Q&A at Earnings Results Briefing for Q1 FY2021

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Date	Wednesday, August 4, 2021 4:00 pm - 5:00 pm
Speakers	SoftBank Corp.: Junichi Miyakawa (President & CEO) Kazuhiko Fujihara (Board Director, Executive Vice President & CFO)

• This is your first quarterly earnings announcement since you took office as president in April. Could you share what you have felt since you became president? Is there anything you may have learned or achieved that do not appear in your business results?

  As a result of changing from CTO to president, I've had the opportunity to experience a lot more than before. Meanwhile, it is also true that I became president during the COVID-19 crisis, and I have felt constrained on many different fronts. I basically communicate with employees online. In this sense, I have perhaps yet to fully realize that I have become the president.

• Your forecast for the impact of mobile service price reduction is ¥70.0 billion in revenue decrease for FY2021. What is the progress of the impact in Q1 FY2021? Also, what is your outlook for this impact from Q2 FY2021 onward?

  In Q1, there was an impact of just over ¥10.0 billion on revenue. In Q2, we expect the impact to be slightly above ¥15.0 billion. Thereafter, while the amount of the impact should increase every quarter, we expect that the extent of the increase should gradually level off and become flat. That said, depending on sales performance of the iPhone, for which a new model is usually rolled out in the autumn every year, there could be heightened replacement demand for mobile devices and the shift to new price plans may accelerate. If that happens, we expect a further decline of around several billion yen in revenue. Overall, there is no change in our outlook for a negative impact of just over ¥70.0 billion on revenue on a full year basis.

• You noted that the impact on revenues from mobile service price reduction was just over ¥10.0 billion in Q1. Could you provide a breakdown of this impact by brand?

  The situation is easier to understand when you consider ARPU, the average revenue per user. SoftBank Corp. has three brands: the SoftBank brand, which offers completely flat-rate or high volume data plans; the Y!mobile brand, which targets medium- and low-volume data plan users; and the LINEMO brand, an online-exclusive brand. Each brand has a different ARPU. As a result of the price reduction, many price-sensitive customers including SoftBank brand customers have switched to the Y!mobile brand. Additionally, among the customers switching to the LINEMO brand, there are more from the SoftBank brand than from the competitors. From a company-wide perspective, these are the factors for the ARPU reduction. They led to a decrease in ARPU of around ¥100 in Q1.

• For the LINEMO brand, SoftBank announced a low-price plan of ¥900 per month (excluding tax) for 3 GB of data. How do you see the current competitive landscape?

  With this new plan, we decisively offered bold pricing. As we were shifting customers from LINE MOBILE to LINEMO, we observed that some customers had started to leave for our competitors. We conducted a questionnaire of users and found that many respondents said they wanted a price plan that was more affordable because they only use around 3 GB of data. Although SoftBank has prided itself on being the industry's price leader, I believe that we had retreated and become defensive in some respects. We needed to return to basics and move back onto the offensive. That was why we decided to offer the new price plan. It has proven highly popular early on. It has also led to port in customers from our competitors. Looking ahead, I'm eager to keep on tackling a wide range of ambitious initiatives.

• KDDI Corporation's new price plan “povo.” has reached one million. How many subscribers does LINEMO have?

  Roughly speaking, the number of LINEMO subscribers has not reached 500,000 yet. Meanwhile, SoftBank has provided low-rate plans through Y!mobile for many years. A considerable number of users who prefer low-rate plans has migrated to Y!mobile. In fact, the number of Y!mobile subscribers reached around 7 million. Combining both the LINEMO and Y!mobile brands, around 7 million and several hundred thousand subscribers are our users with low-rate plans.

• Why has the churn rate for smartphone users deteriorated significantly from the same period of the previous fiscal year?

  It is true that our churn rate deteriorated, partly because of campaigns held by competitors in April. However, from May onward this trend has settled down and the churn rate has returned to our anticipated range. We will continue to closely monitor the churn rate.

• In Q1, net additions in main subscribers to mobile services seem low. Can I assume that the net addition trend will recover from Q2 onwards?

  Until around April, we had struggled as we came up against the campaigns of other companies. Since May, we have approached the level of net additions we had originally envisioned. Just as we responded to customers by decisively setting the LINEMO price at ¥900 per month, we will continue to firmly address changes in customer needs. Ultimately, we will make every effort to achieve the numbers we have targeted on a full-year basis.

• The increase in income taxes was one of the reasons for the decrease in net income. Could you explain the factors behind this decrease?

