Thank you very much for participating today despite your busy schedules. We would like to now start the briefing session on NTT's Fiscal Year 2024 third quarter financial results. I am Hanaki from the IR Office and will be serving as the MC today. First, we would like to introduce today's attending members: Hiroi, Representative Member of the Board, Senior Executive Vice President, Nakamura, Executive Officer, Head of Finance and Accounting, Hatori, Executive Officer, Head of Corporate Strategy and Planning. The audio of today's briefing is streamed live.
We are planning to have on-demand streaming on our website at a later date, so we seek your understanding. As for today's materials, please refer to presentation materials on our IR website. On the first page of the materials, points to be noted are listed, so we kindly ask you to please go through them.
First of all, today, Senior Executive VP Hiroi will explain the overview of our financial results, followed by questions from all of you. Without further ado, Mr. Hiroi, please.
Thank you. My name is Hiroi. Thank you for joining us despite your busy schedule. We appreciate your attendance today, so I'll let you explain the financial results for the third quarter of Fiscal Year 2024. Starting with the consolidated results, please turn to page four. Operating revenue increased while operating profit and profit decreased.
Operating revenue set a record for the third quarter. Also, operating revenue increased by JPY 332.9 billion, reached JPY 10 trillion 49.5 billion due to increase in domestic and global revenue at NTT Group, as well as increase in revenue from the Smart Life business, Consumer commerce. Now, of this increase, the impact of foreign exchange rate was approximately JPY 125 billion. So this is record high level as the operating revenue for the third quarter, so let me now turn to operating profit.
Operating profit decreased by JPY 87 billion and reached JPY 1,399 .2 billion despite the increase in profit at NTT Group and increase in Smart Life Business. This is due to decrease in communication service revenues in mobile and fixed line segments, as well as measures to strengthen DOCOMO's customer base, as well as the impact of slimming down non-core assets, which was implemented in the previous year.
Now, with regard to net increase in optical fiber services, this has increased year on year due to efforts to enhance marketing, and as a result, mobile number portability is showing strong results in the recent month. Now, achieving the annual plan for the profit may seem somewhat challenging, but we will make the utmost effort toward the goal through the efforts of individual respective operating companies within the group.
As for profit, this was JPY 850.7 billion, down JPY 160.4 billion year- on- year due to declining operating profit and also rebound from gains on the stock sales from the previous year. EBITDA was JPY 2, 552.5 billion, down JPY 19.2 billion year- on- year due to decline in operating profit. Now, let me turn to page five and talk about contributing factors by segment. Let me first start with Integrated ICT Business. This segment posted year on year growth despite the decline in mobile communication service revenue, mainly due to growth in finance and payment in the Smart Life Business.
Now, although profit increased in the Smart Life Business segment, overall profit declined due to measures to strengthen customer base in the Communication Service department. Achieving. Let me now talk about the Regional Communications Business segment.
In this segment, both revenue and profit decreased due to decrease in network revenue and also rebound from the impact of slimming down non-core assets implemented in the previous year, but net increase in optical fiber service posted increase year on year due to stronger sales of 10-gigabit plan and also all-unit plans for the condominium market.
Both operating revenue and operating profit are generally in line with our expectations, and we will actively review our cost structure, including the selection and concentration of businesses and the reform of operations in order to achieve medium-term growth. Let me now turn to Global Solutions Business segment. In addition to increased sales in the public, financial, and corporate sectors in Japan, sales increased year on year due to the impact of foreign exchange rates, so this part was very strong.
Operating profit increased year on year due to higher operating profits here in Japan, as well as higher operating income or operating profit in the data center business overseas. As for the other segment, here in the other business segment, sales and profit increased year on year due to the expansion of data center engineering at NTT Urban Solutions. Also, NTT Facilities did very well as well. Sales and business increased year on year in terms of sales and profit.
Although operating profit increased year on year by increase in revenue, profit remained unchanged from the previous year because of the loss from the sales of properties. I would like to move on to topics, so please refer to page slide number seven. I will first explain our initiatives toward regional revitalization and urban development.
In connection with the Expo 2025, we are scheduled to open hotels, parks, and cultural facilities in the Osaka area, Patina Osaka, Naniwa-no-Miya Ato koen, and the commercial facility within the park, Naniwa-no-Niwa, will open this spring. Furthermore, stadiums and arenas are scheduled to begin operations in various locations. Slide eight, please. I will explain about holding the NTT DATA Leadership Event in India.
To mark the start of IOWN APN connections and connections to the MIST submarine cable between India, Singapore, and Malaysia at the Mumbai Data Center, we will be holding an NTT DATA Leadership Event in Mumbai in March. In addition, we will expand our data centers in India and further strengthen our data center business, which has the number one market share in India. Next, please go to slide nine, Mobile World Congress, the exhibition over there.
Every year, we are doing this at the Mobile World Congress in Barcelona in March. We plan to exhibit the NTT Group's space business strategy, network operation solutions using a generative AI and more. In addition, as part of the IOWN Global Forum, we are planning to hold sessions and exhibitions of solutions, so if there are people who will be going to India, please come and visit our booth as well. Slide 10 is something that we are showing you every time.
