As filed with the Securities and Exchange Commission on June 24, 2010

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)

 

 

 

Yuko Nakamura or Natsuki Wajima, Investor Relations

TEL: +81-3-5156-1111 / 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, 2010, 41,605,742 shares of common stock were outstanding, comprised of 41,450,317 shares and 15,542,500 ADSs (equivalent to 155,425 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 þ     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, 2010” refers to our fiscal year ended March 31, 2010, and other fiscal years are referred to in a corresponding manner.

 

 

Not applicable.

 

 

Not applicable.

 

 

A.  Selected Financial Data

 

The following tables include selected historical financial data as at and for each of the years ended March 31, 2006 through 2010. The data as at and for the years ended March 31, 2006 through 2010 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”). The consolidated balance sheets for the years ended March 31, 2009 and 2010, the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years ended March 31, 2008 through 2010, and Notes thereto appear elsewhere in this annual report.

 

Selected Financial Data

 

 

 

(Notes)

 

 

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:

 

 

 

 

 

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 from 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 installment sales 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 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 competitors in the market, including MVNOs* and competitors from other industries, 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 subscription period, 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, the introduction in October 2008 of the packet flat-rate service, “Pake-hodai double,” with monthly charges varying according to usage, and the introduction in December 2009 of “Mail Tsukai-hodai,” a payment plan that allows use of domestic i-mode e-mail, free of charges, regardless of the destination e-mail address or whether photos, videos or other files are attached. However, we cannot be certain that these measures will enable us to acquire new and maintain existing subscriptions. Furthermore, these rate revisions are expected to lead to a certain decline in ARPU, but if the trend of subscriptions of “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:

 

 

 

In addition to the above proposed changes that may impact the mobile communications business, we may be impacted by a variety of laws, regulations and systems. For example, in response to an increase in the number of our subscribers, we have proceeded with the enhancement of our telecommunications facilities in order to improve the service we provide to our subscribers. As a result, we are using an increasing amount of electricity. Moreover, we are implementing measures directed towards reducing greenhouse gas emissions, including deployment of low-power consumption devices and efficient power generators. However, with the implementation of regulations and other measures aimed at reducing greenhouse gas emissions, our cost burdens may increase, and this may have an adverse effect on our financial condition and results of operations.

 

It is difficult to predict with certainty if any proposed changes impacting the mobile telecommunications business or if any other relevant laws, regulations or systems will be drafted, and if they are implemented, the extent to which our business will be affected. However, if any one or more of the above proposed changes impacting the mobile telecommunications business occurs, or if laws, regulations or systems are introduced, reformed, or become applicable to us, 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 we can use. There are limitations in the 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 networks significantly expands. Also, in relation to our FOMA services, packet flat-rate service for FOMA, 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.

 

Other mobile service providers in the world may not adopt the technologies that are compatible with those used by our corporate group’s mobile communications system on a continual basis, which could affect our ability to sufficiently offer international services.

 

We are able to offer global roaming services on a worldwide basis, on the condition that a sufficient number of other mobile service providers have adopted technologies that are compatible with the technology we use on our mobile communications systems. We expect that our overseas affiliates, strategic partners and many other mobile service providers will continue to use technologies compatible with ours, but there is no guarantee of this in the future.

If a sufficient number of mobile service providers do not adopt technologies compatible with ours, if mobile service providers switch to other technologies, or if there is a delay in the introduction of compatible technologies, we may not be able to offer international roaming or other services as expected and we may not be able to offer our subscribers the convenience of overseas services.

 

Also, we cannot be sure that handset manufactures or manufactures of network equipment will be able to appropriately and promptly adjust their products if we need to change the handsets or network we currently use due to a change in our standard technology, and the handsets or network we currently use need to be changed.

 

If such technologies compatible with the technologies we have adopted do not develop as we expect and we are not able to maintain or 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 impacts, 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/devices, and services of parties other than those belonging to our corporate group are provided through our cellular handsets/devices, potential problems resulting from malfunctions, defects or loss of handsets/devices, 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 following:

 

 

 

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, there was an issue occurred that subscribers were charged fees for packet communication at higher levels than they were aware of as a result of using mobile phones without fully recognizing the increased volume and frequencies to use packet communication, as our handsets and services became more sophisticated. 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 others, 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 and corporate image 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.

 

Natural disasters, power shortages, malfunctioning of equipment, software bugs, computer viruses, cyber attacks, hacking, unauthorized access and other problems could cause failures in the networks distribution channel and/or other factors 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 multiple systems. However, despite these measures, our system could fail for various reasons including malfunctioning of hardware, natural disasters such as earthquakes, typhoons and floods, power shortages, terrorism and similar phenomena and events, and shortages in personnel to operate and maintain network equipments due to the spread of a highly contagious and dangerous disease. 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 tens of 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. Moreover, 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 addition, a natural disaster or the spread of a highly contagious and dangerous disease could force the temporary closure of sales outlets. In such a case, we would lose the opportunity to sell or provide goods and services, and we might not be able to respond appropriately to subscription applications and requests from subscribers including after-sales service, and this might damage our corporate image and credibility and lower customer satisfaction.

 

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 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 our corporate image, financial condition and results of operations through increased cancellation by existing subscribers, reduced subscriber growth, reduced usage per subscriber and introduction of new regulations, restrictions, or litigation. 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 demonstrate that there is no interrelation 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, 2010, NTT owned 66.43% 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, 2010, NTT owned 66.43% 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 144,340,000 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, Regulations of the Board of Directors 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.

 

Our shareholders of record on a record date may not receive the dividend they anticipate

 

The customary dividend payout practice and relevant regulatory regime of publicly listed companies in Japan may differ from that followed in foreign markets. Our dividend payout practice is no exception. While we may announce forecasts of year-end and interim dividends prior to the record date, these forecasts are not legally binding. The actual payment of year-end dividends requires a resolution of our shareholders. If the shareholders adopt such a resolution, the year-end dividend payment is made to shareholders as of the applicable record date, which is currently specified as March 31 by our Articles of Incorporation. However, such a resolution of our shareholders is usually made at an ordinary general meeting of shareholders held in June. The payment of interim dividends requires a resolution of our board of directors. If the board adopts such a resolution, the dividend payment is made to shareholders as of the applicable record date, which is currently specified as September 30 by our Articles of Incorporation. However, the board usually does not adopt a resolution with respect to an interim dividend until after September 30.

 

Shareholders of record as of an applicable record date may sell shares after the record date in anticipation of receiving a certain dividend payment based on the previously announced forecasts. However, since these forecasts are not legally binding and resolutions to pay dividends are usually not adopted until after the record date, our shareholders of record on record dates for year-end or interim dividends may not receive the dividend they anticipate.

 

 

 

We are a joint stock corporation incorporated and registered under the Japanese Law 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 (NTT DOCOMO,

INC. since June 2010). 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 (“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 Ministry of Posts and Telecommunications, 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 list shows our corporate organization and includes our subsidiaries and affiliates as of March 31, 2010.

 

 

 

 

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 56.08 million and our domestic market share was 50.0% as of March 31, 2010.

 

As the Japanese mobile communication market has continued to mature in line with the rise in penetration rate, 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. 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.

 

Under our new action plan established in October 2008, “DOCOMO’s Change and Challenge to Achieve New Growth,” we have been directing our efforts to the promotion of music and video services directed towards expanded subscribers’ usage of packet communications; the personalization of services and functions to match customers’ lifestyles and needs; the provision of social support services directed towards sustainable growth of society, such as environment and ecology, and safe and security; and the provision of convenient and easy-to-use services tailored to customer needs through the convergence between mobile phones and a variety of life tools, and other services that take advantage of mobile phone characteristics. We provide handsets that are compatible with this extensive range of services and contents, and we provide a handset lineup tailored to diversifying customer values and lifestyles.

 

We are putting efforts into improving the quality of our networks to ensure that customers can use the services we provide comfortably and stably. In addition to quality improvements of FOMA network, we made efforts in expanding FOMA coverage areas, and in December 2008 achieved 100% population coverage of high-speed FOMA. We are also making efforts so that customers can utilize a maximum download speed of 7.2 Mbps*, to enjoy 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. The DOCOMO R&D Center, established in Yokosuka Research Park to assist us in our research and development of advanced technology, is striving to further expand mobile communication services and is engaging in the development of LTE, as well as in fundamental research for 4G.

 

 

 

We offer wireless voice and data communication services on networks that are accessible by 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. Further, we are aiming to enhance the personalization of services, our social support services and convergence services leveraging unique mobile properties such as real-time immediacy, personal authentication, and location capabilities.

 

For the year ended March 31, 2010, our cellular services, including associated equipment sales, which are our core business, accounted for approximately 97.3% of our consolidated operating revenues. We 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. We also offer mova services on our 2G network, compatible with voice and data communications.

 

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

 

Cellular Services

 

• 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, 2010, subscriptions have become approximately 53.2 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 individual 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 December 2008, we achieved 100% population coverage nationwide in the FOMA high-speed area with maximum downlink transmission speed of 7.2Mbps. We will continue to enhance the FOMA high-speed areas, and build coverage areas that meet our customers’ expectations.

 

 

• 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 discontinue mova services on March 31, 2012 and concentrate on our popular 3G service, FOMA. We ceased accepting new mova subscriptions on November 30, 2008. Further, we terminated our cellular services using the 1.5 GHz radio band (City Phone services) on June 30, 2008.

 

• 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 Act 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 have been significantly reduced. Currently, our cellular subscribers pay (i) an activation fee of ¥3,150 (including tax), (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, video phone (FOMA), SMS (FOMA), short mail (mova), and international communications. Additionally, we offer various discount services, including discounts for families 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 handset purchase method “Value Course,” we began offering the new “Value Plan,” which applies to subscribers who have chosen the “Value Course.” In exchange for payment of initial handset costs, a subscriber will be eligible to select the less expensive “Value Plan” under which basic monthly charges (prior to application of other discounts) will be ¥1,680 lower (including tax) with the exception of certain plans than standard plans. In March 2010, the number of subscribers of the “Value Plan” exceeded 30 million.

 

We offer a “Family Discount” service, which is available for families with two to 10 subscriptions. In August 2007, we began offering “Fami-wari MAX 50,” which offers subscribers who commit to a two-year contract of a “Family Discount” service of an immediate 50% discount to basic monthly charges, regardless of period of continuous usage. In addition, in April 2008, for FOMA subscribers who have contracted for the “Fami-wari MAX 50” service, domestic call among members of the same “Family Discount” group, which had been subject to a 30% discount, became free of charge for 24 hours a day.

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 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. 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 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%) for 24 hours a day.

 

We believe that our various and comprehensive plans, prices and discounts have helped us remain competitive in retaining existing subscribers and attracting new subscribers. Going forward, we will continue to provide simple and comprehensive fee structures for customers.

 

• 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 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, 2010, the number of i-mode subscriptions reached 48.99 million and the number of i-mode portal menu sites had reached 20,765 (FOMA only).

 

Services on i-mode

 

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

 

 

For FOMA subscribers with i-mode services, we offer “i-channel”, a service that automatically delivers and displays the latest information such as news, weather, entertainment, sports, horoscopes, and more. The number of subscribers to this service reached 16.82 million in March 2010.

