Q&A at Earnings Results Briefing for Q2 FY2021

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Date Thursday, November 4, 2021 4:00 pm – 5:20 pm
Speakers SoftBank Corp.:
Junichi Miyakawa (President & CEO)
Kazuhiko Fujihara (Board Director, Executive Vice President & CFO)
  • What impact will mobile service price reduction have on the future operation of base stations?

    Recently, I've started to believe the development of base stations might be impacted. When we develop operational plans for base stations, we naturally consider the balance of revenue and expenses by estimating mobile service charges among other factors. In this one to two years, we are facing the toughest period for costs because of 5G rollout. Currently, we are implementing rigorous structural reforms and cost reductions to ensure no delays in network design. We are determined to get this done. There is no major changes in capital expenditures. On the other hand, if the impact of mobile service price reduction continues for the next 5 or 10 years, I believe that we will need to review how we should do for our telecommunications infrastructure in the future.

  • Based on trends in your competitors' activities, what are your thoughts on future price plans?

    Our competitors offer some price plans that start from a basic charge of ¥0. At SoftBank Corp., we are not considering setting prices at levels that would make it impossible for us to cover our network operating costs. To maintain its telecommunications network, SoftBank Corp. has a system in place to monitor the network 24 hours a day, 365 days a year. Machinery inevitably breaks down. When equipment breaks down, and it cannot be restored through systems, our staff members sometimes go to the site to perform repairs. I believe the best way is to ask our subscribers to bear the basic network maintenance costs and to set different prices according to how much they use the network. I would like to consider our future price plans by taking into account a range of factors, including gradual changes that have emerged in how subscribers use the network.

  • You said that the Enterprise segment is performing firmly. How will you differentiate this segment from your competitors in the future? Could you please share your perspectives on the recruitment and development of human resources?

    The Enterprise segment is currently receiving extremely strong customer inquiries. Under these conditions, SoftBank Corp. is pursuing a recurring revenue model as much as possible. We are balancing our workload by pushing back projects that will only generate short-term revenue slightly further into the future. Going forward, I'm confident that we can continue to steadily grow this business. Meanwhile, more personnel are needed. We are making arrangements to introduce human resource development programs not only at SoftBank Corp., but also at our Group companies.

  • Recently, there was a service disruption at NTT DOCOMO, INC. Could you please share your thoughts on what kinds of measures should be taken to prevent service disruptions in the future. I recall that Mr. Miyakawa said in the past that a framework that enables roaming with other companies should be considered.

    I believe that the service disruption at NTT DOCOMO, INC. could have occurred at any other telecommunications carrier. With regard to roaming with other carriers during service disruptions, the recent disruption primarily involved the IoT devices side of the network. In these situations, making IoT devices compatible with roaming will push up the cost of the IoT devices, so roaming is likely to be difficult to implement in practice. As for the service disruption on the core side of the network, it is difficult to put in place perfectly duplicate equipment as a back-up system. To address this issue, telecommunications carriers will need to raise awareness throughout the industry as they work to exchange information among one another.

  • Currently, mobile service prices in Japan are relatively low compared with other countries around the world. Does this mean that in the future, users in Japan might need to start tolerating subpar communications quality in exchange for the low mobile service prices, as users in some overseas countries must do?

    According to an announcement by the Ministry of Internal Affairs and Communications, Japan's mobile service prices have now reached the second to lowest level among major advanced countries. Considering both data volume and high communications quality, I personally believe that Japan already has the world's lowest prices for mobile communications services. Meanwhile, 5G infrastructure entails substantial increases in the number of base stations required and power consumption, in comparison to 4G and previous infrastructure. If 5G infrastructure is provided at lower mobile service prices than prices when 4G was offered, I would have some concerns about whether communications quality can be maintained. If Japan seeks to reduce mobile service prices even further in the future, I would be concerned that Japan may fall behind in the development of telecommunications technology.

  • What actions will SoftBank Corp. take to address Stand Alone type 5G networks? Why did you roll out Stand Alone type 5G commercial services beginning with SoftBank Air?

    Due to chipset-related reasons, we were able to offer compatible SoftBank Air models first. If we can steadily obtain compatible chips, we would like to build Stand Alone type smartphones by spring next year. We have completed a Stand Alone type core network system, so we would like to apply this capability across a variety of devices going forward.

  • What impact will the integration of NTT DOCOMO, INC. and NTT Communications Corporation have on SoftBank Corp.? What are SoftBank Corp.'s competitive strengths?

