Executives: Keita Horii - General Manager, Investor Relations Department Makoto Takahashi - President Takashi Shoji - Senior Vice President Yuzo Ishikawa - Executive Vice

President
Analysts: Daisaku Masuno - Nomura Securities Co., Ltd. Tetsuro Tsusaka - Morgan Stanley MUFG Securities Co., Ltd. Hideaki Tanaka - Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. Yoshiyuki Kinoshita - Merrill Lynch Japan Securities Co., Ltd. Kei Takahashi - UBS Securities Japan Co., Ltd.

Keita Horii: Thank you so much for waiting, ladies and gentlemen. Thank you so much for joining us today in spite of busy schedule. We'd like to begin the briefing session for the financial results for the first half of the fiscal year ending March 2019 for KDDI. I'd like to serve as a facilitator for this meeting. My name is Horii from IR.

Thank you so much. Please be aware that this briefing session will be simultaneously interpreted between Japanese and English. And please also be aware that it's going to be distributed live on the Internet and also distributed after the meeting on-demand as well. Let me introduce attendees from KDDI today. To your left from the center, Mr.

Takahashi, President, Representative Director.

Makoto Takahashi: Hello, everyone.

Keita Horii: Executive Vice President, Representative Director, Executive Director, Technology Sector, Mr. Uchida; Senior Managing Executive Officer, Director, Executive Director, Corporate Sector, Mr. Muramoto; Administrative Officer, General Manager, Corporate Management Division, Mr.

Saishoji. To your right from the center, Mr. Ishikawa, Executive Vice President, Representative Director, Executive Director, Consumer Business, Media, and the CATV Business; Senior Managing Executive Officer Director, Executive Director, Solution Business and the Global Business Sector, Mr. Shoji; Managing Executive Officer Director, General Manager, IoT Business Development Division, Mr. Mori; Managing Executive Officer Director, Executive Director, Life Design Business Sector, Mr.

Morita. For this meeting, we have distributed three materials relating to the financial results. In addition, we distributed one press release. In total, please confirm four materials, which are also uploaded to our IR section of our website. And for the contents of the materials and what's going to be mentioned during the Q&A session today and the targets, including the subscriber numbers and so forth, please confirm the disclaimer in each material.

And at the beginning, Mr. Takahashi, the President, is going to explain the results. After that, we are going to move on to the Q&A session. Mr. Takahashi, please?

Makoto Takahashi: Hello, everyone.

I’d like to present you the closing results for the first half of the year ending in March 2019. Thank you very much for joining us today despite your tight schedule. But, first, highlights for financial results for the first half. The highlights of the first half performance. On the left-hand side, the consolidated operating revenue on the first half was ¥2,462.3 billion and operating income, on the right-hand side, ¥561.2 billion.

We are making steady progress to achieve the current mid-term plan goals. Next, the operating income and the factors for change year-on-year for the first half. From the left-hand side, due to price cuts of the plans, the revenue decreased. The au ARPA revenue decreased by ¥29.2 billion, but MVNO revenue, value-added ARPA revenue increased, and the Business, Global segment increased profit drove overall results. As to the others, they include a negative impact of the other ¥20 billion due to au points from last year being invalid and it also includes positive impact such as the handset sales cost reduction and the impact coming from IFRS 15.

And again, we are making steady progress against our full-year forecast. Now, I would like to explain about Domestic Telecommunications Business. First, the au ARPA/au ARPA revenue. On the left-hand side, au ARPA. The smartphone shift and the increase in large capacity data plans, the plan subscribers raised the data ARPU.

But due to the impact from au Pitatto and Flat Plan, the au ARPA reduced by 1.7% year-on-year. On the right-hand side, the same story for au ARPA revenues, namely it decreased by 2.9 percentage point year-on-year. Next, price plans for smartphones. As you already know very well, since yesterday that there had been lots of discussions on separated price plans for telecommunications and handsets. KDDI introduced such plans from July 2017 and it has been very well accepted among the other customers already.