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, reached 4.2 million at the end of March 2010. In November 2009, the “i-concier” service became compatible with the “Auto-GPS” handset function, which regularly measures a subscriber’s position information and provides it to us and service providers automatically, enabling the provision of information linked to the subscriber’s location. In this and other ways “i-concier” service has become more convenient for subscribers.

 

We have been working on enhancing video services with the aim to further expand the mobile video content market. We formed the joint venture Avex Broadcasting & Communications Inc. with Avex Entertainment Inc. in April 2009, and launched the video service “BeeTV” in May 2009.

 

Improvement of i-mode convenience

 

We are directing efforts towards facilitating the visualization of menu pages as well as enhancing and improving the usability of search services in order to provide even greater convenience for i-mode customers.

 

In May 2009, we launched “My Link,” an online bookmark function and “My News,” a web-based RSS reader that displays updated information of certain iMenu sites according to subscribers’ requests. In March 2010, “My Menu” and “My Box” of iMenu services were merged into “My Page,” where personalized information of subscribers could be accumulated. These advances in personalization of services offer subscribers greater convenience in use.

 

We plan to further 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.

 

We are proactively engaging in the creation of a secure and comfortable environment where customers can use i-mode services.

 

With respect to access restriction services (filtering services)*, from November 2009, we began offering “Web Restricted Menu” primarily to subscribers of “Web Restrictions” targeted for young elementary school children, which replaces the standard iMenu and offers only a minimal number of links, such as the “Disaster Message Board” and “My Page.” In addition, we decided to enhance the functions of “Access Restriction Customize” from April 1, 2010, by providing a “Time Settings” function that allows children’s use of their phones to be restricted by one-hour units. Moreover, in response to the implementation of the Law to Promote a Healthful Internet Environment for Youth, on April 1, 2009, we are actively promoting new subscribers for i-mode services to use this access restriction services when they sign up.

 

 

• i-mode Revenues and Fees

 

i-mode users are charged according to the volume of data they transmit, not for the length of airtime or the distance over which the data are transmitted. Our billing plans for i-mode services include a usage-based plan with no upper limit on charges and flat rate plans that offer unlimited access to i-mode services with a certain upper limit.

 

The use of i-mode incurs a monthly fee of ¥315 (including tax), in addition to the standard monthly charges of voice services for FOMA and mova. Besides communication charges, subscribers are required to pay information charges to content providers when they subscribe certain i-mode sites. We bill subscribers on behalf of content providers for content provider fees together with communication charges, and we charge content providers for a commission of our billing and collection services.

 

In order for customers to use the services 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.

In October 2008, to expand subscribers’ usage of packet communications, we introduced the new “Pake-hodai double,” a two-tiered 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). While the monthly fee varies according to usage volume, the maximum fee is ¥4,410 (including tax). With the introduction of these flat-rate services, we stopped accepting new subscriptions for the “Pake-hodai” services in December 2008. Also, in August 2009, we reduced the minimum monthly fee to ¥390 (including tax) so that customers who rarely use packet communications will be able to use “Pake-hodai double.” Moreover, in December 2009, we launched “Mail Tsukai-hodai”, whereby users, by subscribing to a special payment plan “Type Simple (value)” and “Pake-hodai simple” and paying i-mode usage charges, can send i-mode e-mails in Japan free of charge regardless of the destination e-mail address or whether photos, videos, or other files are attached.

 

• Data Communication Services

 

We are also making efforts in data communication services for PCs. Because of the increased demand for second subscription from PC data cards, in addition to our lineup of card-type and USB-type terminals, we are enhancing our lineup of PCs with built-in modules with the cooperation of PC manufacturers.

 

• Fees for Data Communication Services

 

We introduced two flat-rate plans, “Flat-rate Data Plan 64K” and “Flat-rate Data Plan HIGH-SPEED” in October 2007, so that our subscribers could use in mobile data communication without worrying about over communication charges. “Flat-rate Data Plan HIGH-SPEED” offers at monthly charges starting at ¥4,200 (including tax) and going up to ¥10,500 (including tax), 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 a 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 is eligible to select the “Value Plan,” under which basic monthly charges (prior to application of other discounts) is ¥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 HIGH-SPEED with Value Course,” 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, with a maximum monthly charge of ¥5,985 when the “Value Plan” is applicable. Further, starting in July 2009, we 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, subscribers are able to use this plan at monthly charges, starting at ¥1,000 (including tax). With such plans and services, we believe we have achieved a customer-friendly rate structures for mobile data communications, as well as rates for our cellular phone services and i-mode services.

 

• Fees in the case of using combination of i-mode Services and Data Communication Services

 

From June 2010, We reduced the maximum monthly charge for packet communications, which includes the usage in Wi-Fi access-point mode*, with a PC or other device, under “Pake-hodai double” and “Pake-hodai simple” flat-rate data service to ¥10,395 (including tax), down from ¥13,650 (including tax).

 

 

• Smartphone Services

 

We are aware that the smartphone market is expected to expand moving forward. To widen the user base, we implemented easy-to-use payment plans and enhanced the terminal lineup. In April 2010, we launched the “DOCOMO Market” portal site for smartphones that showcases appealing content and applications, to enable even novice users to use smartphones with more convenience and ease.

• Fees for Smartphone Services

 

In April 2007, we launched “Biz-hodai,” which enables smartphone users to use packet communications at a flat rate. In October 2008, we launched “Biz-hodai double,” a new packet flat-rate service in which the monthly flat fee changes according to the usage amount to enable customers to use the service without worrying about the charges. “Biz-hodai double,” starting at ¥490 (including tax) a month, is a flat-rate packet service for smartphones offering unlimited non-i-mode packet communications in Japan (excluding communications using PCs) with a monthly upper limit of ¥5,985 (including tax). In August 2009, we lowered the minimum flat-rate monthly charge to ¥390 (including tax).

 

In April 2010, we merged “Biz-hodai double” with “Pake-hodai double.” Accordingly, flat-rate packet services that differed depending on the handsets used now have a simpler and easier-to-understand fee structure, and customers using both i-mode compatible mobile phones and smartphones can use them without worrying about the charges.

 

• ISP Services

 

We offer the “mopera U” Internet connection service for data cards and smartphones. With the “mopera U” service, users can easily access the Internet by connecting their FOMA handsets to their PCs, with one subscription covering everything from mobile phones to broadband and enabling use of Internet and e-mail. In November 2009, we lowered the rates for subscribers to flat-rate data plans, to ¥525 (including tax) a month.

 

Our subscribers can choose a “DOCOMO Public Wireless LAN” service that provides high-speed large-capacity communication at speeds of up to 54Mbps as an option under the “mopera U” service. With respect to area development, as of the end of March 2010, the number of access points increased to approximately 6,660, and we will continue to develop areas to meet the needs of customers. Subscribers to the “DOCOMO Public Wireless LAN” service can easily browse streaming videos and transfer FTP files in the coverage areas such as in airports, train stations, and cafes.

 

• Module Services

 

As part of our endeavor to promote mobile multimedia services, we have provided the module services since July 2004 to address the increase in machine communication services. Embedded modules will lead to a broad range of uses such as automobile fleet management, wireless credit card settlement systems, and telemetric systems enabling automatic inventory checks between vending machines and service centers. These modules contribute to our strategy of broadening the scope of mobile communication. FOMA ubiquitous modules are used mainly in machine communications. We offer a ubiquitous plan for low-rate services for users with low-traffic needs.

 

In July 2009, we launched a digital photo frame (“OTAYORI PHOTO PANEL”), which uses a FOMA ubiquitous module. At the same time, we launched the “Otayori Photo services,” which allows users, just by sending an e-mail with a photo attached from a mobile phone or PC, to display the photo in a OTAYORI PHOTO PANEL even from a remote location.

 

As of March 31, 2010, there were approximately 1.08 million subscriptions to the FOMA ubiquitous services and approximately 0.52 million subscriptions to DoPa services. 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.

 

• MyArea Services

 

In November 2009, we launched the “MyArea” service that, with the installation of compact femtocell base transceiver stations in homes and the building of dedicated home use FOMA area, provides stable and high-speed packet communication, and the “Imasuka” function. The “MyArea” service is ¥980 (including tax) a month. The “Imasuka” function sends notifications to a selected email address when entrance into or exit from a subscriber’s personal FOMA area is detected.

• International Calling Service and International Roaming Service

 

“WORLD CALL,” our international calling service, is a service that allows customers to make international phone calls to 240 countries and regions (as of March 31, 2010) from their mobile phones. As of March 31, 2010, FOMA subscribers were able to make international videophone calls via our 3G network to 3G subscribers in 50 countries and regions.

 

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 we have partnerships. 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 207 countries and regions, and access i-mode packet communication in 156 countries and regions as of March 31, 2010.

 

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, and Vietnam Telecom Services Company (operating region: Vietnam) in November 2009, Conexus became one of the largest mobile network operator alliances in the Asia-Pacific region with approximately 260 million subscribers in 13 countries and regions including Guam and the Northern Mariana Islands.

 

• Services for Corporate Customers

 

We consider the corporate market as a field in which we have substantial room for growth. We have achieved solid results and established strong reputation in the corporate market to date. We have been bolstering initiatives, by drawing on the strength that make up the foundation of our progress such as the diversity of our services, our robust security management structure and our reliable infrastructure.

 

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).

 

In August 2006, we launched the “Business mopera Anshin Manager” service which is a remote control service for 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. In January 2009, we began the “Business mopera Command Direct” service so that mobile phones can be directly managed and restricted by customers.

 

In June 2007, as a part of the “OFFICEED” service menu, an internal communication service for corporate customers, 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 April 2007, for the “Business mopera IP Centrex” service, which is a service for corporate customers that 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, 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 have been establishing structure that ensures contact with every customer, proposing of attractive solutions, and expanding B2B2C businesses. We achieved the No. 1 ranking in the “J.D. Power Asia Pacific 2009 Japan Business Mobile Telephone/PHS Service Customer Satisfaction Index Study^sm”.

 

Disclaimer: J.D. Power Asia Pacific 2009 Japan Business Mobile Telephone/PHS Service Customer Satisfaction Index Study^sm. Study based on a total of 3,309 responses from 2,632 companies with 100 or more employees (up to two responses from one company) about telecommunications firms who supply a mobile telephone/PHS service. (www.jdpower.co.jp)

 

• 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 39,500 subscriptions to the services as of March 31, 2010. 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.

 

In April 2010, we launched a new satellite communication service (WideStar II), as well as a portable satellite terminal, the 01. WideStar II is a new and faster satellite transmission system, that enables an expanded range of usage for data transmission, including video image transmission, Internet and telemetry, by offering packet communication (maximum uplink 144 kbps, and maximum downlink 384 kbps) far faster than standard packet communication.

 

• 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. 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.