This is the progress under the medium-term management strategy, and therefore we would like you to take a look at this at your leisure time. This concludes my presentation.
Thank you very much, Mr. Hiroi. We now have to go on to the Q&A session. With regard to questions, we'll take questions for those of you who have registered in advance and who are connected to the web conference system at this moment. For your questions, please use the raise hand button in the web conference system. If you wish to cancel your question, then please push the raise hand button once again. When we designate you, please state your name and your affiliation. They will ask you to unmute your microphone at that juncture.
Please be sure to unmute your microphone vis-à-vis the conference system. Also, when your question is over, please remain unmuted until the response from the company is completed. Then we now like to take your questions. First, we'd like to start with Mr. Masuno from Nomura Securities. Please unmute your microphone and then go on with your question.
Yes, thank you. I have two questions. My first question relates to the Integrated ICT Business, in particular the consumer communication segment. With regard to ARPU, also with regard to service revenue, and also ARPU revenue, I was somewhat more negative, but then it was within expectation, but then the profit is actually much lower than our expectation, so I think the level of deficit, correction, so we find the situation in the nine-month period, and now March is going to be a very competitive situation.
Now, there's a gap of JPY 120 billion at this juncture. Is it a possibility that at the end of the year, the gap could be much wider than tens of billions of yen? So, as you make a run-up toward this March, are you now going to change your marketing position and marketing approach? If that is the case, I suppose you have to increase your marketing expense. Yes, you're doing very well in terms of net increase and also MNP and terms of service , but I think you're not able to make recovery to your revenue. What are your thoughts about the current situation?
Yes, thank you. Yes, Hiroi, I would like to respond to your question. Thank you for your question. When we take a look at the financial results, yes, yes, we take note of your point. That is true. As far as ARPU is concerned, the plan was somewhat high. And so, but compared with the high plan, the actual suggestion was somewhat weak with regard to expenses and cost.
It is true that in terms of expenses, and I did cover this in my presentation earlier, we've been reinforcing our sales and marketing. So that being the case, the expenses are expanding. So that is going to put pressure on the profit naturally. Now, as we have consistently mentioned since the past, as far as we're concerned, over the medium term, it's important that we secure the profit naturally. It's important that we also maintain our market share. That will help us to create a good source for revenue down the road. So we're trying to enforce our efforts so that we'll be able to enhance our customer base.
Yes, over the short term, yes, there's a very stringent impact on the profit over the short term. That is true. But as far as we're concerned, we'd like to take a look at the situation from the medium-term view. With regard to investment and cost, I think we'll be able to recoup this over the medium term through our efforts. So it's important that we guarantee a strong customer base. So gaining a strong customer base is something that we would very much like to implement.
Okay, thank you. We're now already in February, and March will be a very competitive situation, a major sales season. You're not going to change your approach toward the sales in coming March and the competitive season? Well, I think Mr. Shimada has also talked about this. We've mentioned that we're going to secure the market share. We've been talking about that repeatedly as we head toward the year end. What about the intensity of our efforts?
I think we have to watch how the competition reacts as well. But we have set a target. We want to reinforce our customer base. We want to gain a strong customer base. And we will do what we like to create things that are necessary to achieve this plan. Now, how much in reality I think we have to consider that as the time comes. But we're not going to just casually use whatever measures that are available. As I mentioned in the presentation earlier, we'll also be focused on cost reduction. We're really making efforts in terms of cost reduction at this moment.
So we want to make sure that the impact of increased sales and marketing can be absorbed in other areas. And we will also carry out cost reduction simultaneously as well. That is our thinking. Thank you. That is all.
Thank you. Next question.
My second question also relates to the enterprise section of the Integrated ICT Business. In the enterprise business as well, I have my own views about the profitability. My sense is that the profitability of the enterprise section is now somewhat weaker. Yes, there might be the impact of migration to PSTN. But I think at the end of the day, revenue itself seems to be somewhat weakening in the enterprise sector. You had increased revenue in the second quarter, but then you turned to negative revenue growth in the third quarter.
So there's probably elements that are aside from migration that is affecting your revenue. I'm hoping that there could be other elements that could help you to boost your revenue down the line. So what are your prospects about the possibility of improving your revenue in this sector going forward? How do you intend to change that? How do you think you can change the course?
I appreciate your prospects. Thank you so much, sir. Yes, thank you for your question. Yes, with regard to Integrated ICT Business, in particular, the enterprise business, yes, I think this situation is exactly as you pointed out in your question, Masuno. They're finding it difficult. The challenges, in particular, are with the SME market.
The growth of the SME market is somewhat lackluster. It's not weak. It's not strong, and so they're not able to increase revenue and profit from that particular sector at this moment, so when we integrated DOCOMO and NTT Communications, we've been working on this particular sector. In particular, in terms of mid-size companies, we're really focused on this right now, so we're focused on mid-size companies in regional cities. The sales and marketing in this area is somewhat weakening. In terms of DOCOMO's network business as well, we're seeing some erosion.