The number of contracts exceeded 10 million. And au Pitatto plan customers, the average billed amount, as you can see on the right-hand side, the average billed amount for those customers who changed to au Pitatto plan decreased by about 30%. So, as a result of the efforts of developing price plans for lower and simplified ends, the average billed amount is coming down. And we are going to continue to further develop price plans to lower and simplified end. This is the promotion of customer returns.

KDDI, since we started to sell smartphones, we launched au Smart Value bundled with fixed network service in 2012 were flat rate voice and data plans or casual user plans, and the au Star, which is a membership program for long-term users to promote customer returns. And in the last fiscal year, we promptly introduced separate plans for communications and handsets, and the cumulative customer returns is expected to exceed about ¥300 billion by the end of this fiscal year. And since we promote the customer returns with a variety of plans, the telecommunication revenue will continue to decrease, but we will promote the other growth in other areas, and that's how we are going to continue sustainable growth. Next, au churn rate and mobile IDs. As a result of the initiatives of the promotion of price plans, as you can see on the left-hand side, au churn rate improved by 0.15 percentage point to 0.64%.

And on the right-hand side, helped by the au churn rate improvement, mobile IDs now count 26.7 million – very steady growth. So, the price plans of the other separate plans for communications and the other handsets is contributing to the improvement of churn rate. And we received top awards in individual and corporate customer satisfaction for three consecutive years, the Customer Satisfaction Survey by J.D. Power. Mobile phones and smartphones improving individual customers' convenience are an indispensable tools for end user services in every sector.

For mid to long-term growth in Japanese economy, in responding earnestly to all kinds of requests from individual customers, corporate customers, from the MIC and from the government, we will continue to improve the customer satisfaction level. KDDI Group as a whole, at every contact point with customers, we will pursue values of experience which would go beyond expectation of our customers. Next, I would like to touch upon new fields of growth. Since I became the President, I've been working on the integration of telecommunications and life design. This is not about a shift from telecommunications to life design.

Rather, it is a growth strategy via telecommunication-centric life design development. The word life design has been derived from our company slogan, namely Designing the Future and Lifestyle. It is about designing future lifestyle. That is what life design is all about. This concept is applicable to both consumer business, on the left-hand side, and also to enterprise solution business, on the right-hand side.

Centering around telecommunications, we will work to contribute to core business of corporate customers. And by proposing values of experience to their end customers, we aim at becoming not just a telecommunication carrier, but their partner to create values together, making utmost contribution to their business. And here, we have au Economic Zone. On the left-hand side, au economic zone GMV was ¥608 billion in the second quarter, making the strong progress against full-year target of ¥2.46 trillion. The first-half total was ¥1,168 billion.

On the right-hand side, we have au economic zone sales at ¥167 billion. The second quarter year-on-year growth was greater than that for the first quarter. Both GMV and sales showed significant growth. Next, value-added ARPA, ¥690 in the second quarter. It grew as much as 21% year-on-year.

There are two major drivers for that. First, the settlement fees revenue, au Carrier Billing and au Wallet are increasing the number of users very steadily. The numbers here are counted as platform revenue, securing very stable earnings base. In addition, from April next year, we are going to launch our new QR settlement service, called au Pay, driving further growth. The second driver is a subscription-type fee service called au Smart Pass Premium.

As of the end of September, the number of accounts is 5.74 million, steady growth. And by the end of this fiscal year, we will aim at 7 million, very steady growth. Next, Life Design Services. As you can see here, Life Design Services include au Denki, our electricity service, and Wowma! and au Wallet Market as commerce business. And for entertainment, Netflix pack, au Smart Pass Premium.

And as settlement platform, we have au Carrier Billing and au Wallet. As shown on the right-hand side, there are three major objectives here. First, it is to strengthen retention by enhancing customer satisfaction. Life Design Services and the telecommunications are combined together to improve retention, and there's an evidence that is actually happening. And the second goal is to reinforce customer touchpoints via multiple services.