 

• Cellular Subscribers

 

The number of our subscriptions including FOMA and mova services has grown by approximately 1.48 million in the most recent fiscal year to approximately 56.08 million as of March 31, 2010, which represents a market share of 50.0%, a 0.8 point decrease from March 31, 2009. 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 53.2 million as March 31, 2010. Further, we successfully maintained our churn rate at the low level of 0.46% in the fiscal year ended March 2010.

Subscription growth for i-mode services in the four fiscal years ended March 31, 2010 was approximately 2.63 million. The DOCOMO cellular subscription numbers, including i-mode subscription numbers, for the fiscal years ended March 31, 2007, 2008, 2009 and 2010 are as follows:

 

 

 

 

 

• 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 monthly amount of connection time per subscription basis. ARPU measures the average monthly operating revenues attributable to designated services on a per subscription 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) slightly decreased to 136 minutes per month for the year ended March 31, 2010 from 137 minutes in the prior fiscal year. Billable MOU (FOMA+mova) decreased to 118 minutes in the year ended March 31, 2010 from 124 minutes in the prior fiscal year, which is due to the increased calls in using free communication allowance caused by the penetration of the Family Discount plan.

 

The average monthly ARPU for one subscriber (FOMA + mova), which was ¥5,710 in the year ended March 31, 2009, fell by ¥360 to ¥5,350 for the year ended March 31, 2010.

 

Aggregate ARPU (FOMA + mova) continues to decline moderately because of rate reductions and changes in usage patterns. During the period from the beginning of the year ended March 31, 2009 to the end of the year ended March 31, 2010, 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, 2010, approximately 84% of subscribers paid by financial institution account transfer or by credit card. In June 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, 2010, 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 outstanding amounts 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.

 

Other Revenues

 

• Revenues at Subsidiaries

 

We are taking the initiative to create new businesses which we can create synergies with. As a part of this strategy, we invested in the home shopping services company OAK LAWN MARKETING (“OLM”) in April 2009.

 

OLM has broad knowledge and strong product procurement capabilities in home shopping businesses in the US market, product development and improvement know-how, video production know-how and marketing ability for generating a high response rate; whereas we have the mobile phone service technology and know-how. Our

affiliation with OLM enables us to utilize the know-how and the spread and expansion of e-commerce and home shopping businesses.

 

• Mobile Phone Protection & Delivery Service

 

To enable our subscribers to use our services comfortably, we are making efforts to further enhance and strengthen our after-sales services.

 

As part of these efforts, we now offer to docomo Premier Club members who use FOMA, the Mobile Phone Protection & Delivery Service. If a mobile handset is lost, stolen or damaged by water or otherwise becomes unusable, a replacement handset will be delivered directly to the customer. The Mobile Phone Protection & Delivery Service, which requires payment of ¥5,250 (including tax) each time the service is used in addition to the monthly fee of ¥315 (including tax), has been extremely popular with subscribers, who can use their mobile phones comfortably.

 

• Credit Business

 

Many of our mobile phones come equipped with the “Osaifu-Keitai” (Mobile Wallet) function, which uses cards with contactless IC chips.

 

iD

 

The credit brand “iD,” which enables users to make credit card payments using the “Osaifu-Keitai” service, 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 promoting the “iD” as a settlement platform to credit card issuers, who can offer card members credit settlement services combining conventional plastic cards and use of iD with the “Osaifu-Keitai.”

 

The number of subscribers exceeded 10 million in December 2008 and reached 14.2 million at the end of March 2010. The number of stores where “iD” can be used continues to increase steadily, as we give priority to the installment in shops that play an important role in customers’ day-to-day lives. As of the end of March 2010, the number of the readers/writers reached 440,000 units. Going forward, we intend to continue providing an open “iD” platform to credit card issuers.

 

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 merged McDonald’s and DOCOMO’s respective customer bases, brands, and business know-how in the restaurant and mobile phone businesses, provides customers with “Value,” “Convenience,” and “Fun,” by proposing new lifestyles to be achieved through e-marketing focusing on the “Osaifu-Keitai.” As a result of these efforts, in August 2009, “iD” was introduced and installed at all McDonald’s shops throughout Japan.

 

With a goal of further increasing customer convenience, we have formed business alliances with the LAWSON and Family Mart convenience store chains. As part of this operational alliance, all stores in these chains have introduced payment services that use “iD” mobile credit. We also reached agreement on having “iD” available at Seven-Eleven stores across Japan starting in July 2010. Now “iD” will be available in virtually all major convenience stores in Japan.

 

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.

DCMX

 

In April 2006, as the credit issuer using mobile credit “iD,” we launched “DCMX mini” and “DCMX” as services adequate for small purchases in order to further enhance the convenience provided by the “Osaifu-Keitai.” 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, 2010, the number of subscriptions reached 11.26 million.

 

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

 

• System Integration for Corporate

 

We are directing efforts towards the SI business, which offers corporate customers greater operational efficiency and expanded business opportunities. These solutions can be applied to a variety of business scenarios, including remote access to an enterprise network and security measures.

 

We are also directing our efforts towards international solutions for corporate customers. We established DOCOMO China Co., Ltd. (“DOCOMO China”) in Shanghai, China in June 2008 to perform marketing activities directed towards corporate customers in China. 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.

 

• Social Platform Services

 

In addition, with a view towards sustainable social growth, we are developing businesses in fields that have a potential for strong synergy with mobile phones, such as the environment and ecology, safety and security, and healthcare management, and are aiming to create value in new areas. At the current time, however, none of these businesses is of a scale that would have a significant impact on revenues.

 

 

We offer a wide range of handsets to our subscribers.

 

In the year ended March 31, 2010, equipment development and sales accounted for 11.8% of consolidated operating revenue. We consider the development and sale of handsets to be critical for our service development and securing of market share.

 

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 90X series, which came equipped with the latest functions, the 70X series, which focused on key functions, and concept models, which featured unique characteristics. 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.”

 

Further, we had offered the smartphone as one of the handset lineups of “docomo PRO series.” However, given the rapid growth of the market, we created products that are acceptable to a greater range of users and have a separate brand category for “docomo smartphones” in May 2010.

docomo STYLE series

 

Starting in November 2008, docomo STYLE series handsets were released, and in the year ended March 31, 2010, 17 models were launched, including the “N-08A” and “SH-05A.” 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, and in the year ended March 31, 2010, 11 models were launched, including the “P-07A” and “N-06A.” 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, and in the year ended March 31, 2010, four models were launched, including the “N-09A” and “P-09A.” 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

 

docomo PRO series handsets have been released since November 2008 and five models were launched in the year ended March 31, 2010, including the i-mode models “SH-07A” and “SH-03B,” and smartphone “HT-03A.” 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 mobile phones with their own specifications by resemblance to personal computers in terms of operations.

 

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 the year ended March 31, 2010, two models were launched, “Raku-Raku Basic II” and “Raku-Raku PHONE 6.”

 

docomo Smartphones

 

We have various lineups of Windows OS and Android OS compatible smartphones from a wide range of manufacturers. In April 2010, we launched the Xperia^tm handset made by Sony Ericcson Mobile Communications. In July 2009, we also launched the “T-01A,” a stylish and thin Windows Mobile handset. In July 2009, we launched the Google^tm “HT-03A,” the first mobile phone in Japan with the Android OS, and in February 2010, “SC-01B,” a Windows Mobile handset for businesses.

 

Kids’ PHONE

 

In December 2007, we released “Kids’ PHONE F801i,” with improved reassuring functions such as waterproof and loss-prevention functions. In February 2009, we started selling “Kids’ PHONE F-05A,” with initial settings that 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.

 

90X Series

 

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, featuring 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, “PROSOLID µ (p705iCL)” — which comes installed with numerous business functions — was released in March 2008, 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, became available in 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 has been further improved.

 

SIMPURE Series

 

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 the year ended March 31, 2010, we launched the USB-type data communication device “L-05A,” and the ExpressCard-type data communication device “L-07A,” which are compatible with HSDPA 7.2Mbps and HSUPA 5.7Mbps and achieve a high-speed Internet connection with a simple set-up.

 

Mobile Wi-Fi Router

 

A new mobile Wi-Fi mini-router, co-developed by NTT Broadband Platform, Inc. and BUFFALO INC., has begun to be sold at a number of our outlets from June 2010. The mobile Wi-Fi router allows Wi-Fi enabled devices, such as handheld gaming consoles and tablet computers with wireless local area network (“WLAN”) capability, which only used to be used in WLAN coverage area, to connect to the Internet anywhere in our FOMA network.

 

FOMA 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 June 2009, we launched the FOMA Ubiquitous Module “FOMA UM02-KO,” improving functions and expanding the lineup of FOMA Ubiquitous Modules. Currently, the FOMA Ubiquitous Modules are used for managing taxi and bus operations, monitoring and controlling power and gas facility devices, distributing content to information posting systems, managing inventory for vending machines and payment using mobile handsets. Further, in order to contribute to the expansion of the machine communications market and to the further spread and development of the telematics field, we launched

“FOMA TM01-SA,” a FOMA telematics module in April 2009. This product can be used for packet communications as well as voice and video phone communications, and is designed for durability, with high vibration-resistance and temperature-resistance properties. Our goal for FOMA Ubiquitous Modules is to provide optimal solutions based on a full understanding of our customers’ needs.

 

Digital Photo Frames

 

We offer a digital photo frame (“OTAYORI PHOTO PANEL”) with communication functions whereby photos that subscribers have attached to e-mail or photos posted to the Otayori Photo site can be received by e-mail and displayed.

 

We launched the “PHOTO PANEL 01” in July 2009 and the “PHOTO PANEL 02” in December 2009.

 

 

• Sales Channels

 

We sell our products and services through a vast sales of network covering the entire country. The shops, which deal with our products and services, are operated by various distributors, and as of March 31, 2010, there were 2,390 “docomo Shops” nationwide, which are specialized stores for which we have approved the use of the DOCOMO 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, 2010, the number of such shops was approximately 5,600 (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 becomes 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 the Corporate Branding Division in August 2007 as an entity 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,” for reforming 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 launched a new corporate brand logo and corporate color, “DOCOMO red,” which we have been using since July 2008.

 

• Sales Methods

 

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 lowers initial handset purchase costs, as we pay a portion of (give a discount on) handset purchases in exchange for two-year contracts. Nowadays most customers who purchase new handsets choose the “Value Course.”

 

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 their spending. Under the “Value Course,” customers can choose from either 12- or 24-month installments, in addition to a lump-sum payment.

 

In Japan, mobile handsets used to be sold with sales incentives to reduce initial costs and make them more affordable for customers, and this sales model contributed significantly to the growth of the mobile phone market. However, as the market has matured, it was necessary to introduce a sales model suitable for the current situation to solve issues such as feelings of unfairness and the lack of transparency.

 

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

 

In Japan’s mature mobile communication market, 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 after-sales services, 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.

 

In July 2009, we began 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 comfortably which have become an indispensible tool in their daily lives. With the “keitai tenken” service, to ensure that customers’ handsets are kept in the best possible condition, an expert staff checks for any problems in communication functions such as breakage and malfunction, and cleans the phones.