That is true. It's important that we fortify our network business at the same time, offering solutions that match SME market. I think we need to really reinforce our capacity in these two areas. That is the challenge we face. Right now, DOCOMO is very actively tackling this challenge at this moment. Now, with regard to large companies, we had the impact, a very positive impact of the combination between NTT, DOCOMO, Communications, and Comware. And they are having some growth. However, the pace of the growth has become somewhat slower. And you're right in pointing that out.
There's a strong growth in the market itself because of the requirement for DX and digitalization. It's important that we capture that. Also, at this moment, the AI market is really expanding very fast. And it is a growing market. So we need to reinforce our abilities in the AI market as well. We need to accelerate our growth overall. Thank you.
Thank you. That's my last follow-up question. If I could ask one last follow-up question. So with regard to Regional Communications Business, DX transformation is really working. And we can take comfort with the next fiscal year. As with regard to data, they're doing very well in terms of driving profit. And so real estate and energy, they're doing very well as well. So what remains is Integrated ICT Business. So with regard to Integrated ICT Business, what about the prospects for next fiscal year?
Can you really generate positive profit in the next fiscal year in this segment? If you could answer that question. I think this is the only worrying section or comment.
Yes, in terms of the plan for the next fiscal year, we have to consider how we're going to deal with that, bearing in mind the current challenges that we face. We're in the midst of deliberation on this matter as we speak. So if you could give us a little bit of time before we can really fully respond to your question, I would appreciate your patience.
I appreciate the fact that we're not able to provide sufficient information. Thank you. That is all. Thank you.
Thank you very much. We would like to take the next question, SMBC Nikko Securities. Mr. Kikuchi, please unmute, then go ahead with your question.
This is Kikuchi speaking. I have two questions. The first is regarding, well, in the fourth quarter, I believe that there's no real estate sales like you have done last year. Is there going to be a major cost reduction, or is there going to be an operation or initiative that is going to generate further profit? If there's something that you're thinking of, I would like to know. The result this time and next fiscal year, as Mr. Masuno asked, is it really going to be all right? Is my concern.
In a regular company, structural reform plans will need to be announced. Is the way that your company is in right now. Is what I think, so cost reductions or making efficiency for the cost, are you having any initiatives in mind? You have done quite a bit till now, so is that going to be a bit difficult to do? That's my first question.
This is Hiroi speaking. What do you have pointed out? You have correctly pointed it out. With NTT DOCOMO, NTT Communications together, the fundamental cost reforms are currently planned, and various initiatives have been implemented. However, something that can meet your expectations that something that will show an effect in the fourth quarter and something that will mitigate the declining profit situation right now, in that scale, it is difficult to do.
However, of course, at DOCOMO's side, they're reconsolidating the distribution outlets or sites, and there are various transactions with subsidiary companies, or they're outsourcing the operations. How it's done, they will review it. And with the network quality issue, they have various initiatives implemented, and they are reinforcing the network and area tuning, and they're working on increasing the base stations as well. But on the other hand, they are working on improving the efficiency of the network operation as a project. They're working on it.
Therefore, the structural reform that you have mentioned, Mr. Kikuchi, we are working on them. And you did mention if it was a regular company, which is quite a harsh word. But as the other regular companies are doing, we are looking at the cost structure and implementing initiatives so that we can go back to the growth or improvement trajectory. So I would like you to understand that point.
Thank you very much. My second question. Non-consolidated of next fiscal year, you have the dividend income, which is at the center from your subsidiary companies. So this quarter's Integrated ICT Business segment or DOCOMO situation, the non-consolidated income is going to go down. So then shareholder returns and various financial items such as repaying the debt, I'm sure you have those plans. I just believe that on a non-consolidated basis, it's quite a tough situation.
I'm sure that you will be coming up with the plans for next fiscal year, but from next term onwards, how should we look at your shareholder returns?
Well, of course, if the profit goes down, if the subsidiary company's profit goes down, it is a 100% dividend payment, so the dividend from them will go down as well. However, when we think of our current cash flow and the main items in there, we believe that the decline is within the range that we can control and manage.
What I mean by that is that basically, regarding shareholder return, it will be conducted in line with the conventional policies for next fiscal year and onwards as well, and as for dividend payment, it will be steadily increasing is what we are thinking, and share buyback, basically on a flexible manner, we will be conducting it as well.
Therefore, the share buyback in the level of what we have been conducting in the last several years, we believe we can control the cash flow that we will be able to conduct all that.
Just a while ago, what you did, securitization, maybe on a non-consolidated basis, I don't know how you're going to do it, but the securitization or to increase the cash flow, the method of increasing cash flow further, is there any measure that you're thinking of?
Specifically looking at the situation, from the perspective of working capital, as conventionally been explaining to you, DOCOMO's finance business, expanding it, is going to have a major impact. In addition to that, DOCOMO's receivables securitization, we are always thinking about this. So volume-wise, it will be expanded. Also, the technique that we can apply for securitization is evolving.