And, thirdly, steadily expand earnings base. The subscription service is making a very big contribution here. By offering telecommunications and non-telecommunications services, we are going to improve customers' satisfaction level, as well as expanding earnings base. Until now, the company's growth has been mainly driven by the domestic telecommunication business. However, going forward, by the growth of the new business areas, the value-added ARPA will grow the growth of the total ARPA for the whole company.

In the future, by promoting, actively, initiatives and actions with a view to new competitive environment, we'd like to achieve the sustainable growth of the total ARPA by the integration of telecommunications and the life design. Next, about the corporation and competition, which is a new concept. Today, we made a press release about the collaboration and the competition with Rakuten. With the evolvement of technologies, the market environment and services are rapidly changing. In the future, it's very important for us to think about how we fight in the upper layer of the platform layer, while maintaining the trustworthy network.

We have to create this type of environment quickly. Based upon this new angle of the competition, we'd like to cooperate and compete with Rakuten. We would like to promote this new concept, cooperation and competition. So, we decided to work with Rakuten with this new concept. And we are going to provide them with the network roaming to them, and Rakuten is going to provide us with payments and the logistics network where Rakuten is very advanced.

And 5G and IoT, those are the areas where it's quite expensive in terms of the CapEx. By introducing this new concept and the collaboration of competition, we'd like to utilize each other's assets to establish base infrastructure efficiently. And about the social base and the service evolvement, let me explain some examples. From the left, rapid realization of cashless economy. We are planning to launch au Pay, which is a QR payment method, in April next year.

And I would like to vertically launch new services. And we'd like to share the R Pay merchants. There are 1.2 million or more merchants of R Pay Rakuten. So, we are going to use them jointly to rapidly increase the store base. And secondly, resolution of social issues in the logistics field.

In this field, due to the growth of the online shopping, demand is rapidly increasing. And due to the labor shortage, further efficiency improvement is required. In the e-commerce business, we are going to utilize Rakuten Super Logistics. It's going to be possible for us to improve our logistics and distribution and cost reduction at the same time. And it's going to be possible for us to improve the quality of the services and the support functions for Wowma! merchants.

Next, on the right-hand side, which is about a fair and sound competition of telecommunications services. We were asked by Rakuten to provide them with roaming services and we sincerely discussed and negotiated. We agreed on terms. We decided to provide them with the roaming services in all nationwide areas, excluding 23 wards of Tokyo, Osaka City, Nagoya City, and other congested areas. With that, Rakuten will be able to provide services nationwide from October 2019 and a sound competition will be realized in the telecommunication service area.

On the other hand, we are going to provide the roaming using our facilities, excluding metropolitan cities and congested areas. So, this will contribute to the enhancement of the capacity efficiency. Next, KDDI Digital Gate. With the accelerated trend of IoT and digital transformation, it's our important theme to create new experience values. And we've been asked by partner companies to please help them to promote their businesses utilizing IoT and AI.

So, to respond to those needs, we decided to open our new business development site called KDDI Digital Gate in September. And we have KDDI label [ph] or lab where we are aiming at generating new businesses with startup companies. We are going to move that to this KDDI Digital Gate. And through that, we are going to promote open innovation by utilizing advanced technologies and innovative ideas. And in this site, we are going to do prototype development all the way to the verification with a view to commercialization.

And this is a very special, unique establishment that you don't see in other companies in our industry. Next, IoT World Architecture. By utilizing the global communication platform for automobiles, which we announced in 2016 jointly with Toyota, we'd like to expand applications other than automobiles to various IoT devices to capture further growth of the market by liaisoning with Hitachi's IoT platform called Lumada. I think it's going to be possible for us to provide services that match specific needs in each industry. Aiming at commercialization in FY 2019, in addition to the direct connection with local carriers, we'd like to work with our group company, SORACOM.

We'll be able to provide this service in more than 120 countries and regions. Going forward, together with strong global partners, we'd like to promote creating the environment where we push ahead with promoting IoT services in the world. Not only limited to the telecommunication layer towards the value creation in the mobility area, not only limited to the communication layer, we are trying to actively create added values, new added values in each industry. For example, in the mobility area, together with the partner companies, we are implementing various practical initiatives in wide varieties of field. On the left-hand side at the top, car life support area.