    Speaking frankly, I believe that the integration of the two companies poses a threat. The two companies were split because the original company was too large, and now they are being reintegrated because the times have changed. Personally, I believe that discussion of some sort should take place within the context of competition policy. On the other hand, from the standpoint of Japan's digitalization, I think it would be desirable to have an environment where new business models are created through a healthy rivalry between SoftBank Corp. and NIPPON TELEGRAPH AND TELEPHONE CORPORATION (NTT), and that is how things should be. SoftBank's strength lies in the fact that it has obtained a certain degree of knowledge by engaging in digital transformation (DX) ahead of other companies. Another strength is that SoftBank Corp. can carry out business in cooperation with cutting-edge DX companies that its parent SoftBank Group Corp. has invested in. We are determined to work hard so that we can hold our own against competitors.

  • In the previous earnings results briefing, you said that the number of LINEMO subscribers has not yet reached 500,000. By how much has that number grown at this time? Also, as your competitors launch new initiatives, could you describe what actions you will take to grow the LINEMO brand?

    LINEMO and LINE MOBILE together have more than 1 million subscribers. I can say that the number of subscribers has steadily grown following the roll out of a low-price price plan of ¥900 per month (excluding tax) for LINEMO in July. At this time, Y!mobile is more popular with customers. For this reason, we would like to strengthen this area with Y!mobile as the main driving force.

  • Conversely, have there been any moves by customers to switch from Y!mobile and LINEMO to the SoftBank brand?

    Given that 5G users tend to account for large amounts of data traffic, some of these users are switching to the SoftBank brand, which offers high-volume, fixed-rate data plans. That said, more users are now switching from the SoftBank brand to the Y!mobile and LINEMO brands.

  • You cited the sales recovery in mobile devices as the main reason for the increase in revenue in the Consumer segment. Can I correctly assume that this increase represents the rebound from the decline in sales of mobile devices last year due to the rapid spread of COVID-19?

    Yes, that is correct.

  • You said the Enterprise segment delivered a strong performance. Which specific services led to the increase in revenue?

    The strong performance was attributable to two main factors. The first was business to support the automation of enterprises' business processes with Robotic Process Automation (RPA) and other technologies. The second was collaborative business with LINE Corporation, which has newly joined the SoftBank Corp. group. We have received many inquiries from companies that would like to use the messaging app LINE as an interface when directly exchanging information with their customers and consumers. When companies deploy LINE in their businesses, SoftBank Corp. takes charge of the behind-the-scenes systems development.

  • Recently, SoftBank Corp. announced that it has acquired patents for High Altitude Platform Stations (HAPS) held by Loon LLC, a subsidiary of Alphabet Inc. of the U.S. Which aspects of these patents did you value highly? How will you put these patents to good use in future development activities?

    Loon LLC has excellent engineering expertise. For example, Loon LLC provides a communication service that employs a fleet of approximately 300 balloons that are constantly kept in the air worldwide. It successfully realizes this operation with only 2 people. The rest of the service's workload is completely automated with AI. This showed us that Loon LLC has sophisticated expertise in automation. In addition, SoftBank Corp. has jointly developed radio equipment with Loon LLC. This equipment beams LTE radio waves from the stratosphere and has successfully achieved the highest level of quality in quality tests. Thoughts and ideas were exchanged among engineers, allowing us to increase our knowledge of technologies in the field of balloons. Moreover, the greatest asset we obtained from our collaboration with Loon LLC was that we received 7 to 8 years' worth of shared stratospheric data.

  • Could you tell us what impact the global semiconductor shortage will have on the installation of 5G base stations and on your business?

    There is no critical impact on our installation of base stations in the current fiscal year. We anticipated the semiconductor shortage and made adjustments by ordering relevant components ahead of time. On the other hand, at present we are beginning to see some impacts emerge gradually, such as having difficulty sourcing small components that would usually be easy to obtain, and there have been some delays in arrival of chip-related components. If this situation continues, then we may see some impact begin to emerge on base station installation next year.

  • Could you explain in details about the forecast for profit by quarter displayed on slide 11 of the presentation, entitled “Operating Income Quarterly Distribution” from a year on year comparison perspective?

    We incurred some costs in Q4 of the previous fiscal year due to adopting an offense-style approach. By comparison, in Q4 of the current fiscal year, we expect costs to be more subdued. Therefore, for Q4 alone, we expect to see an extra 50.0 billion yen in profit compared to the previous fiscal year. In Q3, we expect profits to be a little lower than the previous fiscal year. While we will make cuts where necessary, we do not intend to let up on our offensive efforts, such as network building.