So we are studying this point as well. Therefore, we would like to, we believe that we can expand the scope of this securitization efforts next year. And once it becomes solid, I would like to share this with you at an appropriate timing. So in various methods to shorten the conversion cycle and others, we look at the overall consolidated situation, and we're going to do everything we can. And it is considered to do it next fiscal year. So once everything is ready to be shared with you, I will. Thank you very much.
Thank you. Then to go on to the next question, please. From Daiwa Securities, Tokunaga-san. Please unmute your microphone and then go on with your question, sir. Please go ahead.
Thank you. Can you hear me, sir?
Yes, we hear you. But can you speak in a larger voice? Thank you.
Mr. Tokunaga from Daiwa Securities, I have two questions. The first question is with regard to how you see the third quarter results. I think compared with your annual target, things are very challenging for you. Is this simply because DOCOMO is now undermining the annual guidance? Can we take it that other companies outside DOCOMO are doing well? Also, when you compare the period, I think in the third quarter of the previous year, you had positive impact from the process of sales of various assets. That is not the case this year. So can you talk about the impact of this?
Yes, thank you for your question. Yes, Tokunaga-san, as you pointed out in your question, I think your characterization of the situation is quite accurate. Let me start with the data. Yes, they're maintaining their very strong momentum as for NTT East and West, although their guidance is declining profit, but they're now within the expectation. I think we disclose various initiatives at the NTT IR Day, and they're making progress in line with those expectations and guidances.
With regard to DOCOMO, well, they had very bearish outlook for, sorry, bullish outlook for the ARPU, but then the market situation was somewhat challenging. From the standpoint of securing customer base, they've had to strengthen marketing measures. The costs had increased. That being the case, that particular sector, it is negative against the initial expectation that is true.
Now, toward the end of your question, you talked about the third quarter, correction, impact from the sales of assets from the previous year. Well, the impact on the fourth quarter was quite strong in the previous year. But the third quarter wasn't really that affected by the sales of assets. So I think that's how you should understand the situation.
Okay, that's very clear. Thank you for your response. That's very clear now. My second question is about the update. This is with regard to progress of the midterm plan. In the third quarter, EBITDA is now on a negative trend. Also, at the press conference, there was talk about possible buying up of banking as opposed to CapEx and acquisition. There's very little news about this in the third quarter results. So what are your thoughts about expanding investment to secure and to expand revenue?
What about your progress? Also, at what time can we see full-fledged outcome from your efforts? Thank you. That's my question.
Okay, thank you for your question. I think this was also covered during the press conference earlier, and we understand that there now has been some movements in the stock market as a result of what was mentioned during the press conference. As far as we're concerned, we want to expand investment into growth areas in the context of the midterm plan. Now, as far as acquisitions are concerned, there are other parties involved. So this is not something that we can totally control.
As far as growth-related investment is concerned, we've been able to expand investment in this area in a very positive way, and with regard to acquisitions, for example, in the past two years, DOCOMO has been expanding their acquisitions as well.
In the area of data, in particular, because of the strong demand for digitalization among the customers, and also because of the need to expand their IT, because of the demand to expand data center, again, we see very positive expansion of business opportunities in these areas. So in terms of the general picture, yes, we are in a very positive situation. But you commented about the EBITDA. The pace of return is somewhat slower than we had expected.
So as we move toward 2027, this is one area where we need to accelerate naturally. So yes, so that is challenging. That is a challenging part. Yes, thank you.
I'll ask a follow-up question. What about EBITDA? Is the drop in EBITDA due to increased marketing costs at DOCOMO? What about the others? Are there other market segments in other businesses that we are actually concerned about?
Generally speaking, as I mentioned earlier, as far as DOCOMO is concerned, in the communication business at DOCOMO, we're trying to reinforce our capacity there. That is having an impact on the growth of overall EBITDA. It's slowing down the overall growth of EBITDA. That is true. Also, I have to mention NTT East and West. When we compared with the time when we came up with the midterm plan, the situation at NTT East and West is actually behind what we had initially expected.
I think when it comes to telecommunication business, in both fixed and mobile segments, the market situation has become much more intense, and the market situation has become much more harsher. Competition has become much more intense. Because of the inflation and the business environment has become a bit more challenging. These are the reasons why we're somewhat behind. Thank you.
Thank you. That's very clear. Thank you. That's all for my question. Thank you very much, sir.
Thank you very much. Are there any other questions for those of you who have questions? Please press the system's raise your hand button. Daiwa Securities, Mr. Tokunaga, please go ahead.
Sorry for the second round. Just one thing. This fiscal year, to aim to achieve your targets, you said that you will conduct cost reductions. But there's a cost reduction room for cost reduction at which operating company has how much of room for cost reduction?
Well, cost reduction measures, the improvement of efficiencies measures. In each operating company, they are working on the measures in line with their profit plan, whether it's progressing well or not. That's one way of looking at things.