 

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 applied to purchasing handsets, or exchanged to travel tickets, restaurant vouchers or others. 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 was 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 “Receive Anywhere Service for Repaired Mobile Phone,” which allows a repaired phone to be picked up at any desired “docomo Shop” or other location in Japan free of charge, and the “Keitai-Osagashi Service,” which confirms the approximate locations of phones free of charge. Moreover, FOMA customers may apply for the “Mobile Phone Protection & Delivery Service,” which for a monthly fee of ¥315 (including tax) and ¥5,250 (including tax) each time the service is used, in case of water exposure, theft, loss or other trouble, and covers shipment of a replacement handset. Further, Club members are entitled to other complimentary services from hotels, shops, restaurants, and other sponsor companies. Customers in the Premier Stage are also entitled to get free battery packs (since July 2009, we have been giving customers the 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.

 

Following the introduction of new sales methods, the replacement purchase cycle has been getting longer. Although the number of handsets requiring repair and its corresponding costs has been increasing, we expect that this will result in a retention effect as can be seen from our low churn rate.

 

Further, to promptly respond to customer opinions regarding area quality, we offer a service under which, if a customer requests, we visit the customer’s home and perform area quality surveys, generally within 48 hours once our service staff contacts the customer making the request.

 

We are also putting efforts into the support of customers overseas. In addition to our support desks in Honolulu, we expanded the number of overseas cities with support desks to 13 in total, including London, New York, Paris, Singapore and Shanghai. These support desks offer free handset charging services, and respond to inquiries regarding how to use and operate mobile handsets overseas.

 

 

• Investments and Affiliations in Japan

 

To expand our areas of business, we make investments in, enter into business alliances with and establish joint ventures with companies having resources and know-how that supplement our existing business. The primary fields where we make such investments and affiliations are financial settlements, broadcasting, content, social infrastructure and research and development.

 

In the financial settlement field, we undertake business investment to expand the e-commerce market for i-mode, promote the spread of the “Osaifu-Keitai,” and promote the spread and expand of iD and DCMX services. In the broadcasting field, we have been investing in such targets as television stations to investigate new services and develop businesses through the convergence of telecommunications and broadcasting. In the content field, which includes video content, through investments in advertising companies and investments in and affiliations with companies that offer services to consumers, we are directing our efforts towards the expansion of the mobile content market. In the social infrastructure field, we are undertaking investments and affiliations in fields with strong potential synergy with our business to contribute the sustainable development of society by providing mobile solutions. And with regards to the research and development field, we are making investments and affiliations to ensure a stable procurement of our products, competitive pricing and quality for our products, and market superiority through technical synergies with our business partners.

 

OAK LAWN MARKETING

 

In April 2009, we reached an agreement on a capital alliance with the home shopping company OAK LAWN MARKETING, INC. (“OLM”), and acquired 51% of the common shares of OLM for ¥31 billion. With a view towards revitalization of the e-commerce market, we completed the transition of OLM’s three brands into official i-mode sites in September 2009, and in February 2010, OLM started to provide their contents using i-concierge service, which is the first introduction case for a home shopping company. The two companies plan to continue their

efforts to expand the home shopping businesses that utilize our services including video contents and platforms. OLM’s revenue is recorded in Other Revenue in our consolidated results. Please see Other Revenue in Item 4B.

 

Sumitomo Mitsui Card

 

On April 27, 2005, we entered into an agreement with Sumitomo Mitsui Financial Group, Inc., Sumitomo Mitsui Card Co., Ltd. (“Sumitomo Mitsui Card”) and Sumitomo Mitsui Banking Corporation (“SMBC”) to form a strategic business and capital alliance for the launch of a credit-payment service using our Osaifu-Keitai phones equipped with smart-card functions for cashless payments. As part of the tie-up, we acquired 34% of the common stock of Sumitomo Mitsui Card, a major company in the credit card industry that was a pioneer as an issuer of Visa cards in Japan, for approximately ¥98.7 billion, including shares newly issued by Sumitomo Mitsui Card. Starting in December 2005, Sumitomo Mitsui Card began issuing the Sumitomo Mitsui Card for iD. The current state of the credit business is discussed in Other Revenue — Credit Business in Item 4B.

 

ACCESS

 

In December 2005, we purchased an additional 6,356 newly allocated shares of ACCESS CO., LTD. (“ACCESS”), a developer of software for mobile phones, for approximately ¥15 billion, bringing our total stake in ACCESS to 11.6%. ACCESS’s browser is widely used in our 3G FOMA handsets and we aim to further strengthen our relationship through this investment to support the development of browser technology.

 

• International Investments and Affiliations

 

We make investments in and/or enter into agreements with mobile service providers providing mobile phone related services with the long-term aim of securing growth and revenue opportunities and strengthening our global competitiveness.

 

In regards to investments in mobile service providers, in order to capture growth in overseas markets, we support the businesses of our investment partners and achieve financial returns in the form of dividends and equity gains, and at the same time, we aim to achieve synergies with the partners, including joint development of handsets, joint procurement and increased roaming revenues through introduction of W-CDMA technology.

 

In mobile phone-related business fields, as in our construction of an overseas platform business through our acquisition of net mobile AG, we are directing our efforts towards the provision of value-added services overseas, where synergy effects can be anticipated from our experience and know-how in the provision of sophisticated services in Japan.

 

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 made an additional investment of US$30.44 million (approximately ¥3.7 billion at the date of investment) for a 6.4 point increase in our equity interest 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.

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 purchased new shares of KG Telecom, 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).

 

In October 2003, KG Telecom became a wholly owned subsidiary of Far EasTone Telecommunications Co., Ltd. (“FET”), the third-ranked mobile network operator in Taiwan. 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.

 

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.

 

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 partnership, we provided technical support to KTF to deploy a nationwide W-CDMA network successfully. Also, we have been working on initiatives such as improving convenience for the travelers in both countries through the joint development and the provision of roaming services, developing new business by taking advantage of the technical and marketing expertise of the worlds leading providers of cellular services and examining cost-saving opportunities, such as the joint handset procurements. 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 activities in the Business & Technology Cooperation Committee (“BTCC”) established by the two companies, the companies agreed to investment in KT-DOCOMO Mobile Investment Limited Partnership, a fund having KTBnetwork Co., Ltd. (“KTB”) as the asset manager, which invests in South Korean venture companies in the 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 2009, we achieved certain results through the activity in BTCC, including the launch of jointly planned handsets in South Korea and the provision of a jointly developed “Local Number Roaming” service.

 

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%. In December 2009, we exchanged the exchangeable bonds for KT’s US ADRs, making our stake in KT roughly 5.5%.

 

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”).

 

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 to increase their enterprise value through our operational support and technology cooperation such as advancement of network, introduction of value-added services and enhancement of international roaming services.

 

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). 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. (DOCOMO PACIFIC). Currently, under the DOCOMO brand, we are striving for further improvement in quality, and are directing our efforts to providing services offering high convenience to customers. In December 2009, we began providing to DOCOMO PACIFIC’s subscribers “MAX CHANNEL”, a push-type information distribution i-channel service. DOCOMO PACIFIC’s revenue is recorded in Cellular Services Revenue in our consolidated results.

 

Axiata (Bangladesh) Limited

 

In September 2008, we acquired a 30% equity interest in TM International (Bangladesh) Limited (“TMIB”), a mobile network operator based in Dhaka, Bangladesh, for 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) on a pro-rata basis. In May 2009, the company name was changed to Axiata (Bangladesh) Limited (“AXB”). Through the investments, we are participating in AXB’s management by actively drawing on our expertise to enhance the company’s business in the fast-growing Bangladesh mobile telecommunication market.

 

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 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. In June 2009, we began offering the GSM services under the brand name “TATA DOCOMO” and our i-channel service, which is a push-type information distribution service. In January 2010, we have also launched a manga distribution service called “DOCOMICS.”

 

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, with a view toward improving our group business results and future business expansion, we decided to reorganize the structure for further operational efficiency. We decided to 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. 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). Currently interTouch is one of the largest providers of high-speed Internet service for hotels in the Asia-Pacific region, providing services in approximately 1,200 hotels in 70 countries across the world. In April 2008, we announced that the name of the company had been changed to DOCOMO interTouch Pte. Ltd. Currently, under the DOCOMO brand, the company is endeavoring to further expand its business, and by providing a full range of services, enhance convenience for overseas travelers. Please note that interTouch’s revenue is recorded in Other Revenue in our consolidated results.

 

net mobile AG

 

In November 2009, in order to establish an international mobile-content distribution platform, by means of a tender offer implemented by our wholly owned subsidiary DOCOMO Deutschland GmbH, we acquired, at a cost of roughly 38.9 million Euros (roughly ¥5.2 billion), approximately 79.6% of the outstanding common shares of net mobile AG (“net mobile”), a German mobile content distribution platform business. As a result of this tender offer, net mobile became our subsidiary. In December 2009, by subscribing to a private placement of new shares issued by net mobile at a cost of roughly 4.89 million Euros (roughly ¥600 million), our stake in the company increased to approximately 81.5% of the outstanding common shares. Please note that net mobile’s revenue will be recorded in Other Revenue in our consolidated results from the fiscal year ending March 31, 2011.

 

 

We currently provide our services on several different networks including 3G and 2G 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 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 90 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.

 

• 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.

 

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 up to 10MHz 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, 2010, we moved aggressively to improve area quality, based on quality surveys, for underground shopping areas, shopping facilities, and other places where customer needs are high. Also, we actively utilized low-cost repeaters to improve quality in small areas such as customers’ homes and offices.

 

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 many of our international strategic allies, including most of the Conexus Mobile Alliance member operators, have already launched 3G services based on W-CDMA.

 

By licensing our intellectual property with respect to W-CDMA under fair, reasonable and non-discriminatory terms and conditions, we have contributed to the spread of W-CDMA technology.

 

Furthermore, 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.

 

• 2G Network

 

Our 2G network, which is currently offered nationwide, is expected to terminate in March 2012.

 

The Japanese government has currently allocated 41MHz x2 (uplink and downlink) for the use of our 2G Network. We are using at 18MHz x2 in the 800MHz band for 2G network.

 

 

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. 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, 2010 were 109.9 billion yen. 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 Service Operation Department.

 

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.

 

• 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.

 

In September 2009, we developed remote radio equipment (“RRE”) unit for LTE base stations. The RRE are radio devices with radio wave modulating functions that can operate on the 2GHz band, and thus can be used with both LTE base stations and W-CDMA base stations. The deployment is a part of DOCOMO’s initial plan to layer a 2GHz LTE network over its existing 3G network to provide dual W-CDMA/LTE service, which will combine the benefits of LTE’s high transmission speeds with 3G’s wide-area coverage as the LTE network is expanded gradually.

 

In October 2009, together with NEC Corporation, Panasonic Mobile Communications Co., Ltd and Fujitsu Limited, we completed development of an LTE- PF chipset engineering sample. The platform’s technology is expected to be licensed in mobile phone markets worldwide, where its adoption as a common platform will free manufacturers of mobile phones and chipsets from developing proprietary technologies for basic functions. As a result, manufacturers will get products to market faster and at lower costs, and will be able to concentrate more resources on the development of enhanced lineups of unique products.