  Around half of the ¥13.8 billion increase in income taxes was attributable to one-time factors. Specifically, these are factors associated with the business integration of Z Holdings Corporation and LINE Corporation and one-time investment-related factors.

• The shift to 5G is under way. What progress has SoftBank Corp. made on this front? Also, will there be a positive impact in terms of revenue growth from the increase in communications traffic?

  The number of 5G users has been increasing steadily. The number of 5G base stations now exceeds 13,000. However, there are still too few 5G coverage areas in comparison with the coverage we can provide with our approximately 230,000 4G LTE base stations. We are targeting a 5G population coverage ratio of 90% by around spring next year. If we make this happen, we believe that communications traffic will naturally increase, and more and more customers will likely return to the SoftBank brand with its high-volume data plans. In addition, as standalone 5G becomes available this year, the number of IoT devices will increase substantially. Depending on the business model, we believe that this business will offer a scope of sales and industry scale comparable to that of the Consumer segment until now. Based on this belief, we intend to drive this business carefully.

• You said that the number of payments is crucial to developing PayPay into a super app. What are the reasons for this?

  We seek to create a financial ecosystem where its payment app serves as a gateway to the ecosystem. On the PayPay app screen, we have set up many pathways to financial service functions. To guide users to financial services within the app, PayPay itself must be an app that is used frequently by users. For this reason, we pay close attention to the number of payments as an indicator. The number of payments can be used to measure how often PayPay is being used daily.

• SoftBank Corp., together with NAVER FINANCIAL Corporation of South Korea, has recently made a joint investment in TBCASoft, Inc. of the U.S. What do you think is important for consumers to start using QR-based payments overseas?

  Payment services vary widely from country to country. In this environment, we aspire to engage in collaborative creation with overseas payment service providers to drive the expansion of the business ecosystem for QR code payments throughout the world. This announcement is just the first step of this initiative. First, we seek to enable Taiwanese users to make payments with the app they usually use in Taiwan when they visit Japan. Additionally, we would like to enable PayPay users to use PayPay wherever they may go around the world. In realizing this business, we will need to meet regulatory requirements, such as obtaining the approval of regulatory authorities, as we move forward. Just as mobile phone service providers have formed roaming partnerships worldwide, we seek to form similar partnerships in the QR code payment field globally.

• Amid the continuing shift to online device sales, online support and similar capabilities, could you share your perspectives on the balance between real stores and online sales?

  Real stores and online sales serve completely different customer segments. In the U.S. too, online sales are growing, and we are strengthening our online capabilities. However, there are also many customers who want to visit a physical store and select plans and devices as they speak with a sales representative. The devices are digital, but the users are human. We would like to continue to operate real stores even if it entails costs. In terms of the balance between real and online capabilities, we expect our online business to grow, but at this time, we cannot foresee a situation where the number of stores is reduced to zero.

• Japan's three major telecommunications carriers, including SoftBank Corp., announced that they will jointly open a temporary mobile device store in Ebino City, Miyazaki Prefecture. Previously Ebino City did not have a store. What issues do you face in continuing to operate stores in regional areas of Japan?

  The success of store development in regional areas comes down to cost effectiveness – whether or not a store can generate the sales needed to recover its costs. Meanwhile, we are proactively working to promote the digitalization of local governments as part of its regional revitalization efforts. As we push ahead with digitalization in regional areas, the issue we always face is the low adoption rate of smartphones in such areas. Even if the digitalization of local governments is achieved, unless residents know how to use smartphones, they cannot fully reap the benefits of digital technology. To do something about this, we have tried many different things. Our efforts have led to the opening of this joint store. We believe that initiatives such as offering smartphone classes at such real stores will be effective.

• The Ministry of Internal Affairs and Communications and the Japan Fair Trade Commission have made observations requesting SoftBank Corp. to review its assessment system and practices for sales agents. How have you received these observations and what are your plans to review these matters going forward?

  When assessing a store, we initially granted different amounts of assessment points depending on whether a sales agent would, for example, make a SoftBank brand sale or a Y!mobile brand sale. We have corrected all of these practices. While we have tried to develop a system that does not have such barriers, we do not believe our efforts are 100% complete. We will accept the observations in good faith and constantly strive to make improvements.

• The semiconductor shortage has become a global problem. I believe it will have an impact on smartphone shipments and the construction of 5G base stations. What kinds of risks do you think there will be from Q2 onward?

  The construction of base stations has not been affected. Going forward, I am concerned about Apple-related issues. We are currently unable to secure an adequate number of iPads. In its press conference, Apple has said that conditions will become even more difficult from here on. Therefore, I am concerned about whether iPhones can be supplied on time from the autumn onward.