We are working with Isuzu using the telematics for commercial vehicles. We have the track record working with them for more than 10 years. Most recently, we are working with Toyota and Japan Taxi and implementing car assignment tests. In the infotainment field, we are working with Prius PHV services and we are promoting SDL initiatives and so forth. In the area of safety, we are working with Toyota and OYO.

And we are trying to use big data obtained by automobiles, use that for the safety in community. And we invest in Aisan Technology and Tier IV. And working with them, we are doing various tests of autonomous driving. And in the agent area, we are working as an advanced company in the last one-mile area. So, not only limited to the telecommunication layer, we are trying to attach more values and reinforce solutions for companies using our life design and various capabilities, and we are trying to create secure and exciting services with partners.

Next, about roadmap to 5G, as a pre-launch in 2019, in limited areas, we are aiming at distributing high-resolution images and drone security. In 2020, in a full-fledged launch manner, we are planning to provide 5G in areas of Olympic games and Para-Olympic games and in areas in accordance with the request of municipalities and our partner companies. Through these new services, I would like to contribute to revitalization of regions and to resolve social issues. 5G is actually the extension of 4G LTE technology. So, we are thinking of adding software functions which are common to 4G, and we are trying to share the facilities with other companies, so that we do a CapEx investment efficiently to reinforce network with a view to IoT era.

Next, sustainability. To realize sustainable society and to realize the promotion of business activities at the same time, let me explain what we are doing in this field. Our highest priority is to establish safer and more resilient connected world. On the left-hand side, in 2009 (sic) [2019] in May, we are planning to launch new submarine cable layer ship called KDDI Cable Infinity. And we had a launching ceremony in September 2018.

Traditionally, telecommunication cable, observation cables, resource exploration cable have been existing. But, in addition, it enables handling of electricity cable work for the first time in Japan. And on the real-time basis, it enables to share the information both on the land and on the ocean about the status of the facility and our construction project and utilize IT technologies to improve the efficiency furthermore. And on the right-hand side, we are showing KDDI Ocean Link. In 2011, when there was Great East earthquake of Japan, roads were disrupted and optical cables were cut.

So it was very difficult to make restoration from the land. So, we decided to do this ship-mounted base station on the ocean or from the ocean. And this time, when Hokkaido Iburi East Earthquake happened, we started to operate this base station and sent emergency supplies, such as drinking water and emergency food to disaster-affected areas. The other day, as we announced, we decided to establish a partnership with KCJ Group, who operates KidZania. Very tough environment continues in Japan for children and we resonated with KCJ's mission, which is the true edutainment to nurture the survival power of children in the real society.

We can combine our 5G or IoT advanced technologies and we are going to work together to evolve edutainment, which means learning while having fun. Targeting at FY 2020, we are planning to open KidZania Nagoya and we are going to contribute to the revitalization of regions through – out of KidZania, out of the facility, so that children in the whole of Japan can experience KidZania. About sustainability, we were selected as a component of ESG-related stock index. On the left-hand side, United States MSCI, our company was selected as a component of Empowering Women Index. On the right-hand side, UK FTSE, we were selected as a component for both global index and Japanese index.

And also, we were selected in the S&P JPX Carbon Efficient Index, which is a global environment stock index that JPIF announced that it will adopt in September. Going forward, in the medium to long-term, we'd like to address this area by aiming at achieving the enhancement of corporate values. In summary, in the first half, we made a very good result towards achievement of the full-year target. Although mobile communication revenue is down, the new growth areas drove the results. And our business strategy is the integration of communication and life design, and our earnings base from the au Economical Zone was expanded.

And we promoted various new initiatives to create new values added towards 5G and IoT era, and we are continuously working on sustainable growth of our business in the medium to long-term. So, we are going to continue to work on those targets to go to the next medium-term management plan. This completes my explanation. Thank you so much. A -

Keita Horii: Next, we plan to move on to Q&A session.