 

In January 2010, we developed a prototype multi-band power amplifier that accommodates eight frequency bands between 700 MHz and 2.5 GHz, paving the way for lightweight, all-in-one mobile phones capable of standalone wireless communications of different standards, including the forthcoming extra-fast LTE standard as well as existing W-CDMA and GSM. Once commercialized, this technology, because it does not require an increase in the number of power amplifiers used, will enable mobile phones to be used with virtually all of the mobile telephone services worldwide, including LTE, W-CDMA and GSM, without an increase in handset size.

 

Going forward, we will continue to build areas that will prove satisfactory to our customers, and as a member of this pioneering group, will continue with preparations for the launch of LTE services.

 

• 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 released 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 February 2010, upon the formation of the NPO “Wholesale Applications Community,” which has the aim of promoting an open market for mobile telephone applications, we signed a memorandum of understanding to consider participation in this alliance. The “Wholesale Applications Community” aims to create an ecosystem for developing and providing applications that respond to the needs of the market by building a more open development environment for mobile phone applications and by providing a diverse range of appealing applications which are not limited to specific handsets.

 

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^® and Symbian OS^tm operating systems that comply 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. 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 installed the operator pack on FOMA handsets starting in December 2009 and recommend handsets manufacturers to 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, Inc., and received a distribution in kind of Acrodea, Inc. 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.

 

 

As Japan’s mobile phone market has continued to mature in line with the rise in cellular penetration rate, competition among operators remains intense in such areas as acquisition of subscribers and further improvement of service offerings. 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.

 

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.

 

• Competition in the mobile telecommunication market

 

There are presently four mobile network operators in Japan: DOCOMO, KDDI CORPORATION and its subsidiaries (“KDDI group”), SOFTBANK MOBILE Corp. (“SOFTBANK MOBILE”), and EMOBILE Ltd. (“EMOBILE”). As of March 31, 2010, we had a market share of 50.0%, the KDDI group had a market share of 28.4%, SOFTBANK MOBILE had a market share of 19.5% and EMOBILE had a market share of 2.1%. 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 31.9 million subscriptions as of March 31, 2010. SOFTBANK MOBILE operates nationwide and is the third largest mobile network operator with approximately 21.9 million subscriptions as of March 31, 2010.

 

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 with 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.

 

• Entry of other MVNOs

 

An MVNO is a mobile virtual network operator that (1) uses the mobile communication services provided by a mobile network operator (“MNO”) or connects with an MNO to provide mobile communications services, and (2) does not build or operate its own radio stations to provide such mobile communications services.

 

The MVNO system was introduced so that by means of MVNO’s utilizing the wireless network of an MNO to provide a diverse range of services, a diverse range of business models that are designed to meet the needs of users appear, thereby benefiting users through the provision of diverse and low-cost services in the mobile communications market. Another goal of the system is to ensure the fair and efficient use of radio waves.

 

In the saturated mobile phone market, the entry of MVNOs can be expected to lead the creation of new services, we are looking to build win-win relationships with MVNOs, and are taking a proactive approach to connection and collaboration with MVNOs.

 

• Competition in the Data Communication Market

 

In Japan’s mature mobile phone market, we believe that the data communication market is a particularly appealing market, offering opportunities for secondary unit demand. It is our goal to build a mobile data communication society, where a great many people can use mobile data communications easily and with convenience.

 

With respect to competition in the data communication market, EMOBILE has captured a large number of new subscriptions. We too have been putting greater emphasis on sales since the second half of FY2008, and have been seeing a steady increase in the number of sales.

 

• Competition in the Smartphone Market

 

Smartphone market is seen as a growth market with a substantial in the number of users, and an essential area for our future growth. Competition in the smartphone market has intensified since the launch of the iPhone from Apple, and mobile phone companies are enhancing their handset lineups, by offering a variety of forms, user interfaces and functions. We are working on providing product lineups including the Blackberry and Android handsets, and introducing easy-to-use payment plans.

 

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

 

• The Telecommunications Business Act

 

Under the Telecommunications Business Act, we are subject to a registration requirement as telecommunications operators.

 

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

 

 

The asymmetric regulation

 

Our telecommunications facilities have been designated as Category II-designated facilities. In interconnecting with another mobile network operator, we are obligated for notification to the Minister of MIC of the Articles of Agreement Concerning Interconnection, prior to implementation as well as to make them available for public inspection. Any agreements pertaining to the interconnection between Category II-designated facilities and other mobile network operators cannot be entered into or amended without complying with the Articles of Agreement. Regarding the fees obtained from connecting mobile network operators in conjunction with interconnection, we are obligated to charge an amount equivalent to appropriate costs plus a reasonable margin.

 

In addition, we are designated as a mobile network operator subject to the prohibition of anti-competitive behavior, and are prohibited from engaging in the anti-competitive behaviors such as;

 

 

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

 

• The Radio Act

 

Outline

 

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

 

Article 4 of the Radio Act 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 Act, 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 Act, 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, the Minister of MIC refers 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 Act 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 Act 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 or PHS is stipulated by a ministerial ordinance of MIC. From within the assigned frequency or spectrum for a certain service, MIC allocates a spectrum to the mobile network operators providing such services. In accordance with Article 4 of the Radio Act 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 regulation authority with respect to radio frequencies and the allocation of spectrum in Japan, pursuant to the Radio Act. As spectrum capacity is limited, spectrum is a highly valuable resource. MIC currently allocates 41MHz x2 for 2G network. From among these, we have been allocated a frequency spectrum of 18MHz x2 in the 800MHz band. Radio frequencies for 3G networks have been allocated as stated below:

 

On June 30, 2000, we obtained approval from MPT (currently MIC) allowing us to use 15MHz x2 of the 2GHz band. In May 2004, MIC announced its allocation policy allowing us to use an additional 5MHz x2 of spectrum in the 2GHz band. Thus in total, we have been allocated 20MHz x2 in the 2GHz band.

 

In February 2005, MIC announced its policy to allocate to us, from among the reorganized 800MHz band, 15MHz x2 of spectrum after completing the migration of existing systems currently operating in the 800MHz band to other frequency bands operated. Of this spectrum, we are presently using at most 10MHz x2 in the area where we can avoid interference with existing systems.

 

In August 2005, MIC announced guidelines for establishing specified base stations, describing 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). In April 2006, we were authorized to carry out plans for establishing the specified base stations and were allocated 5MHz x2 for Tokyo, Nagoya and Osaka. Since we satisfied the conditions for the allocation of additional spectrum relating to the 1.7GHz band for use in Tokyo, Nagoya, and Osaka, as specified in the allocation guidelines, subsequently, 5MHz x2 were allocated for our 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 concerning the installation of new 3.9 generation mobile communication systems in April 2009, and 10MHz x2 in the 1.7GHz band (for nationwide use by new carriers only) which had not already been allocated as well as 35MHz x2 in the 1.5GHz band that had been used for 2G networks but were reorganized and available for allocation. 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 of 15MHz x2 in the 1.5GHz.

 

Recent Amendments

 

Under partial amendments to the Radio Act 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 Act 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 Act 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 Act, please see “Latest Proposals concerning the Telecommunications Business Act and the Radio Act” below.

 

• Latest Proposals concerning the Telecommunications Business Act and the Radio Act

 

Besides the above-mentioned regulations of the Telecommunications Business Act and the Radio Act, several other changes have been recommended by various governmental bodies.

 

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 Act that passed by 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 Act 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 has performed analyses and evaluations in the telecommunications field intended for four areas; fixed-line phone, Internet access services, mobile communication, and corporate network services annually from the year ended March 31, 2004.

 

In October 2009, MIC announced evaluation of the mobile communication field “competition review in the telecommunications field for fiscal year 2008” as follows:

 

 

Promotion of new entry by MVNOs

 

With a view toward a more dynamic mobile telecommunication market achieved by promoting new entry by MVNOs, MIC has formulated “guidelines regarding the application of the Telecommunications Business Act and the Radio Act to MVNO.” Under the 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.

 

Adoption of Open Communications 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 Study Group on the Communications Platform 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 January 2009. Subsequently, a discussion group of private entities has been specifically examining the issues, and in light of the “Guidelines related to the provision of settlement means for mobile content” formulated in December 2009, we have been working on the adoption of open platforms, including enhanced billing functions for i-mode non-official sites, while giving consideration to the comfort and security of our users.

 

Going forward, we plan to actively address this topic based on building win-win relationships and securing a common framework for the four mobile service providers.

 

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 an essential infrastructure for business and day-to-day activities is increasing. 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 has received optimal interconnection rules from the perspective of maintaining a fair competitive environment in the telecommunications markets. They issued a response to the MIC in October 2009 and in light of this the MIC announced the “Guidelines relating to operation of the Category II-designated telecommunications facility system” in March 2010, clarifying the interconnection rules. The key issues that are particularly relevant for us, and our evaluation thereof, are as follows:

 

 

On the one hand, because the rules for calculation of interconnection fees exclude the operating expenses that are included in the interconnection fees, it is envisioned that the fall in interconnection fees will lead to a decrease in revenues, but because other mobile network operators will also be calculating interconnection fees based on the same calculation rules, the differences will narrow and payments will also decrease.

 

 

 

Review of the Legal System for Communications and Broadcasting

 

MIC recently concluded a review of the legal system for the convergence and collaboration between communications and broadcasting, and in August 2009 the Telecommunications Council announced its response, the foundation of which was a re-compilation and restructuring of current law. With the change in administrations, the details of this response were re-examined, and a bill was submitted to the Diet for amending the Telecommunications Act, Radio Act and Broadcast Act in March 2010.

 

The proposed amendments to the Telecommunications Act include (1) provisions for the enhancement of the dispute resolution function (adding contents providers and tower sharing as areas eligible for dispute resolution) and (2) the formulation of an interconnection accounting system for mobile network operators installing Category II-designated facilities in light of the above-mentioned response regarding interconnection rules. The law is expected to be implemented within one year in the case that it is passed by the Diet and promulgated.

 

ICT Policy Task Force for a Global Era

 

As the Democratic Party of Japan administration took office in August 2009, a new task force was established at MIC in October 2009 for the purpose of investigating new ICT policies from a global perspective.

 

The task force subcommittees are expected to deliberate the following four issues for roughly a year.

 

 

They will review the effects on fair trade in the telecommunications market brought about by deregulation and reform measures implemented since the liberalization of the telecommunications market in 1985 and the privatization of Nippon Telegraph and Telephone Public Corporation.

 

 

They will review measures from a global perspective to address the issues relating to further development, in light of the spread of IP, broadband and mobile networks and other recent and future changes to the market environment.

 

 

With a view towards counterbalancing the contraction of the domestic market from the aging society and creating new employment, they will review measures to promote global development of fully Japan-based efforts by content providers, manufacturers and a wide range of other ICT-related companies.

 

 

Based on the principles of business creation and cooperation, they will review measures to utilize ICT, including the distribution of content in order to address regional and global issues faced by countries across the world, such as environmental and medical issues, so that all persons can equally share the benefits of ICT.