If we look at it from the perspective that is it in line with the plan, DOCOMO is slightly off the plan. And at NTT DOCOMO, the ARPU is weakening, and they are reinforcing the sales and marketing activities. If we exclude these factors and securing the profit, they have and are going to further work on cost reductions. They're working on the improvement of efficiency.
However, as I have been explaining, this fiscal year, there are points that they are reinforcing. And to do so, they are using more cost. And that to be all absorbed through the cost reduction for this quarter and next quarter, it is going to be slightly difficult. However, I answered Masuno-san's first question in terms of the other initiatives.
Okay, understood. Further cost reductions at NTT East and West; it's already in line with the plan. You may aim for the upside for that. But DOCOMO, it seems that it will be difficult to achieve the target.
Yes. Well, each operating company is working on, as forecasted, with all of the companies, well, covering or filling the gap of DOCOMO. Of course, it's also done. Cost reduction or the revenue ending up having an upside are the cases as well. So in that way, more than the assumption within the companies that have an upside within the group, we will have them implement measures that will further accelerate that upside so that towards the achievement of the overall profit target, all the group companies are working on it.
Understood. Thank you very much.
Thank you. You have to go on to the next question. Citi group Securities. Mr. Tsuruo, please unmute your microphone, and then go ahead with your question. Mr. Tsuruo, please.
Thank you. I have many questions about DOCOMO. So I'll ask questions. I have many questions about DOCOMO. So I'll ask about operations outside DOCOMO. I'd like to ask about the fiber ARPU at NTT East and West. They're actually doing well than your internal plan. So can you share with us backdrop? Is it inflation? What efforts are you taking in order to absorb the impact of inflation? How do you see the prospects for the fiber? If you can disclose that, I would appreciate it. It's not just fiber, I suppose, but with regard to copper cables as well.
I think the pricing, if there's something that you can do about copper pricing as well, I would appreciate your thoughts on that as well. Thank you very much.
Yes, thank you. You're asking about ARPU, right? Okay. Well, with regard to ARPU, well, we have Hikari Cross as a product. This is, but in principle, with regard to ARPU, we use the 70-15 as the conventional fiber services. So that being the case, it's not that the upside is much larger than we had expected. So I want you to, so can you share with us the context of what you're asking your question? I would appreciate it. Thank you.
Okay. Sorry, maybe my understanding wasn't sufficient. For example, the FLET'S basic charge seems to be somewhat higher than your annual guidance. It's higher than the average. That's why I thought that ARPU was higher.
Okay. Thank you for that explanation. I appreciate it. Well, I suppose on a quarterly basis, there could be some gaps from quarter to quarter. That is true. But with regard to FLET'S, it's more or less flat rate service.
Service revenue from these, if we need to reinforce that, then we need to increase the subscribers. If we want to increase revenues in the segments, we have to simply expand the subscriber base. That is considered the ultimate goal of this particular sector. Right now, at NTT East and West, they are now targeting all-unit sales at condominiums. They are also expanding their sales and marketing in that area. They are also doing greater sales on a wholesale basis, especially to mobile service operators as well.
They are trying to expand the sales of FLET'S optical services. This fiscal year, we have seen positive results out of those efforts. The subscribers for fiber have been expanding in a very positive manner during this fiscal year. We have very bright prospects in this sector.
With regard to ARPU, we have not made any significant changes. So maybe it's simply an issue for server transmission variance in the case of calculation. Okay. How do you see the most, you know? I have to ask about your efforts to realize the optimal pricing for fixed line service down the road.
You're talking about optimal pricing for fixed line service?
Sorry. I was talking about inflation. I was talking about the impact of inflation measures because that seems to be adding pressure. Can you reflect the inflation impact on your pricing down the road?
Okay. I understand. Yes. There is impact of inflation naturally. So as far as pricing is concerned, we hope you'll be able to reflect that. We need to discuss with them if we can pass on the increase in inflation. But then we have to consider the competition in the marketplace, of course. As Mr.
Tsuruo mentioned, we also have to be mindful about cost increase as well. Also, we are a public entity, public utility business, if you will, public entity business. So that being the case, because we are in the public nature type of business, can pricing increase really be acceptable to the marketplace? That's what we need to be mindful of as this as well. But for a very long time, the inflation trend continued. But now we're seeing the trend change to inflation, and the inflation is really speaking up at a very fast pace.
So I think review of the pricing as a result. If there's a sense of urgency, I think we need to consider this matter in various terms. So we need to really consider this matter. Thank you.
Thank you. That's all.
Thank you.
Thank you very much. We would like to take the next question. Nomura Securities, Mr. Masuno, please unmute and ask your question.
Sorry. Thank you for the second round. I have two questions. The first question is related to the revenue and cost. The AI-related initiatives in your companies, what I would like to confirm. NTT DATA has various initiatives related to AI and has stated the target for revenue, etc. But in DOCOMO's enterprise business, well, there was a mentioning of Tsuzumi, but I did not understand the money amount basis. But in what kind of initiatives and what money amount is there? And for the cost structural reforms, I think utilizing AI, you can expect the most in terms of cost reduction.