Please give the name of your company and your name before you ask your questions. If you have more than one question, then please wait for the response for your first question before answering the second question. Please raise your hand if you have questions.

Daisaku Masuno: Masuno from Nomura Securities. First, page 16 about the alliance with Rakuten, I'd like to have clarification about your own benefit.

So, Rakuten has a very big economic and distribution logistics platform. And you don't really need to compete with them, ID and points that can be integrated to work in a more concerted, integrated manner. I think it would be more beneficial for KDDI. So, my question is, I think there are so many other things that you can do, what is your thought on that?

Makoto Takahashi: This time, just tie up. It is under the concept of cooperation and the competition.

The roaming agreement and this R Pay by Rakuten and the logistics – but first of all, I think we need to separate these two. First, as to roaming part, whether we provide our roaming service or not, we have given a lot of thought to that. DOCOMO and SoftBank I think have heard from Rakuten for their suggestions. And we have given very serious thought to that possibility. So, the roaming, the fees, the very reasonable ones, they were there to agree upon mutually.

So, for example, if we declined the roaming services, it is government's policy to encourage the fourth player in addition to the existing three players. So, somebody else is going to accept the roaming agreement with Rakuten. Therefore, if we can accept the existing terms and conditions, then we will certainly see some merits. And of course, we are not going to provide roaming services to congested areas, so that means that it does not come with the huge investment. So, they're going to contribute to the mid-term sustainable growth.

So, as you mentioned, Masuno-san, maybe we can ally with some other things as well. So, for example, for our au Pay, because we are a little bit behind spurring the membership via the stores and the shops, so with some [indiscernible], though we can cooperate the wisdom to use their customer base, membership base. So, now we have this very good relationship with Rakuten. And I think at least we already have the good opportunity to extend our discussions with them. We are not yet there, but there are the possibilities to explore.

Daisaku Masuno: My second question. Next year, you are going to issue a new mid-term plan. And look at the condition sector. The condition that is changing. And Rakuten is going to start there the service in October next year and DOCOMO in April through June next year.

So, there will be some new developments next year in 2019. So, based on that understanding, the competition in the market – and what is your assumption for the competitive scenery next year and also the price trends? What is the direction and how you’re going to deal with all of these in complying your next mid-term plan?

Makoto Takahashi: Well, please bear with me if I go a longer way to explain about that. So, yesterday, DOCOMO talked about ¥400 billion investment or the price down by 20% to 40%. I think basically that was the explanation about the separate price plan. But, in our case, the incentives for the handsets, we started to take more conservative, contained approach.

But 18 months ago, we installed the separate price plans for communications and handsets. And I think we could produce the return of ¥300 billion or more than ¥300 billion or so. And now, DOCOMO is now talking about separate price plans. So, we are in different phases. It's not that we are following progress of DOCOMO.

We have already done that. And so, we have already made that step. And as Masuno-san said, from the next fiscal year, we are going to start a new mid-term plan. Our basic policy is as follows. We are going to make a plan for sustainable growth.

And for that – because only with the sustainable growth, we can invest in 5G or contribute to the rehabilitation of the regions or the shareholders’ returns or we can make returns to the customers. So, basically, our plan, next plan is going to be for the sustainable growth. So, yesterday, DOCOMO did not talk about specific prices. We, of course, watched carefully the rest of the market when we think about our price plans. And we will try our efforts, continue our efforts for the sustainable growth, making the business, the management more lean and with more resistant one.

Keita Horii: Any other questions? Please go ahead.

Tetsuro Tsusaka: Tsusaka from Morgan Stanley. My first question is about the roaming arrangement. In Tokyo, Nagoya and Osaka, 23 wards of Tokyo and Osaka, Nagoya excluded from the roaming arrangements, for Rakuten, these are the most important regions and areas, I think. And based upon your experience, when you launched UQ, you know by your experience how important and difficult for you to establish the network in those important areas.