 

On May 18, 2010, a report was issued indicating a basic policy regarding (i) establishing a “Hikari no Michi” (access network) and (ii) promoting ICT utilization. While there were no specific references to the mobile phone business, we may be expected to perform a certain role in strengthening the broadband infrastructure, but the impact this may have is currently unknown.

 

In addition, the subcommittee addressing environmental changes to the telecommunications market formed a working group to consider frequencies for the purpose of achieving wireless broadband, which is expected to formulate a policy for securing frequency allocation for broadband wireless around July 2010.

Deliberations regarding removal of SIM lock

 

In Japan’s mobile phone market, handsets and network services are provided by mobile network operators on the assumption that those mobile phones are locked with the operators. The MIC, however, with a view towards improving user convenience and reinforcing the international competitiveness of the ICT industry, indicated its intention to review the propriety of SIM lock, and held a public hearing for mobile network operators on April 2, 2010.

 

The MIC is expected to release the guidelines on the details including products and the timing SIM lock is removed.

 

Our basic views on the removal of SIM lock are as follows;

 

 

We intend to move forward in a manner consistent with the guidelines and measures of other operators so that we can deal with the removal of SIM lock without impairing the convenience of subscribers.

 

• 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 66.43% of our voting rights as of March 31, 2010. 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.

 

Although NTT owned 66.43% of our voting rights as of March 31, 2010, 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, 2010, we had sales of ¥46,880 million to NTT and its subsidiaries and had cost of services, selling, general and administrative expenses and capital expenditures of ¥208,178 million, ¥118,265 million and ¥72,928 million, respectively, to NTT and its other subsidiaries, compared to sales of ¥57,279 million and cost of services, selling, general and administrative expenses and capital expenditures of ¥236,004 million, ¥131,849 million and ¥70,840 million, respectively, in the year ended March 31, 2009. We also had receivables of ¥11,164 million from NTT and its subsidiaries and payables of ¥70,751 million to NTT and its subsidiaries at March 31, 2010, compared to ¥12,510 million and ¥73,476 million at March 31, 2009.

 

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.

 

To date, with respect to the stake in us held by NTT, such documents as the Deregulation Committee 1998 report, the 2000 opinion of the Regulatory Reform Committee, and the government’s “Three-year Program for Promoting Regulatory Reform” of 2001 have concluded that, from the perspective of promoting completion among NTT Group companies, efforts should be made to further lower the stake. 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 stake in us at 51% or above. Further, the Japanese government has not decided what action, if any, it will take with respect to NTT’s ownership of our shares.

 

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.

 

 

As of March 31, 2010, DOCOMO and its subsidiaries had 22,297 employees representing a increase of 466 employees since March 31, 2009. As of March 31, 2009, 2008 and 2007 we had 21,831, 22,100, and 21,591 employees, respectively. The average number of temporary employees for the year ended March 31, 2010 was 6,969.

 

Of our 22,297 employees on March 31, 2010, approximately 1,110 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, 2010, approximately 1,360 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 12 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, 2010, NTT, our parent company, was our largest shareholder and owned 66.43% 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 as of March 31, 2010.

 

Our property includes buildings which contain wireless telecommunication equipment. As of March 31, 2010, we and our regional offices owned 3,491,936 square meters of land and 1,561,788 square meters of office space, buildings containing switching centers, company dormitories and warehouses throughout Japan. In addition, as of March 31, 2010, we leased 9,086,385 square meters of land mainly for base stations and transmission facilities.

 

 

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:

 

 

 

Overview

 

We are the largest cellular network operator in Japan in terms of both revenues and number of subscriptions. As of March 31, 2010, we had approximately 56.08 million subscriptions, which represented 50.0% 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, credit payment services and home shopping services.

 

Now that the use of cellular phone has become widespread in Japan, it is difficult to duplicate the rapid growth we experienced in our earlier operations. However, in order to achieve sustainable growth and create new sources of revenues, we are committed to upgrading our cellular communications services from a telecommunication

infrastructure to an indispensable life-style infrastructure for everyday life that can bring abundance to the lives and business of users.

 

During the fiscal year ended March 31, 2010, we strived to expand subscribers’ packet usage through the expansion and enrichment of our video content services as well as other measures, and also accelerated the personalization of services with the launch of an upgraded behavior support services compatible with the Auto-GPS (Global Positioning System) locating capability and other initiatives. In addition, we have taken various steps aimed at enhancing customer satisfaction, including the enrichment of our handset lineup, billing plans and after-sales support.

 

For the year ended March 31, 2010, our operating revenues were ¥4,284.4 billion, posting a decrease of ¥163.6 billion from the prior fiscal year due primary to the decline in voice revenues. On the other hand, we recognized operating income of ¥834.2 billion, achieving an increase of ¥3.3 billion from the prior fiscal year through our continuous efforts to reduce our operating expenses including network-related expenses. Net income attributable to NTT DOCOMO, INC. increased by ¥22.9 billion from the prior fiscal year to ¥494.8 billion. Cash flows from operating activity was ¥1,182.8 billion, increasing by ¥9.1 billion from the prior fiscal year due mainly to the increased amount of cash collections of installment receivable for handsets. Capital expenditures decreased by ¥51.1 billion from the prior fiscal year to ¥686.5 billion as we worked to improve our efficiency while enhancing the quality of our network.

 

Trends in the Mobile Communications Industry in Japan

 

According to an announcement by the Telecommunications Carriers Association, the mobile communications market in Japan saw a 4.70 million net increase in cellular subscriptions for the year ended March 31, 2010. The total number of cellular subscriptions in Japan grew to 112.18 million as of March 31, 2010, which represented a market penetration rate of 88.1%. However, the annual growth rate of cellular subscriptions has slowed in line with the rise in penetration rate and the decrease in the future population, and was limited to 6.2%, 4.6%, and 4.4% for the years ended March 31, 2008, 2009, and 2010 respectively. We believe the growth rate of new cellular subscriptions in Japan will also be limited to a similar level.

 

As of March 31, 2010, cellular services were provided by four network operators in Japan including us and their group companies. In addition to providing cellular services, the network operators also develop mobile phones and other communications devices compatible with their communications services jointly with manufacturers, and subsequently sell them to agent resellers and other retailers for sale to subscribers. As for cellular services, after we launched our third-generation mobile communications (3G) services, FOMA, using the W-CDMA technology in 2001, other operator groups also introduced 3G services. In recent years, 3G services have become the mainstream service for all operator groups. As of March 31, 2010, the number of 3G mobile communications service subscribers in Japan totaled 109.06 million, accounting for 97.2% of the total number of mobile phone subscriptions.

 

Competition among the network operators in Japan remains intense as the room for growth became limited and user needs diversified. The network operators in Japan have been competing against one another for the retention of existing subscriptions and acquisition of new subscriptions addressing the following issues:

 

 

 

Changes in the Japanese regulatory environment in recent years have accelerated competition among cellular network operators. Mobile Number Portability system, which enables subscribers to switch the network operator they subscribe to without changing the phone number, was introduced in October 2006. In September 2007, the Mobile Business Study Group, which was appointed by the Ministry of Internal Affairs and Communications (MIC) published its final report, which contained proposals pertaining to (1) a review on the sales method of mobile phones, (2) promotion of new MVNO entrants to the market and (3) development of a market environment for the revitalization of the mobile business, and called for their implementation by the regulatory authority. In October 2009, MIC published a report entitled “Interconnection Rules in Response to Changes in the Telecommunications Market Environment.” The report addressed that (1) in terms of interconnection charges, appropriate rules should be established for interconnection charges and same rules should be applied to all cellular network operators, and (2) in terms of establishing rules for roaming, each cellular network operator should construct its own telecommunication networks in principle, because spectrum is scarce but allocated to cellular network operators in the mobile telecommunication business. In addition, MIC conducted a public hearing in April 2010 and showed a direction of establishing guidelines to remove SIM-lock based upon the voluntary actions of network operators. In Japan, mobile phones and cellular services are currently offered by network operators based on the premises that mobile phones are SIM locked. Further changes in the regulatory environment could significantly affect the revenue structures and business models of incumbent cellular network operators including us.

 

Innovations in Internet technology may have a material impact on the mobile communications industry including ourselves. IP (Internet Protocol) telephony, which is a form of voice communications based on IP technology, has already become a popular means of communications in fixed-line services as a result of the broad penetration of local broadband access. If the application of IP telephony technology to mobile communications becomes widely accepted, it could cause a significant change in the revenue structure of the mobile communications industry. Meanwhile, progress has been made in the development of convergence services, combining fixed-line and mobile communications with rise in the penetration of mobile phones and broadband services. This concept of fixed-mobile convergence has already been partially realized in the form of single-bill service for both fixed and mobile services, or content/ e-mail address sharing between the two networks. The demand for seamless connectivity between fixed and mobile networks or composite devices supporting access to both fixed and mobile networks may increase in the future. In the field of high-speed wireless networks, WiMAX was approved as a standard of the Institute of Electrical and Electronic Engineers in the United States. In Japan, two network operators were awarded the license to operate broadband wireless access systems using the 2.5 GHz spectrum band in December 2007, and their commercial services were commenced in July 2009.

 

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

 

Operating Strategies

 

We believe that the cellular market in Japan has already entered a mature phase with its total cellular subscriptions exceeding 100 million in December 2007. In a mature market, it is necessary to attract subscribers of competitors because it is difficult to drive the acquisition of new subscribers relying on potential subscribers who have never owned a cellular phone. It is also indispensable to minimize the loss of subscriptions to competitors as a result of heated competition. As a market leader with the largest market share, we attach priority to the retention of existing subscriptions.

 

In April 2008, we announced “New DOCOMO Commitments,” our vision for transformation and, taking this opportunity, renewed our corporate brand logo. In July 2008, we reorganized our group structure by integrating our former eight regional subsidiaries for the purpose of improving customer services and enhancing the speed and effectiveness of our operations. In October 2008, we announced our medium-term business directions based on a new action plan, “DOCOMO’s Change and Challenge to Achieve New Growth,” to be implemented through March 2013. “DOCOMO’s Change” includes concrete actions to revisit every aspect of the business from the customers’ 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.

 

For the fiscal year ended March 31, 2010, we have worked to enhance customer satisfaction through review of our operations from the customers’ perspective. These efforts are beginning to deliver tangible results. For example, our churn rate for the fiscal year ended March 31, 2010 dropped to a record low of 0.46%. We also acquired the largest market share of net addition in cellular phone subscribers for the fiscal year ended March 31, 2010. In addition, we received the No. 1 rating in the customer satisfaction survey carried out by J.D. Power Asia Pacific, Inc. in the enterprise service segment, and received the highest score in the satisfaction survey of data card users conducted by Nikkei BP Consulting, Inc.

 

For the fiscal year ending March 31, 2011, as a part of the “Change” initiatives, we will continue to review every aspect of our business operations — such as products, services, customer care, and network construction, with the aim of enhancing the satisfaction of customers. Our target is to receive the No. 1 rating in overall customer satisfaction as a result of these efforts.

