Mobile Business O Ve Rvi Principal Services/Operations
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OVerVIew OF OPeratIONS Mobile Business O ve Principal Services/Operations RvI ,ew mobiletelecommunicationsservices,salesofmobileterminals .OF contentbusiness,mobilesolutionsservices,etc OP e RATION Principal Group companies ,KDDICorporation,OkinawaCellularTelephoneCompany .s: KDDITechnicalengineeringserviceCorporation,etc mOBIle BusIN ess Overview of Operations in the year ended March 31, 2011 In the Mobile Business, which centers on the “au” brand, KDDI In the year ending March 31, 2012, we expect operating provides mobile telecommunications services, sells mobile revenues to rise 0.4% year on year, to ¥2.6 trillion, as an increase telecommunications devices, and offers contents and mobile in operating revenues of other business including sales of solutions services targeting corporate customers. terminals would offset the decline in operating revenues of the During the year ended March 31, 2011, operating revenues telecommunications business mainly caused by falling voice from this business slipped 2.2% year on year, to ¥2,590.7 ARPU from the shift toward “Simple course” pricing and the billion. This decline was mainly attributable to a decline in adoption of “Maitsuki Discount.” voice ARPU as more subscribers shifted to the “Simple As for the operating income, we forecast a 2.0% year-on- course” pricing plan. year drop, to ¥430.0 billion, due to a decline in the operating Although sales commissions (average subscriber acqui- income of the telecommunications business, despite efforts to sition and subscriber retention costs) decreased substan- reduce sales commission from the adoption of “Maitsuki tially, efforts promoting users of non-triband handsets to Discount,” expand profits of sales terminals and “Keitai Guar- switch to triband handsets and the increase in related costs antee Service,” and reduce general expense. accompanied by a rise in sales units from the active intro- duction of smart phones resulted in an operating income decrease of 9.3% year on year, to ¥438.9 billion. Operating revenues Operating Income/ eBItDa/ capital expenditures Operating Income Margin eBItDa Margin (Billions of yen) (Billions of yen) (%) (Billions of yen) (%) (Billions of yen) 3,000 2,863 600 30 1,000 50 500 2,677 2,719 2,650 2,591 432 501 822 827 484 392 455 774 377 439 800 40 400 692 339 386 329 2,000 400 20 598 18.4 18.3 600 30.2 31.2 29.9 30 300 16.9 15.9 14.4 24.2 400 22.3 20 200 1,000 200 10 200 10 100 0 1110090807 0 1110090807 0 0 1110090807 0 0 1110090807 (Years ended March 31) (Years ended March 31) (Years ended March 31) (Years ended March 31) Operating Income (left) EBITDA (left) 800MHz 1X 800MHz EV-DO Operating Income Margin (right) EBITDA Margin (right) 2GHz New 800MHz Common Equipment 50KDDICORPORATIONAnnualReport2011 Subscriptions/churn rate Net additions during the year ended March 31, 2011 numbered 1.13 million subscrip- (’000 subs) (%) tions, outpacing our initial expectations by 200,000 units. As a result, total subscrip- 50,000 1.0 0.85 O ve tions at the year-end numbered 33.00 million, up 3.5% from the year earlier and 0.75 0.75 40,000 0.72 0.73 0.8 RvI 0.67 0.68 accounting for a cumulative share of 27.6%. 0.64 ew 32,999 32,527 OF Of this number, 99.6% (32.85 million) subscribed to 3G mobile phone services. 30,000 30.996 31,233 31,393 31,872 32,091 32,291 0.6 High-end CDMA 1X WIN (hereafter, “WIN”) subscriptions numbered 29.63 million, OP e accounting for 89.8% of all subscriptions. 20,000 0.4 RATION The churn rate for the year ended March 31, 2011 was 0.73%, about the same as 10,000 0.2 last year. Although the first-half churn rate was up due to the negative effect of s: mOBIle ( ) Mobile Number Portability MNP after the release of smart phones by other 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 0 companies, the second-half churn rate was down year on year, owing to our ability to 2010 2011 BusIN retain customers due to the introduction of smart phones such as the “IS03.” (Years ended March 31) Total Subscriptions (left) Churn Rate (right) ess arPu ARPU in the year ended March 31, 2011 came to ¥4,940, down 8.7% from the previous term. (Yen) Voice ARPU fell 16.8% year on year, to ¥2,620, owing to the increasing shift 6,000 5,600 5,600 5,470 5,160 5,000 5,100 4,980 toward “Simple course” pricing, the growing popularity of such pricing measures as 4,530 “Call Designation Flat Rate,” and access charge revisions. 