So, my question is, if Rakuten comes to you and begs you to provide roaming in 23 wards of Tokyo, Nagoya and Osaka as well, are you open to that idea? Is it depending upon the conditions or do you absolutely say no? After the launch of the service, if there is no support, then people cannot get any connection in 23 wards in Tokyo when Rakuten started service, then Rakuten will need to put some antenna on electric poles. So, when they come to you and beg, are you open to provide roaming service in those important areas?

Makoto Takahashi: Well, we’re going to discuss when they come to us and ask us that. But they will come to this market as MNO. So, at least, Tokyo, Nagoya and Osaka, in the congested areas, at least in the first year, these should be the areas where they must do by themselves as MNO. And in addition, for congested areas, they're excluded from the current roaming area as MNO.

I think it will hurt the pride of Rakuten as MNO if we give roaming in those congested areas. So, I don't think we can cooperate with that even though they come to us and ask. Thank you.

Tetsuro Tsusaka: So, DOCOMO said that it starts separation plan, pricing plan. According to press coverage, it seems that the total billed amount is something that somebody is paying attention to or somebody is making them saying that this will decrease the total billed amount.

So, in your case, you may introduce the separation plan. And communication fee is down, but handset price is up. So, in total, for some handset, total is down. For some handset, total is up. So, in the whole total, we don't know if it's decreasing the total billed amount.

But in the case of DOCOMO, they are looking at the total billed amount. They are trying to reduce the total billed amount. They are taking this one step further to decrease the total billed amount. So, my question is, with your current separation pricing plan, MIC is okay with that or are they asking you to offer separate for handsets and the network for communication? Then, your current separation plan has to be reviewed or revisited. So, do you think you can go with this current separation plan or do you have to change the current separation pricing plan? And then, do you think you will have to do something to reduce the total billed amount? How do you interpret those things?

Makoto Takahashi: Well, you are the professionals.

You have been watching this industry for a long time. So, as you know, about two years ago or so, excessive incentive was said to be controlled and there was a movement to observe the guideline, to control the excessive incentive. And let’s charge the fee separately and for communication. And we launched Flat plan and Pitatto plan. And for Pitatto plan and Flat Plan, we reduced the communication fee by about 30%.

And accordingly, incentive for handsets was reduced. And we made efforts. And we are a corporation, so don't want to have a decline in profits. So, basically, we are aiming at achieving growth in profits. So, not only controlling the incentives for handsets, we worked on cost reductions and other internal efforts.

And we have income from MVNO business. So, together with that, we tried to post a profit. That’s the history. And this plan itself, we have been launching those plans as they told us to do. So, I don't think they are going to deny those plans.

But, basically, looking at press conference of DOCOMO, they were saying on the net basis. So, I'm puzzled. So, I don't know what they are trying to achieve. But they have launched the separation. They are saying they are launching the separation model and I don't think they are going to keep providing incentives for handsets.

So, I think they are going to do something in the next fiscal year, but we don't want to really have a decline of the profit. We have to continue to make various efforts. We have to really put our wisdom together as a private company and achieve sustainable growth. That’s the mission and responsibility of the management of the company. Thank you.

Keita Horii: Any other questions? Yes, please.

Hideaki Tanaka: Thank you for the presentation. Mitsubishi UFJ Morgan Stanley. My name is Tanaka. I have three questions, one by one.

So, as to the 5G implementation, the sharing of the capacity of facility was touched upon. And could you please elaborate on that, including cost and the benefit?

Makoto Takahashi: I would like to explain, including my thoughts. But we used to compete for the facilities, but now we go beyond that. Namely, we are going to establish a platform in every sector. Platform is a buzzword.

So, you make platform. And then, that will create a new business with many other companies. So, our network will not be made on our own. You will need to have lots of fibers once the frequency goes up. So, the bottleneck, the facility should be used for that.

So, we will share more and more facilities and capabilities with other players to build the facility capability more efficiently. So, this roaming agreement with Rakuten, as I mentioned earlier, it is not really for the congested area. So, it doesn't come with lots of investment. Still, we can get the roaming revenue, and that will lead to the efficient revenue sources. So, the 5G license is yet to be obtained.