So other than NTT DATA, including NTT East and West, how you will be increasing the revenue through AI and how you're going to improve the efficiency and cost? Can you once again elaborate?
Utilizing AI, well, from the perspective of selling it to the customers, that will increase the revenue perspective. Well, we are working as a whole group on this point. As you mentioned, Mr. Masuno, what is the revenue or sales amount of it? We have started the marketing activities and started to reinforce it. And we have about more than 1,000 inquiries. And when it comes to the actual receiving orders, the number is going to be less than that. However, NTT Communications' enterprise revenue is going to be reflecting that as it gets realized.
However, it is also a fact that it has not grown into a volume that we can share with you. However, if we can have a bit more time, we will be able to share more details with you is what I think.
And also, in the internal business operations, utilizing the AI and through that, reducing cost. Well, regarding this point, in various ways, as I have mentioned at the start at DOCOMO, regarding the network operation or logistics operations are being re-examined. And also, I did mention this at the NTT East and West, the infrastructure's application receiving opening up the line on a consistent basis, that they will be utilizing AI to improve the efficiency so that they'll be able to increase the sales and maintain the profit.
Regarding the individual initiatives, how much of an impact will they have? I cannot share that with you in specific terms here, but within the re-examining the operation, the AI and software is indispensable for each company. So they are implementing it.
Thank you very much. My second question is regarding the bank's function. At the press conference, you said that you have many functions that you don't want from the bank, and what you want is the transaction function. So basically, there is no bank that only has a transaction function. For example, the FX trading or the marketable securities trading or the foreign currency trading or lending towards a real estate development or condominium development. Usually, banks are conducting various functions.
However, you are saying that you don't want all those functions, meaning that as long as they have a consumer platform for consumer transaction, that will suffice?
Regarding that, in reality, the must function is how I would like you to understand, meaning that first of all, that type of a function in order to expand the current DOCOMO Finance business is what is necessary. That function is unnecessary.
But on the other hand, net banking companies in various ways are increasing their services and increasing their revenues. And as you have pointed out, Mr. Masuno, they will collect the deposit, and how is that going to be invested, and how is that turned into revenue? They have the flow as well. So as an opportunity for business growth, there are areas that seem attractive. However, as our strategy, will it be in line with our strategy, or it will depend on the acquisition price?
So regarding what I commented, it's just that the priority is placed in the area that we have shared with you. I hope you understand in that way. Thank you.
Okay. You're saying that you will consider creating it on your own, but usually you will create an establishment preparation company, and you will commit to turning it into profit. So the planning and the planning preparation company, just establishing that will take about two or three years. And if that is so, that'll be the final year of your medium-term management strategy. So creating this on your own, are you going to be able to do that in time to the end of this current medium-term management strategy?
Well, how this business is going to move forward, I will not be able to share the specifics. However, within creating businesses, there are various options. Therefore, how are we going to achieve the medium-term targets? And to do so, what kind of choices or options do we have, and whether that can be done in time or not? We will be considering various factors and review various options as well. Thank you very much.
Thank you. Any other questions? Please use the raise hand button of the conference system. If not, then we'd like to conclude this session at this juncture. We'd like to continue with the presentation by NTT DOCOMO as well, so please stay connected to the conference system. Thank you for joining us.
From now, we would like to start the briefing session on NTT DOCOMO's FY 2024 third quarter financial results. I am Makaino from the IR Office and will be serving as the MC today. The audio of today's briefing is streamed live. We are planning to have this streamed on our website at a later date, so we seek your understanding. As for today's materials, please refer to presentation materials on our company IR website.
First, I would like to introduce today's attending members: NTT DOCOMO Kobayashi, Senior Executive Vice President, Representative Member of the Board; Tsuboya, Executive Vice President, General Manager of Corporate Strategy and Planning Department; Fujiki, Executive Vice President, General Manager of Accounting and Finance Department. Next, I would like to share the schedule for today. First of all, from Kobayashi, Senior Executive VP, there will be an explanation regarding the financial results, followed by questions from all of you.
We're planning to conclude today's session around 5:35 P.M. Japan time. Now, we would like to explain the outline of the financial results. Mr. Kobayashi, please.
My name is Kobayashi. Thank you for joining us today. I'd like to begin with the results overview of the results. Please turn to page two. This shows you the comparison with the previous year. Operating revenue increased, but the numbers are straightforward.
I'd like to give you a detailed explanation in the following chart. So please turn to page three, showing results by segment. I'd like to mention that in the Consumer Business, Consumer Communications as well as Smart Life showed strong growth. However, Consumer Communications showed declining revenue. But this was with regard to Enterprise. They are now showing declining profits. Please turn to the following page. This shows you results by segment. I'd like to show you the details in the following chart. So please take a look at page five.
Key factors in changes in our revenues. Please take a look at that chart. As mentioned earlier, consumer communication increased. Consumer communication did show a decline in revenue. Because of Smart Life, finance, and payment, growth is very strong.
