 hours of contacts from our investigation staffs. We also continued to release handsets such as “Kids’ PHONE” designed specifically for children and “Raku-Raku PHONE PREMIUM”, “Raku-Raku PHONE V” universally designed for elderly users in an effort to pioneer such new market segments.

 

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. ARPU is another important performance indicator for us 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 useful information to analyze the trend of monthly average usage of our subscribers over time and the impact of changes in our billing arrangements. The revenue items included in the numerators of our ARPU figures are based on our U.S. GAAP results of operations. The ARPU calculation is described in “Item 4. Information on the Company — B. Business Overview — Cellular Phone Service Usage”. ARPU (FOMA+mova) has fallen over the past few years, due to an increase in the number of subscribers to “Value Plan”, under which discounted monthly basic charges apply and new discount services, as well as a gradual increase in the discount rate of basic monthly charges according to an increase in the number of years of subscriptions under long-term subscription discount. In order to boost ARPU, we have been actively involved in the promotion of services including “Pake-hodai double”, our optional packet flat-rate service for unlimited i-mode usage, “i-channel”, a convenient and easy-to-use information push-delivery optional service, and “i-concier”, an automated information delivery service that is customized to suit each individual’s preferences and living area as if one’s own butler or concierge would provide the service. We also introduced more handsets compatible with international roaming service in order to increase roaming revenues. Furthermore, we are promoting cellular usage other than voice calls such as downloading of music or video-clips.

 

For the year ended March 31, 2007, although the decline in ARPU continued, growth in the number of subscriptions, combined with our recognition as revenue of the portion of “Nikagetsu Kurikoshi” (2 Month CarryOver) allowance, a deferred revenue account, that was projected to expire, resulted in an increase in cellular services revenues. Cellular services revenues declined again during the year ended March 31, 2008 due to a continued decline in ARPU as a result of the penetration of discount services newly introduced for subscriber retention purposes. For the year ended March 31, 2009, cellular services revenues continued to decline from the prior year due to the penetration of “Value Plan” and new discount services, as well as a decrease of access charge revenues that we receive from other operators for their network usage. We expect that the positive effects of the moderate growth in the number of subscriptions and increase of packet communications revenues will be more than offset by the negative effects from the continued penetration of “Value Plan” and new discount services, and thus cellular services revenues will consequently decline for the year ending March 31, 2010. Although ARPU has been on a declining trend, our target is to halt the decline in fiscal year ending March 2012 when the effect of an increase in packet ARPU overtakes the effect of a decrease in voice ARPU. We intend to achieve sustainable growth by increasing revenues from non-traffic business while we maintain the current level of revenues through marketing activities with more focus on brand loyalty in the cellular business.

 

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. We had been offering handset series mainly comprising “FOMA 9 series”, which are equipped with most advanced functions, and “FOMA 7 series” which feature a sophisticated balance between unique designs and functionalities. Starting from November 2008, as a response to market changes such as maturity of the mobile phone market and diversification of customer needs, we started to offer handsets in newly organized four series which are closely attuned to the latest preferences and lifestyles of mobile phone users — “docomo STYLE series”, “docomo PRIME series”, “docomo SMART series” and “docomo PRO series”.

 

Revenues from equipment sales, primarily sales of handsets and other telecommunications equipment to agent resellers, accounted for 13.6% of total operating revenues for the year ended March 31, 2009. We adopted Emerging Issues Task Force (“EITF”) Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products),” and therefore account for a portion of the sales commissions that we pay to agent resellers as a reduction in equipment sales revenues and selling, general and administrative expenses. As a result, structurally, the cost of equipment sold has exceeded equipment sales revenues, and thus the sale of an extra handset has had a negative impact on our operating income. However, with the introduction of “Value Course” in November 2007, the amount of sales commissions deducted from equipment sales revenues decreased significantly, and the effects of pushing down operating income through the sale of handsets has lessened. During the year ended March 31, 2009, equipment sales revenues before the deduction of sales commissions to agent resellers decreased due mainly to the significant decrease in the number of handsets sold to agent resellers affected by the economic downturn and introduction of new sales method, in addition to a decrease in revenue per

handset. However, sales revenues after the deduction of sales commissions increased significantly since the effect of decrease in sales commission for “Value Course” to be deducted from equipment sales revenues was applied throughout the year. For the year ending March 31, 2010, we expect a slight decrease in the number of handsets sold to agent resellers reflecting a decreased demand of handsets for new subscriptions given the high penetration rate of the mobile market. Because the trend of handset sales is closely interrelated with the cost of handsets sold, please refer to the “Cost of Equipment Sold” section below.

 

Expansion of Our Business Domain

 

In addition to the further buildup of our competitiveness in the cellular business, we are actively involved in the diversification of revenue sources. The most significant is our credit services business. We seek to reposition our cellular phones as tools more deeply rooted in the daily life of our subscribers by enabling transactional settlements through the use of cellular phones equipped with contact-less IC chips. We launched a credit card brand called “iD” for card issuers in December 2005 and “DCMX” credit issuing services via the “iD” platform in April 2006. For the year ended March 31, 2009, we were actively involved in the acquisition of DCMX subscriptions, promotion of credit usage and expansion of stores equipped with iD readers/writers. We are confident that our mobile credit service is steadily penetrating the market as the number of DCMX subscriptions reached 8.98 million while the number of “iD” compatible readers/writers installed reached 0.41 million as of March 31, 2009.

 

We also started to offer, in collaboration with Google, Inc., search-words related advertisement on the search page of iMenu, a portal site of i-mode, and promoted the value of the mobile phone as a powerful advertisement medium. In addition, we are promoting investments and alliances with the aim of expanding businesses in fields where mobile communications can make great contributions. In April 2009, we announced a capital alliance with OAK LAWN MARKETING, INC., one of the largest TV shopping service companies, in order to promote the mobile e-commerce market, which has a potential for further growth.