But the 4G and the 5G, we need to think about how to create network in a more efficient manner.

Hideaki Tanaka: Thank you. Among the different carriers, I think everyone can get some benefits. It's not the data only that KDDI gets benefits.

Makoto Takahashi: Right.

It depends on who is your partner and what are you going to make. So, there's a flexibility. It's not just KDDI who will get the benefit.

Hideaki Tanaka: Thank you. My second question.

As to the separate documents of the presentation, page 4 for Global segment, for the second quarter, for these three months alone, the operating income that went down, for the first quarter, there was some unexpected elements. So, these numbers alone, it seems that you are not doing so well. Could you please make some supplementary comments on that?

Makoto Takahashi: So, Shoji-san is going to explain about that.

Takashi Shoji: So, the Myanmar business in the first quarter, there was adjustment of the closing of calendar. So, that was the special positive impact.

And for the second quarter, it looked like profit went down. Actually, it's because of the FX, especially the Myanmar kyat dollar, the rate change impacted. Then without FX impact, when you compare the two second quarters, it was a positive growth. So, unless there is the very big change in FX, I think, our profit level is doing rather steadily.

Hideaki Tanaka: The third question, page 19, IoT, the World Architecture.

So, you talked about the framework. The IoT World Architecture has a price tag, ¥100 billion for the three years. I think that's what you said before. I'd appreciate it if you could give us some comments on that.

Makoto Takahashi: [indiscernible].

Unidentified

Company Representative: So, mainly, we're operating in Japan for IoT World Architecture. In several years' time, IoT – well, of course, we are going to grow the Japanese business. But along with that, we would like to collect with the global IoT equipment, targeting at the ¥100 billion level. That is our current plan. And from next fiscal year on, the weight of the business in the rest of the world will increase.

So, there's the business with Toyota.

Hideaki Tanaka: And so from the next year on, the global business will increase. Is that what you are saying?
Unidentified

Company Representative: Yes. This is mainly for the automobile. So, starting in fiscal year 2019, 2020 to 2021, the number of connections or the number of equipments to be connected will be accelerated more than the speed observed in Japan.

Hideaki Tanaka: And one more thing. As to SORACOM, we don't know about specific numbers, but alliance with the startup companies. It seems that there are many good business examples about SORACOM. Can you talk about the current status of SORACOM? Some numbers will be nice. Unidentified

Company Representative: We do not disclose SORACOM's results.

But as is the case of IoT World Architecture, SORACOM alone can grow itself. And also, they can be part of our IoT World Architecture. We are working on both of them. So, the alliance with the big company and the startup company, using our platform, they can be very active in the IoT areas and then we can connect with more than 120 countries by roaming. So, we expect them to be active in that way.

In addition, they can pursue their own growth. And such initiative, I think, is very interesting. So, for the expansion of SORACOM business and the integration with our network, that will be pursued. Thank you.

Keita Horii: Any other questions? Please go ahead.

Yoshiyuki Kinoshita: My name is Kinoshita from Merrill Lynch. I have several questions. First, this is just to check with you about the return to customers. In total, ¥300 billion. From when do you count to come up with this ¥300 billion to be repaid back to customers? And DOCOMO is saying that they are going to repay ¥400 billion back to customers.

So, revenue will go down. But you are one year ahead about the separation pricing plan. And starting from that timing, how much have you paid back to customers so far on a cumulative basis, if you have a number? This ¥300 billion or more than ¥300 billion?

Makoto Takahashi: I can give you a breakdown impact from the separation plan in au Star and other service to customers and other payback to customers. Start timing is a timing when we started Pitatto and the Flat plans. To the end of this fiscal year, we counted the difference between those two timings.

And it's about ¥300 billion, a little bit above ¥300 billion.

Yoshiyuki Kinoshita: So, like one-and-a-half years? ¥300 billion or a little bit more to be paid back to customers?