  • I would like to hear President Miyakawa's thoughts regarding the future vision for SoftBank. Currently, telecommunications carriers are all focusing on similar fields, such as finance, payment, and enterprise businesses; how do you plan to differentiate SoftBank from the others?

    SoftBank has survived in the telecommunications industry as a carrier for many years, but our vision going forward is to become a comprehensive digital platformer. Rather than focusing only on connecting people through telecommunications, one of our visions for SoftBank in the future is to work in the area of creating the platforms and services that operate on top of the network. To do this, we want to make further use of our points of contact with Yahoo! JAPAN and LINE customers. We are also back-casting from 30 years and 50 years in the future to create the businesses that we need to operate now. Take for example, environmental issues such as global warming. As a telecommunications carrier, we consume large amounts of electricity daily, converting it into the telecommunication services that we provide. Looking ahead, we aim to contribute to the world by taking the lead on efforts to develop technologies that reduce electricity consumption, and so forth. I want to present the future vision for SoftBank by combining the two perspectives: the development of our existing business and back-casting from the future.

  • This year, the Company's stock price increased by over 20%. This is a good performance compared to the Nikkei average. Have you done something differently in your IR activities?

    By our analysis, the reason for the increase in our stock price is probably that the price has been too low up until now. From the outset, we decided that our IR activities would focus on disclosing the information that we are asked to disclose, as far as we can. We are working to make business assets more visible where they have been difficult to see from the outside, and to make it easy for investors to keep track of things such as the development of synergies between assets and the subsequent performance of investee companies.

  • Is there any possibility of an additional share purchase by President Miyakawa?

    At this point, I do not have plans to make an additional share purchase.

  • Is there any change to the current status regarding your acknowledgement that there are to be no additional sales of SoftBank Corp. shares by SoftBank Group Corp?

    It is not the Company's place to answer that question; however, the subject of additional sales has not been brought up by SoftBank Group Corp. at all.

  • What is the outlook for PayPay Corporation becoming profitable?

    We believe that it will certainly become profitable within a few years. Now we are at the stage where payment system fees can be charged, we are nearing the breakeven point as long as we control our expenses. However, we still want to take an offensive approach with PayPay. We would like to remain on the expansion track a little longer before we enter the investment recovery phase, and work toward achieving profitability in a few years' time.

  • With regard to PayPay Corporation's earnings model going forward, I think we are in an era where it is difficult to grow earnings based on charging payment system fees. Could you tell us if you are looking at any other ways to generate earnings?

    I believe that payment system fees will be the main source of earnings to some degree. However, with Alipay in China, for example, the mainstay for earnings has become after-pay and loan services. Naturally, we also expect to make profits from services starting with the digitalization of stores, such as the PayPay My Store service for merchants. Please understand that we will be combining various earnings models together as we go forward.

  • Currently, churn has been increasing across the board for telecommunications carriers, as the overall fluidity of the market increases. It is currently difficult to tell who will come out on top in terms of subscriber numbers, so I would like to focus on how much you can increase ARPU going forward. When do you expect the trend in ARPU to turn back to increasing with the introduction of new 5G plans and so forth?

    We remain firmly focused on our policy of targeting net increase in subscribers. We will continue making efforts to capture users. Honestly, I think it is difficult to raise charges once they have been lowered. Once 5G spreads and rich content that makes use of it increases, I think we may see a user shift toward higher priced plans, for example with Y!mobile users shifting to SoftBank brand plans. During this fiscal year all telecommunications carriers will set up Stand Alone 5G core network, which will give rise to new services using network slicing and so forth. New price plan systems will probably come out every two or three years, and we aim to lead the industry and not be left behind.

  • What is the current status of OYO Japan K.K. (“OYO”) and WeWork Japan GK (“WeWork Japan”)?

    WeWork Japan is performing steadily. Due to the spread of COVID-19, there is an increasing demand for using “lite” offices rather than companies owning their own buildings. Recently, WeWork U.S. listed on the New York Stock Exchange via a special- purpose acquisition company (SPAC), and WeWork Japan, whose shares are held by SoftBank Corp., also appears to be stable. OYO is gradually getting on track. In terms of restructuring, we have already done everything we can at both OYO and WeWork Japan, and we see no need for further action in that regard.