• I believe that SoftBank Corp. received administrative guidance in June regarding delays in opening 5G base stations. What progress have you made thereafter?

  This matter arose because I was unable to adequately confirm the situation in my role as supervisor when I was serving as CTO in the previous fiscal year. I deeply regret that it happened. Under our base station opening plan, we receive licenses from the Ministry of Internal Affairs and Communications by submitting applications for approval of the number of base stations to be opened in each area. However, our coordination while we were working remotely during the COVID-19 crisis did not proceed effectively, and there were some areas where we were unable to open base stations as planned. I have no intention of making excuses. The problem was caused by my insufficient confirmation of the situation. Thereafter, we recovered lost ground by opening base stations in the areas where there were delays in the previous fiscal year. Currently, we are making steady progress toward our target for achieving a 5G population coverage ratio of 90% by spring next year.

• Could you share your thoughts on the formation of the Digital Agency?

  I am one of those who are concerned that Japan is falling behind in terms of digitalization. Since the appointment of Minister Takuya Hirai, SoftBank Corp. has participated in various discussions in the Digital Agency's briefing sessions. Japan's smartphone adoption rate is still too low. Efforts to achieve regional revitalization through digitalization always run into that wall. We need to promote the digitalization of government and individuals simultaneously. On this front, we have high expectations for the Digital Agency. We would like to join forces with the Digital Agency to energize and accelerate the digitalization process throughout Japan.

• What kinds of business opportunities will SoftBank Corp. have as a result of the formation of the Digital Agency? What will SoftBank Corp. use to differentiate itself from its competitors?

  First, we will support digitalization on the telecommunications front through initiatives such as the development of 5G networks. In addition, together with Z Holdings Corporation, we would like to actively offer proposals to users on how to conveniently make use of digital technology. Ultimately, as the entire city adopts digitalization, I believe it will be crucial for people to have the ability to share and coordinate data. In practice, we are advancing this priority as a project. Our new corporate headquarters is a smart building fitted with 1,400 sensors. The data obtained from these sensors are shared and coordinated by the building's operating system (OS). A city OS will expand this concept to a city-wide level. While local and national governments would implement such a system, we can be in the role to design the technical foundation for such a city OS. We are targeting this field as our direction for the future.

• What are your views on market trends in space and satellite communications?

  Looking ahead, I believe we will see the emergence of a mesh structure of telecommunications including space. I believe that space communications will find its way into the communications standard somewhere in the stages following Beyond 5G, such as 6G, 7G, or 8G. We have realized that it will be difficult to address the ecosystem of ground-based devices with the typical distance scale involved in satellite communications. For the past few years, we have focused on the HAPS business, which seeks to provide communications from the stratosphere 20 km above the surface of Earth. We have already largely completed the technical verification phase and now have advanced to the stage of mass production design. It will still take around three more years because signal interference with neighboring countries must be estimated and regulatory approvals must be obtained, among other issues. We will continue to undertake the HAPS business. I also believe that the space data center framework of NIPPON TELEGRAPH AND TELEPHONE CORPORATION (NTT) and SKY Perfect JSAT Holdings Inc. and the AST framework of Rakuten Mobile, Inc. are outstanding initiatives. When everyone tackles challenges, new technologies are born. We are strongly interested in pursuing a wide range of technologies.

• The Ministry of Internal Affairs and Communications is considering the reallocation of the 700 MHz to 900 MHz spectrum known as the “Platinum Band.” Do you have any comments on this matter?

  SoftBank Corp. obtained the 900 MHz spectrum over a period of 6 years. The Ministry of Internal Affairs and Communications told us that they wanted SoftBank Corp. to first properly utilize the 2.1 GHz band it had been initially allocated and then the Platinum Band would be put on the table. Ultimately, we set up 180,000 base stations there. With regard to the latest Platinum Band reallocation, we will need to have a conversation with customers if spectrum is reclaimed, because customers are already served by the existing spectrum. This is the same for all three major carriers. Additionally, base stations are not completed after construction is finished; annual software updates are required. Base stations cannot keep up with the latest services unless their specifications are updated as frequently as two or three times a year in busy periods. There is also an increasing number of cases where the software can cost several billions of yen. These updates are performed to make customer services even better. We have told the Ministry of Internal Affairs and Communications that if they adopt a policy that allocates spectrum for periods that are too short, we will fall behind in making such software updates and there is a risk that service quality will deteriorate.