At the same time, though, and this might come up again later, but in the previous year, we acquired three major companies in the previous year. And these companies had contributed to the growth. Two-thirds of that was contributed to the increase. Because of consumer communications and mobile communication, we saw a decrease of JYP 55.3 billion. This is a major challenge, I believe. We are aware of that. So later on, we'll talk about how we intend to address this. And hopefully, we'll be able to deepen your understanding during the Q&A.
Now, let me talk about handset sales. Consumer communication overall, as I mentioned earlier, increased JPY 62.1 billion with regard to enterprise. Revenue declined, and it did not meet our expectations. As far as enterprise is concerned, there's the impact for PSTN migration. That is reflected. And also, we tried to offset that through organic growth.
However, this is reflected in the midterm plan, but then the growth was not sufficient to cover the negative impact from PSTN migration. Also, there's the inorganic growth. Enterprise segment had an inorganic growth as well. Unfortunately, overall, they were not able to meet the target. Please turn to page six. This shows you key factors maintained in operating profits. Let's start with consumer business, Smart Life. In terms of profit, they are in a very strong position. So Smart Life increased JPY 36 billion year on year.
In particular, if we exclude retail factors, growth of finance and payments was actually more than JPY 50 billion. I talked about earlier three companies that we acquired in the previous year had contributed to two-thirds in the growth of the revenue.
In terms of the profit, these 20% was due to acquisition, and remaining 80% were actually showing organic growth despite the very harsh environment for the consumer communication business, so the remaining 80% was due to contribution of growth through organic growth. Now, turning to consumer communication, decrease in mobile communication service revenue was JPY 53 billion, but on top of that, we also have been increasing sales force reinforcement costs as well.
As was mentioned during the analyst meeting by holding company earlier, we had to spend cost of reinforced sales force because we need to safeguard our market share, and also, with regard to network, it's important that we improve our quality because unless we improve the quality, this is going to lead to decline in our customer base, so therefore, sales force reinforcement had negative impact, JPY 38.1 billion.
However, in the consumer communication business, we actually adopted cost reduction measures in advance. So as a result, on that basis, the negative was `JPY 38.1 billion in the consumer communication. Turning to enterprise, we talked about overall revenue. Overall revenue was declining in the enterprise business. There's the impact from PSTN and IP migration. This is a very high-margin business. So the negative impact from PSTN migration was not sufficiently covered by organic growth as you see. Please turn to page seven for the consumer business.
I will not read out each element, but forward the thoughts. Let me talk about the thoughts we have. So consumer communication is the biggest point that we have to focus upon. Why is it that we're focused on this despite the declining revenue? First, we need to focus on customer base reinforcement. This is the top priority.
So that is why we need to improve the communication service quality. This is going to be very essential if we were to reinforce the customer base. The communication quality was on the downward trend, so we needed to improve that. Now, what about the customer base reinforcement? In third quarter, we're net positive when it comes to mobile MNP. So I think we are now competitive. I don't think we're going to go any lower than this going forward. On the other hand, what about the ARPU growth?
As discovered by the analyst meeting earlier, the level of ARPU growth was not as high as we had initially expected. But if we focus on third quarter, though, we are beginning to see the growth being flat now. Now, why are we focused on this? First, again, we need to have a strong customer base.
Also, it is important that the ARPU does not decline. If we can achieve that, then we'll be able to have a base for growth going forward. This will help to improve our enterprise business as well as improve shareholder return. So we need to improve mobile communication service. We also need to grow Smart Life business. So increasing mobile communication service. So increasing mobile communication revenue and growing Smart Life business, Smart Life business is going to be very important. Now, I'll take your questions as soon as possible.
So I will not talk about the details of Smart Life. Let's start with the operating revenue for Smart Life. Operating revenue for Smart Life is very strong at this moment. But then it's just a straightforward increase. I think we need to see the positioning of different factors that contribute to Smart Life.
So let's start with finance and payment. This is on page 11. Please turn to page 11 for finance and payment. Even with the smart life, finance and payment is really driving growth in revenue. So finance and payment is the source of growth, as you can see. I believe the chart is quite self-explanatory. Transactions are increasing very strongly, as you can see. I said that this is the source of growth. Over the medium term, though, this could help to cut back and really cut back on increasing churn.
This will help to contain churn. And the impact is already being seen. So it's important that we create user base. We expand user base so that we can expand the finance payment transaction. It's important that we maintain and expand customer base and increase the base for usage of finance payment services.
Then down the road, this will help us to control the churn rate. And so we will no longer have to compete just based on introduction of higher marketing costs. So finance and payment, this is the source of our growth. And also, this is also very important to defend our future business prospects as well. Please turn to page 12. This relates to marketing solutions.
On this chart, we talked about how we want to maintain market share of 35%. And also, we want to expand our finance and payment business and create a situation where customers will be willing to stay in an economic area, economic sphere, and not churn out. So you see very strong growth in finance. But eventually, there is a possibility of this slowing down the road. So what are other areas that we can expand?