4,500 3,350 3,330 3,210 2,730 2,860 2,790 2,660 Data ARPU rose 2.7%, to ¥2,320. This expansion stemmed from successful 2,190 efforts to promote the shift from 1X to high-end WIN services and smart phones, 3,000 leading to a rise in the percentage of subscribers to flat-rate pricing plans, and measures to bolster data use among subscribers with low data usage. 1,500 2,250 2,270 2,260 2,270 2,300 2,310 2,320 2,340 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2010 2011 (Years ended March 31) Data ARPU Voice ARPU handset Sales/Inventory The number of handsets sold during the year ended March 31, 2011 was up 13.4% (’000 units) year on year, to 11.57 million, mainly due to model upgrades resulting from the 4,000 3,240 expansion of smart phone demands and the transfer from non-triband handsets. 3,100 2,810 2,830 2,700 Handset inventory as of March 31, 2011 totaled 1.23 million units, up 7.8% year 3,000 2,560 on year. This figure includes 90,000 units already written off. 2,210 2,330 1,990 KDDI writes off and disposes of handsets to clear excess inventories down to a 2,000 1,450 1,350 1,230 reasonable level. Its write-offs and disposal of excess inventories led KDDI to post 1,130 1,220 1,140 write-off/disposal losses for the year totaling ¥2.8 billion. 1,000 830 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2010 2011 (Years ended March 31) au Handsets Sold Handset Inventory Sales commissions In addition to reducing handset procurement costs, the adoption of “Maitsuki (Yen) 50,000 Discount” for smart phone sales in the second half decreased sales commission per 44,000 unit. As a result, average sales commissions for the year ended March 31, 2011 were 41,000 40,000 down 27.8% from the previous year, to ¥26,000. 30,000 30,000 28,000 30,000 27,000 24,000 24,000 20,000 10,000 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2010 2011 (Years ended March 31) KDDICORPORATIONAnnualReport201151 Market environment and KDDI’s Measures O Network ve RvI ew Background OF OP e mobiledatatrafficwouldexpand18timesinfiveyears RATION expectations on Mobile Data traffic in the Domestic Market between2010and2015duetothespreadofdevicessuch .s: assmartphones mOBIle Approximately howtoconstructhigh-speedandreasonablenetworks 18 times (2010→2015) BusIN andhowtosupportthetrafficamidtherapidincreaseof traffichavebecometheproblemfortelecommunications Traffic that can be contained ess in about 500MHz width operators. Bypromotingamulti-networkstrategythateffectively uses fixed-line (FTTh, CATv), mobile (3g,lTe,wimAX), 10 11 12 13 14 15 andwi-Fi, we can not only support rapidly increasing Source: Expectation by KDDI traffic efficiently but also provide a high-speed and comfortable telecommunications environment while .reducingtotalnetworkcost Our action Measures for Data Offloading As measures for outdoor data offloading, we have started of- As measures for indoor data offloading, we have provided fering public wireless LAN service “au Wi-Fi SPOT,” which can small indoor base stations “au Femtocell” and “au Repeater” to be used easily by anyone with au smart phones, in June 2011. We individuals to set up a data usage environment and to improve intend to expand usable spots to increase the number to about telecommunications quality. We have expanded “au Femtocell” 100,000 spots by March 31, 2012. offering areas to nationwide in October 2010. Overview of “au Femtocell” Outdoor Communicate Mobile network with base stations outdoors Mobile base station Indoor Communicate Use broadband with “au Femtocell” line of clients inside house “au Femtocell” Home gateway/ Network facility ADSL modem for “au Femtocell” 52KDDICORPORATIONAnnualReport2011 Introducing New technology for the Future We are planning the start of 3.9G system service using the LTE In November 2010, we adopted “EV-DO Multi-Carrier” tech- method in 2012. A special feature of our LTE development plan is nology and started offering “WIN HIGH SPEED,” the expanded the quickly raising nationwide coverage. We are currently O ve system that allows a maximum 9.2Mbps downlink and 5.5Mbps planning on population coverage of 96.5% by March 31, 2015. We RvI 1 uplink speed* . Compared to the current “EV-DO Rev. A,” the are trying to realize the reduction of cost per bit through ew speed triples at maximum. *1, 2 nationwide development of LTE. OF Also, by adopting LTE in 10MHz width of both the 1.5GHz OP *1.