 

With respect to the “Challenge” programs, we will position the fiscal year ending March 31, 2011 as “the year to embark on the execution phase” of our challenge toward the goal of providing services that are tailored to the lifestyle and individual needs of each customer, and to contribute to the sustained development of society by providing solutions to pressing issues, promptly and steadily implementing the following actions:

 

 

 

By working to raise our packet ARPU even further and promoting measures aimed at creating new revenue sources while actively seeking reduction of our network-related costs and other general expenses, we aim to achieve an operating income of over ¥900 billion for the fiscal year ending March 31, 2013.

 

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. We have decided to discontinue mova services on March 31, 2012 to concentrate our business resources on FOMA services. We have been promoting the migration of mova subscribers to FOMA services, and the total number of FOMA subscriptions reached 53.20 million or 94.9% of our total number of cellular subscriptions as of March 31, 2010. We will continue our efforts to induce existing mova subscribers to migrate to FOMA services toward the termination of mova services on March 31, 2012.

 

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, 2010, representing 42.1% of wireless services revenues, as compared to 39.4% and 33.0% for the years ended March 31, 2009 and 2008, 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, 2010, we employed various measures aimed for improving customer satisfaction, including communications quality enhancement initiatives, revamping of after-sales support, and

introduction of attractive billing plans. To improve our communications quality, we offered a service in which we dispatch our field staff to customers’ premises within 48 hours, in principle, after setting up an appointment based on an inquiry from customers, and implemented various other measures aimed at enhancing our area coverage and network quality. To revamp our after-sales support, we launched the “Mobile Phone Checking Service,” which provides users with free basic checkups and cleaning of handsets, and continued the program to provide a free battery pack or portable charger. In order to offer attractive billing plans, we revised our rates to make it easier for users to switch to a smartphone, and introduced a number of new plans, such as the “Mail Tsukai-hodai” package, which offers free unlimited domestic i-mode mail, and the “Type Simple Student Discount” plan, a discount service for students and their family members. As a result of these endeavors, our churn rate for the fiscal year ended March 31, 2010, dropped to a very low level of 0.46%.

 

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.” In August and September 2007, we introduced the “Fami-wari MAX50,” “Hitoridemo Discount50” and “Office-wari MAX50” discount packages (hereinafter collectively referred to as “new discount services”) which offer a 50% discount on basic monthly charges on condition of two-year usage of our service. The percentage of users subscribing to these new discount services to our total subscriptions reached over 60% as of March 31, 2010. In November 2007, we introduced a new handset sales method called “Value Course.” “Value Course” is a sales method, where the purchase of a handset is not discounted by a certain type of sales commission which had previously been paid to agent resellers, specifically designed for providing discounts on handset sales. As this method requires customers to pay full price to purchase a new handset, it awards the subscribers with a subscription to a billing plan with discounted basic monthly charges called “Value Plan.” While we simultaneously introduced another sales method more similar to the conventional method called “Basic Course,” where a subscriber purchases a handset discounted by our direct subsidy and undiscounted billing plans are applied, so far more than 95% of subscribers have opted for the “Value Course,” and the number of “Value Plan” subscriptions reached approximately 32.70 million, or 58% of our total subscriptions, as of March 31, 2010. Our aggregate ARPU (FOMA+mova) has been on a constant decline, and the drop of voice ARPU, in particular, has accelerated in recent years. This is due largely to the impact from the expanded uptake of “Value Plan” and the new discount services (because basic monthly charges are included in the calculation of voice ARPU), and the impact from the drop of billable MOU resulting from the growing utilization of free communication allowances.

 

Our cellular services revenues for the fiscal year ended March 31, 2008 recorded a decline compared to the fiscal year ended March 31, 2007, owing to the widespread adoption of the new discount services we introduced for the retention of existing subscribers. Our cellular services revenues for the fiscal year ended March 31, 2009, continued to post a year-on-year decline due mainly to the broad adoption of “Value Plan,” growth in the percentage of users subscribing to the new discount services and a decrease in inter-carrier settlement (access charge) revenues we receive from other carriers. In the fiscal year ended March 31, 2010, cellular services revenues dropped from the previous fiscal year mainly because of the expansion of “Value Plan” subscriptions and the impact of reduced billable MOU. For the fiscal year ending March 31, 2011, we project a decline in cellular services revenues from the fiscal year ended March 31, 2010, because the negative impact on voice revenues resulting from the expanded uptake of “Value Plan” and further decline of billable MOU is likely to remain greater than the revenue-boosting effect owing to the increase in packet communications revenues and the moderate growth of subscribers. Although ARPU has been on a declining trend, we set a target to halt the decline of ARPU in the fiscal year ending March 31, 2012 when the effect of an increase in packet ARPU overtakes the effect of a decrease in voice ARPU. Raising the packet ARPU is one of the top priorities in our business strategy, and we have employed various measures aimed at expanding subscribers’ packet usage, such as encouraging subscribers to join flat-rate packet billing plans, expansion of video usage, enrichment of everyday life-oriented content, improving the ease of use and

convenience of our products and services, and expansion of the user base of PC data communications and smartphones. Through the execution of “DOCOMO’s Change and Challenge” action plan, we will strive to retain our existing subscriber base by enhancing the level of customer satisfaction, and achieve growth by increasing our packet ARPU.

 

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. Starting from November 2008, we started offering handsets in newly organized four series — “docomo STYLE series,” “docomo PRIME series,” “docomo SMART series” and “docomo PRO series.”

 

 

As described in the section of Wireless Services above, in November 2007, we introduced a new handset sales method, “Value Course.” Payment in installments is made available for a subscriber to purchase a handset from agent resellers in this “Value Course.” If a subscriber chooses to make installment payments, under the agreement entered into among the subscriber, the agent reseller and us, we provide funds 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. This agreement is separate from the telecommunications service contract entered into between the subscriber and us, or the equipment sales contract concluded between the agent reseller and subscriber. Because the revenues from equipment sales are recognized upon the delivery of handsets to agent resellers, cash collection of the installments receivable for the purchased handset from subscribers do not have an impact on any of our revenues, including equipment sales revenues.

 

Revenues from equipment sales, primarily sales of handsets and other telecommunications equipment to agent resellers, accounted for 11.8% of total operating revenues for the year ended March 31, 2010. We 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 in accordance with U.S GAAP. As a result, structurally, the cost of equipment sold has exceeded equipment sales revenues. However, with the introduction of “Value Course” in November 2007 and accompanying reduction of sales commissions, the amount of sales commissions deducted from equipment sales revenues decreased significantly, and the effects of the excess amount of cost of the equipment sold over equipment sales revenues has also weakened. During the year ended March 31, 2010, equipment sales revenues decreased due to the decrease in the number of handsets sold to agent resellers (down more than 10% compared to the prior fiscal year) affected mainly by the economic downturn. For the year ending March 31, 2011, we expect only a slight decrease in the number of handsets to be sold to agent resellers in anticipation of an increased demand for handset upgrade by those subscribers who purchased a handset upon the introduction of “Value Course” more than two years ago. We also expect to lower our equipment sales price per unit reflecting our efforts to reduce equipment procurement cost per unit to strengthen our competitiveness in equipment sales. As a result, we expect equipment sales revenues to decrease from the prior fiscal year. 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.

Creation of New Revenues Sources

 

As the Japanese mobile phone market continues to mature, the competition among carriers has intensified in such areas as rate reductions. Against this backdrop, with the aim of achieving a sustained growth, we have worked to diversify our revenue sources while stepping up our efforts to reinforce our wireless services business.

 

Following the launch of our credit brand “iD” in December 2005, we commenced a proprietary mobile credit payment service “DCMX” in April 2006. Through these services, which enable credit payment using mobile phones with the contactless IC chips embedded inside the handset, we would like to transform mobile phones into a tool that serves various needs in everyday life. With the subscriber base of “DCMX” reaching 11.26 million and the number of “iD” reader/writer machines installed growing to 440,000 as of March 31, 2010, the amount of credit transactions handled has also been rising.

 

In April 2009, to invigorate the mobile e-commerce market that offers great potential for growth in the future, we acquired a majority stake in OAK LAWN MARKETING, INC., a leading TV and home shopping firm in Japan which subsequently became our consolidated subsidiary.

 

We will strive to expand these credit and home shopping businesses going forward. We intend to pursue investments and alliances with the aim of strengthening our operations, without distinction as to core or new business, to expand our revenues and achieve sustained growth. We will continually seek opportunities of investment and alliance that will benefit our business management.

 

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 26.1% of our total operating expenses for the year ended March 31, 2010. Major components of cost of services include facility maintenance expenses, which are incurred to maintain our network facilities, and communication network charges, which we pay for the usage of other operators’ networks or for access charges, accounting for 33.1% and 31.3% of the total cost of services, respectively. 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, 2010 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, 2011.

 

Cost of Equipment Sold

 

Cost of equipment sold arises mainly from our procurement of handsets for sale to our new or current subscribers through agent resellers, which is basically dependent on the number of handsets sold to agent resellers and the purchase price per handset. Cost of equipment sold represented 20.2% of our operating expenses for the year ended March 31, 2010. The total number of handsets sold to agent resellers decreased from the prior fiscal year due to overall sluggish consumer spending. The purchase price per handset also decreased as a result of the growing popularity of middle- and low-end handsets in our product portfolio and reduction of license fees included in handset price for which we own intellectual property rights while we pay part of the development costs incurred by handset manufactures. As a result, cost of equipment sold decreased from the prior fiscal year. For the year ending March 31, 2011, we expect cost of equipment sold will decrease from the current fiscal year due to a slight decrease in the number of handsets to be sold to agent resellers and our continued efforts to reduce the handset procurement costs.

 

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. For the year ended March 31, 2010, we facilitated efficiency improvements accompanied by a review of handset logistics, such as integration of handset logistics contractors. We are planning to optimize the level of equipment inventories through further efficiency improvement efforts.

 

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 20.3% of our operating expenses for the year ended March 31, 2010. In order to respond attentively to demand from our subscribers, we invested in the FOMA services network during the year ended March 31, 2010. Our investments in the FOMA network included:

 

 

Our capital expenditures in the FOMA network peaked in the fiscal year ended March 31, 2007, and although we plan to start making capital investments for LTE rollout in the fiscal year ending March 31, 2011, 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, 2010 decreased significantly from the prior fiscal year, since the depreciation and amortization expenses in the prior fiscal year included 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. However, even without this effect, depreciation and amortization expenses would have decreased from the prior fiscal year as a result of ongoing cost efficiency improvement efforts. Depreciation and amortization expenses are expected to decrease for the year ending March 31, 2011, 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 33.3% of our total operating expenses for the year ended March 31, 2010. 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.

 

In accordance with U.S. GAAP, 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. For the fiscal year ended March 31, 2010, the total amount of sales commissions before the application of the aforesaid accounting treatment decreased compared to the prior fiscal year, as a result of a decline in the number of handsets sold and our efforts to reduce sales commissions. However, the decrease in the amount of sales commissions included in the selling, general and administrative expenses after the application of the aforesaid accounting treatment was limited to a slight decline compared to the prior fiscal year. On the other hand, due to the increase in expenses appropriated for customer satisfaction improvement initiatives and other factors, the selling, general and administrative expenses for the fiscal year ended March 31, 2010, posted an increase over the prior fiscal year. For the year ending March 31, 2011, we expect further reductions in sales commissions through efficient usage.