Makoto Takahashi: Yes, by the end of this fiscal year. Yes, that's right.

Yoshiyuki Kinoshita: Understood, thank you. And DOCOMO's pricing plan is not clear at this point, so it's difficult to say.

But according to the newspaper articles, after the press conference of President, DOCOMO is quite active and proactive on discounting. And some articles said DOCOMO is not going to follow suit on discounting. So, there are different tones of media coverage. But basically, what is your image? DOCOMO is going to return ¥400 billion back to customers. If that's the case, you don't need to launch additional plans to repay back to customers or do you think you have plan A, like a little bit discount plan, pricing plan? How do you think what you should do?

Makoto Takahashi: Well, this is only the hypothetical question.

So, I cannot really mention clearly. But the fact is that, next year, DOCOMO is going to change their pricing menu. That's clear. And Rakuten is going to come to the market. Those are the two facts.

So, there are different moving parts in the industry. And as I have mentioned, when we create the new medium-term business plan, we are a private company, so we have to really get all our [ph] wisdoms together to achieve growth in revenue and profit, to achieve sustainable growth. This is my strong will. So, ¥1.2 trillion profit for this fiscal year. How can we grow that? How can we return back to the society? And so, media and articles just take only things partially, not the whole fact.

So, we are generating this much profit. So, we must return. We have to take this seriously and we have to return back to the society. But how do we turn back to the society? Of course, 5G. Japanese network is a wonderful one, right, don't you think, compared to other countries? We have to keep investing in this network.

We have a scheme of investment. So, we'd like to return back to society through that. And with 5G, revitalization of regions is a big theme that we are working on. And KidZania is another example. We can contribute back to society through that.

And we have to return to shareholders too. And, of course, we have to return to customers. So, we have just repeatedly explained that. And the return to customers? The media just took that part only. Some media said price is coming down.

But, basically, that’s our attitude and that's how we'd like to make our next medium-term plan next year. Thank you.

Keita Horii: For the sake of time, we will accommodate one more person to ask questions.

Kei Takahashi: Takahashi from UBS Securities. Two questions.

First, the churn rate has been improving significantly. Any change in the competitive competition, be it at a sub-brand, data competition that is decreasing or the Life Design strategy effort is paying off more? Do you have any analysis on that?

Makoto Takahashi: Ishikawa-san is going to answer your question.

Yuzo Ishikawa: Of course, there's competition there. In the first half, it is less competitive in the market. But more than that, it's about prices.

And au Star, the longer-term user, the services, because there had been quite a high level of dissatisfaction. And so, we have made improvement on that. And also, this Life Design promotion and the integration between telecommunications and Life Design, and of course, there are different combinations for usage by customers, and that raises the level of satisfaction among the customers. And it makes engagement with customers much stronger. And so, we are looking at such progress, gradual progress, and that contributed to the improvement of churn rate.

Kei Takahashi: Next question. It's about business segments. Looking at your results, it seems that you are doing very well. In the mobile market, there are various noises. So, I think it's very important to have different sources of revenue other than your core business.

But why the business momentum there seems to be rising? Why is that?

Makoto Takahashi: Shoji-san will answer your question.

Takashi Shoji: Thank you for that question. The ¥93 billion is the target for this year's operating profit. But the progress, when you look at the last years or two years, the level – I think the level of growth is about the same as this year's. So, it's not so different.

But when you look at the specifics, the fixed line business, data center, network and solution, all of them are making steady progress. And CTC, our subsidiaries born six years ago, [indiscernible] for the SMEs, those subsidiaries business are also growing very steadily. So, all in all, our results are getting better. Thank you.

Makoto Takahashi: Now, this concludes our briefing session for the financial results for the first half of the fiscal year ending March 2019 for KDDI.

So, yesterday and today, we had very shocking two days. But as I mentioned today, as a private company, I'd like to aim at sustainable growth. We are going to do our best. Our stock price became quite cheap. So, I'd like to ask for your continued support.

Thank you so much.