 

Although contribution from the credit service business and advertisement business to our results of operations have not yet become material, we will continue to be engaged in accelerating the development of these businesses.

 

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 and payroll for employees dedicated to the operations and maintenance of our wireless services. Cost of services accounted for 24.1% of our total operating expenses for the year ended March 31, 2009. Communication network charges, which we pay for the usage of other operators’ networks or for access charges, occupy the largest part of cost of services, accounting for 36.3% of the total. The amount of our communication network charges is dependent on the number of our base stations installed and rates set by the other operators. In recent years, our communication network charges have steadily declined as a result of our buildup of our own back-bone network to replace circuits leased from NTT. Communication network charges decreased for the year ended March 31, 2009 as well due mainly to the discount in charges of NTT’s leased circuits and decrease of access charges payable to other operators. We expect that the downward trend will continue and the communication network charges will decrease for the year ending March 31, 2010.

 

Cost of Equipment Sold

 

Cost of equipment sold arises mainly from our procurement of handsets for sale to our new or current subscribers, which is basically dependent on the number of handsets sold to agent resellers and the purchase price per handset. Cost of equipment sold represented 22.9% of our operating expenses for the year ended March 31, 2009. For the year ended March 31, 2009, the purchase price per handset remained about the same level as in the prior year although influenced by the introduction of newly organized handset series line-up and an increase of per-unit development costs effected by a decrease in the number of units purchased. The total number of handsets sold decreased due to the introduction of new sales methods and overall sluggish consumer spending. As a result, cost of equipment sold decreased from the prior fiscal year. For the year ending March 31, 2010, we expect that the

level of the purchase price per handset will increase due to an increase of material costs for enhanced features and a decrease in handset procurement, but we also expect a slight decrease in the number of handsets sold resulting from a decreasing demand of handsets for new subscribers. As a result, we expect that cost of equipment sold will be about the same level as in the current fiscal year for the year ending March 31, 2010.

 

We have taken some measures to control the cost of equipment sold. We have saved on FOMA handset development cost by introducing a single-chip LSI and common platforms for the handset operating system. We have provided packaged software dedicated to our handsets to handset manufacturers to facilitate development of FOMA handsets to hold down cost of equipment sold. In addition, we are planning to optimize the level of equipment inventories as a part of efficiency improvements accompanied by a review of handset logistics, such as integration of handset logistics contractors.

 

Depreciation and Amortization

 

We expense the acquisition cost of a fixed asset such as telecommunications equipment, a network facility and software during its estimated useful life as depreciation and amortization. Depreciation and amortization accounted for 22.2% of our operating expenses for the year ended March 31, 2009. In order to respond attentively to demand from our subscribers, we invested in the FOMA services network during the year ended March 31, 2009. Our investments in the FOMA network included:

 

 

Active capital expenditures in the FOMA network in recent years are followed by an upward trend in depreciation and amortization expenses. However, our capital expenditures in the FOMA network peaked in the fiscal year ended March 31, 2007, and we expect that depreciation and amortization expenses will show downward trend in the future. In addition, we have been involved with cost saving efforts such as economized procurement, design and installment of low-cost devices and improvements in construction processes. Depreciation and amortization expenses for the year ended March 31, 2009 increased from the prior fiscal year, but the increase was caused by the effect of accelerated depreciation charges of mova-related assets through the changes in estimated useful lives accompanied by our decision to discontinue mova services on March 31, 2012. Without this effect, depreciation and amortization expenses would have decreased from the prior fiscal year. Depreciation and amortization expenses are expected to decrease for the year ending March 31, 2010 following the recent downward trend. As for our capital expenditures, please refer to “Capital Expenditures” in this Item 5.B.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses represented 30.8% of our total operating expenses for the year ended March 31, 2009. 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 addition, we provide subsidies directly to our subscribers in the form of a discount to the handset price to be purchased subject to competition in the market. As already discussed in the “Operating Strategies” section, under the new handset sales method, we abolished “handset sales incentives”, which were paid to agent resellers depending on the type of handset a subscriber purchased.

 

We applied EITF 01-9 and therefore a portion of the sales commissions paid to agent resellers is recognized as a deduction from equipment sales revenues and selling, general and administrative expenses. Due to the introduction of “Value Course”, sales commissions, both before and after the deduction of certain sales commissions to agent resellers, decreased for the year ended March 31, 2009 compared with the prior fiscal year. For the year ending March 31, 2010, we expect that the gross and net amount of sales commissions will continue to decrease with the further penetration of “Value Course”.

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:

 

 

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:

 

 

Actions to expand cellular phone usage include the followings:

 

 

Creation of new revenue sources includes the followings:

 

 

Improvement of cost efficiency includes the followings:

 

 

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 Alliances”. 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 our equity in the investee’s issued and outstanding capital is between 20% and 50% or we are able to exercise significant influence over the investee. In accordance with equity method accounting, we include equity in net income or losses of affiliates in our consolidated income. Where our equity in the investee’s issued and outstanding capital is less than 20%, we include the investment 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. 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. Please refer to “— Critical Accounting Policies — Impairment of investments”. We may also experience material gains or losses on the sale of our investments. As of March 31, 2009, the total carrying value of our investments in affiliates was ¥572.0 billion, while the total carrying value for investments in marketable equity securities and equity securities accounted for under the cost method was ¥141.5 billion.

Operating Results for the year ended March 31, 2009

 

The following discussion includes analysis of our operating results for the year ended March 31, 2009. The tables below describe selected operating data and income statement data:

 

Key Performance Indicators

 

 

 

Breakdown of Financial Information