 

Operating Income

 

For the year ended March 31, 2010, operating revenues decreased from the prior fiscal year since both wireless services revenues and equipment sales revenues decreased due to a decline in ARPU as well as the number of equipment sold. On the other hand, a decrease in operating expenses due mainly to a decrease in costs of equipment

sold and our ongoing efforts to reduce costs, including reductions in network related costs exceeded the decrease in operating revenues. As a result, operating income increased.

 

The market environment remains very 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, 2011, we expect operating income to increase despite the decline in operating revenues from the prior fiscal year for the following reasons:

 

 

Other income and expenses, Equity in net income (losses) of affiliates

 

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 — 5 Investments and Affiliations.” 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 we are able to exercise significant influence over the investee, but do not have a controlling financial interest. In accordance with equity method accounting, we include equity in net income or losses of affiliates in our consolidated income. Where we do not have an ability to exercise significant influence over the investee, 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. The impairment charges for “Marketable securities and other investments” and realized gains or losses from sales of “Investments in affiliates” and “Marketable securities and other investments” are recognized in “Other income and expenses,” whereas the impairment charges for “Investments in affiliates” are recognized in “Equity in net income (losses) of affiliates.” 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, 2010, the total carrying value of our investments in affiliates was ¥578.1 billion, while the total carrying value for investments in marketable securities and securities accounted for under the cost method was ¥151.0 billion.

Operating Results for the year ended March 31, 2010

 

The following discussion includes analysis of our operating results for the year ended March 31, 2010. The tables below describe selected operating data and income statement data:

 

Key Performance Indicators

 

 

 

 

Breakdown of Financial Information

 

 

 

 

Analysis of operating results for the year ended March 31, 2010 and comparison with the prior fiscal year

 

The total number of our cellular (FOMA+mova) subscriptions as at March 31, 2010 was 56.08 million, up 1.48 million, or 2.7%, compared to 54.60 million as of the end of the prior fiscal year. We expect that the growth rate of our cellular subscriptions will decelerate in the future as the growth of the Japanese market slows due to maturity. As of March 31, 2010, the number of FOMA subscriptions reached 53.20 million, which equaled 94.9% of our total cellular subscriptions, posting an increase of 4.16 million, or 8.5%, compared to 49.04 million as of March 31, 2009. On the other hand, the number of mova subscriptions has decreased constantly since the fiscal year ended March 31, 2004, as a result of our efforts to migrate subscribers to the FOMA network. As of March 31, 2010, the total number

of mova subscriptions was 2.88 million, decreasing by 2.68 million, or 48.2%, from 5.56 million as of the end of the prior fiscal year. We decided to terminate mova service on March 31, 2012, in order to concentrate our managerial resources on FOMA service. Our subscriber market share as of March 31, 2010 dropped by 0.8 points from 50.8% as of the end of the prior fiscal year to 50.0%. The number of i-mode subscriptions reached 48.99 million as of March 31, 2010, recording an increase of 0.52 million or 1.1% from 48.47 million as of March 31, 2009.

 

Aggregate ARPU for cellular (FOMA+mova) service for the fiscal year ended March 31, 2010 dropped to ¥5,350, down ¥360 or 6.3%, compared to ¥5,710 for the prior fiscal year. Voice ARPU decreased by ¥430 or 12.9% to ¥2,900, compared to ¥3,330 for the prior fiscal year. The primary factor behind this decline was the significant increase in the number of users subscribing to the “Value Plan” and decline in billable MOU. Packet ARPU, on the other hand, grew to ¥2,450, recording an increase of ¥70 or 2.9% from ¥2,380 for the prior fiscal year. The main reasons for the increase in packet ARPU include the growth in the number of users subscribing to flat-rate packet plans for unlimited i-mode access, and the widespread adoption of “i-channel” and other services designed to boost i-mode usage. The MOU (FOMA+mova) decreased by 1 minute or 0.7% to 136 minutes compared to 137 minutes for the prior fiscal year. The billable MOU, in particular, decreased from 124 minutes for the prior fiscal year to 118 minutes, posting a decline of 6 minutes or 4.8%, due mainly to the expansion of free communications allowances.

 

Our cellular churn rate was 0.46% and 0.50% for the fiscal years ended March 31, 2010 and March 31, 2009, respectively. The churn rate for the fiscal year ended March 31, 2010 dropped by 0.04 points to a record low, owing to our efforts to promote the adoption of new handset sales methods and customer satisfaction improvement initiatives. We have successfully maintained our churn rate lower compared to that of other carriers in Japan, which we believe was attained as a result of various factors, including among other things, introduction of competitive billing plans and gaining the confidence of customers in our network and services. However, no assurance can be given that we can maintain the churn rate at the current level or achieve a further reduction.

 

During the fiscal year ended March 31, 2010, we strived to expand subscribers’ packet usage through the expansion and enrichment of our video content services and other measures, and also accelerated the personalization of services with the launch of an upgraded behavior support service compatible with the Auto-GPS locating capability. In addition, we have taken various steps aimed at enhancing customer satisfaction, including the enrichment of our handset lineup, billing plans and after-sales support.

 

Our operating revenues for the fiscal year ended March 31, 2010, were ¥4,284.4 billion, posting a decline of ¥163.6 billion or 3.7% from ¥4,448.0 billion for the prior fiscal year. Wireless services revenues were ¥3,776.9 billion, decreasing by ¥64.2 billion or 1.7% compared to ¥3,841.1 billion for the prior fiscal year. The contribution of wireless services revenues to our total operating revenues for the fiscal year ended March 31, 2010 increased to 88.2% from 86.4% for the prior fiscal year. The year-on-year decrease in wireless services revenues was primarily attributable to the drop of cellular services revenues, particularly voice revenues. The decline in cellular services revenues was the net result of the decrease in voice revenues (which dropped by ¥239.1 billion or 11.1% to ¥1,910.5 billion from ¥2,149.6 billion for the prior fiscal year) and the increase in packet revenues (which grew by ¥77.3 billion or 5.1% from ¥1,511.7 billion in the prior fiscal year to ¥1,589.0 billion). An analysis on the reasons for the decline in voice revenues and increase in packet revenues is provided in the section explaining the changes in ARPU. Of the cellular services revenues, the revenues generated by FOMA voice services decreased by ¥92.3 billion or 4.9% from ¥1,877.8 billion for the prior fiscal year to ¥1,785.5 billion for the fiscal year ended March 31, 2010. On the other hand, the revenues generated by FOMA packet services increased to ¥1,558.3 billion, up ¥108.8 billion or 7.5%, from ¥1,449.4 billion for the prior fiscal year. Equipment sales revenues decreased by ¥99.4 billion or 16.4% to ¥507.5 billion for the year ended March 31, 2010 from ¥606.9 billion for the prior fiscal year, because our handset sales were negatively affected by the sluggish economic conditions and others factors.

 

Operating expenses decreased by ¥166.9 billion or 4.6% from ¥3,617.0 billion for the prior fiscal year to ¥3,450.2 billion for the fiscal year ended March 31, 2010. This was mainly attributable to (i) a decrease in cost of equipment sold, which dropped by ¥129.4 billion or 15.6% to ¥698.5 billion from ¥827.9 billion for the prior fiscal year, as a result of a decrease in the total number of handsets sold and the reduction in the handset procurement cost per unit, and (ii) a decrease in depreciation and amortization, which declined by ¥103.0 billion or 12.8% from ¥804.2 billion (inclusive of accelerated depreciation charges of mova-related assets) for the prior fiscal year to

¥701.1 billion for the fiscal year ended March 31, 2010. On the other hand, due to the increase in customer service-related expenses, cost of services increased by ¥28.2 billion or 3.2% from ¥872.4 billion for the prior fiscal year to ¥900.6 billion for the fiscal year ended March 31, 2010, while selling, general and administrative expenses grew to ¥1,149.9 billion, up ¥37.3 billion or 3.4%, compared to ¥1,112.6 billion for the prior fiscal year.

 

As a result of the foregoing, operating income for the fiscal year ended March 31, 2010 increased by ¥3.3 billion or 0.4%, from ¥831.0 billion for the prior fiscal year to ¥834.2 billion. Accordingly, the operating income margin improved from 18.7% for the prior fiscal year to 19.5%. The growth of operating income, despite a decrease in operating revenues, contributed to this improvement, which was attained by making up for the decline in operating revenues resulting mainly from the reduction of voice revenues by a reduction of network-related costs and other operating expenses, and performance improvements in miscellaneous businesses segment.

 

Other income (expense) includes items such as interest income, interest expense, gains and losses on sale of marketable securities and other investments and foreign exchange gains and losses. We accounted for ¥1.9 billion as other income for the fiscal year ended March 31, 2010, achieving an improvement of ¥52.4 billion compared to the prior fiscal year, during which we recorded other expenses of ¥50.5 billion. This is because we recorded only minimal other-than-temporary impairment charges for marketable securities and other investment in the fiscal year ended March 31, 2010, while we recognized other-than-temporary impairment charges of ¥57.8 billion in the prior fiscal year ended March 31, 2009. The other-than-temporary impairment charges recognized in the prior fiscal year included an impairment of ¥26.3 billion, which resulted mainly from foreign currency fluctuation, for the common shares of KT Freetel Co., Ltd. (KTF) based on its fair market value as of March 31, 2009 in connection with the merger of KTF and KT Corporation (KT) in June 2009, under which KTF shares would be exchanged for KT common shares and KT exchangeable bonds.

 

Income before income taxes and equity in net income (losses) of affiliates increased by ¥55.7 billion or 7.1% to ¥836.2 billion for the fiscal year ended March 31, 2010, from ¥780.5 billion for the prior fiscal year.

 

Income taxes were ¥338.2 billion for the year ended March 31, 2010, and ¥308.4 billion for the year ended March 31, 2009, representing effective income tax rate of approximately 40.4% and 39.5%, respectively. We are subject to income taxes imposed by various taxing authorities in Japan, including corporate income tax, corporate enterprise tax, corporate inhabitant income taxes and special local corporation tax, which in the aggregate amounted to a statutory income tax rate of 40.8% for both fiscal years ended March 31, 2010 and March 31, 2009. The Japanese government introduced various special tax benefits, one of which enabled us to deduct from our taxable income a portion of investments in research and development (“R&D investment tax incentive”). The difference between our effective tax rate and statutory income tax rate for the years ended March 31, 2010 and 2009 arose primarily from such special tax allowances. In addition, for the year ended March 31, 2009, there was a tax refund of interests and penalties previously paid, which lowered the effective income tax rate for the year ended March 31, 2009.

 

For equity in net losses of affiliates (net of applicable taxes), we incurred losses of ¥0.9 billion for the fiscal year ended March 31, 2010 and ¥0.7 billion for the fiscal year ended March 31, 2009.

 

As a result of the foregoing, we recorded ¥494.8 billion in net income attributable to NTT DOCOMO, INC., posting an increase of ¥22.9 billion or 4.9% from ¥471.9 billion for the prior fiscal year.

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