I think marketing solutions is one area that we can expand further in the future. So the global group as a whole, we've been tackling this at an early phase. And in terms of revenues, we see increase in marketing solutions revenue. So as the chart indicates, we're now seeing revenue of JPY 121.4 billion. If you want details, I'd be more than happy to cover that during Q&A. Now, let me turn to entertainment. So with regard to entertainment, venue, and contents, I think we are very competitive. I mentioned that we want to secure user base if we can have customers stay with user points.
And on top of that, if we can offer entertainment content venue on top of that, then this will be very helpful because this will also generate growth as well. So this is a part that can be added on down the road. Next.
Next is consumer communications for the operating revenue, I already explained. So let's talk about page 16, customer base and the MNP turned positive at the third quarter, and that is the key point, but more than that, what we are most concerned is that within here, the churn rate going up, meaning that hopping around, the subscribers hopping around, or maybe this is not a good way to say it, but they kind of join in a wrong way and they leave immediately, and that's not good, but last year's fourth quarter, first quarter, we're able to actually bring down the churn rate and prevent such a thing.
So MNP returning into positive and do sales and marketing activities, and we're able to have control on the churn rate. Next page, mobile communications, ARPU. Compared to the previous quarter, the second quarter of 2024, it has improved by JPY 10 . The degree of the decline is becoming smaller compared to the previous year. The growth of base, which is the user base, how we cannot bring them in a way that the ARPU will continue to go down. We believe that we have a control to a certain point to promote the sales and marketing.
The key point there is within the subs go in and out through MNP, the price difference is low. We would like to strengthen the sales and marketing activities. As mentioned before, we're utilizing ahamo and irumo type of plans and more than what we have expected. If we do, well, the degree of the increase is weaker than what we thought.
If we're able to have a solid user base, we can expect further growth in the future. I think we have come to that page. On page 18, various actions for upward growth is written here. Having the subscribers become sticky and the churn rate go down and collaborate, link that with payment and finance. Other competitors are doing that as well, but we are kind of pioneer in this area. We'd like to continue to do that. Next is enterprise. As for the revenues, as mentioned before, the organic growth, there is a net that cannot overcome the decline of PSTN migration.
If I may add here, we have the order pipeline, and we look at that and conduct quite a bit of analysis. The fourth quarter, revenue-wise, year-on-year basis, we are expecting it to grow.
So more than the negative factor of PSTN migration, the organic growth is going to be higher, and we need to do that. And in the medium term, we are going to utilize various offers and having a further growth. It's a challenge we still need to work on it. Next page, 21, solution rollout. We need to grow the solution, or else it will not link to the growth of enterprise business. And of course, we do have these types of solutions. But before that, the economic base of here, maintain 35% share and have a finance and payment in that sphere.
Well, within the enterprise domain, this is quite useful for the B2B2X. And we need to have a position thorough and thoroughly for the enterprise business to grow. So we need to keep this 35% market share.
And next page, 23, this is going to be the foundation of everything, which is a step zero. And we are working on it in that way. As written there, the customer satisfaction level is showing signs of improvement. And we are looking at the complaints regarding the network quality. And recently, it is going down. So we'd like to continue our efforts. And lastly, the disaster recovery support is mentioned here. And within this decline of profit, are we going to talk about this?
This is what you may think. But within the growth strategy, what is at the very foundation are these types of initiatives contributing to the local communities and others. This is important as well. In November, Ishikawa Prefecture had the Noto Peninsula earthquake and the torrential rain in Okunoto. And so we have been going into the collaboration agreement, comprehensive collaboration agreement, and working on these efforts as well. That is all. Thank you.
Thank you. We'd like to take your questions now. With the questions for those who are going to the system, please push the raise hand button. When we disconnect you, please unmute your microphone. Mr. Kikuchi from SMBC Nikko Securities, please unmute your microphone and then go ahead with your question. Mr. Kikuchi, please. Thank you.
My name is Kikuchi. I have two questions. My first question is with regard to improvement of the network quality and the cost involved. You mentioned the cost involved in improvement network quality. Can you give us a number if possible? And also, you talked about reinforcement of customer base. Can you talk about how much money, how much cost it required, it took?
Of course, calculation might be somewhat difficult, but if you can give us a concrete number, we would really appreciate that. They will be able to follow that in the future. So we'd appreciate the basis for such a discussion down the line. So if you have any concrete numbers, we would really appreciate that. Thank you very much.
Thank you. I'll respond to your question one by one. With regard to network, what is happening right now is that we're trying to replace network, which was poor quality when 5G was first introduced. So what's happening this year? We're now replacing the old network with a new one. And these properties have retired. So in the process of retirement of these properties, cost was incurred. And on top of that, naturally, the number of sites, we're Sub-6.
We're now increasing the number of base stations such as Sub-6, so depreciation and amortization is also there, and the impact will be much larger next year. As for concrete numbers, I'm afraid we're not able to share that, but on a four-year basis, I think the impact will be in the range of tens of billions of JPY on an annual basis. What about marketing reinforcement? We're now in competition with others, so we cannot give you all our cards naturally, but the philosophy is this. We did talk about this when we announced the financial first-half results.
We want to match what the competition does to be more specific. A couple of years ago, about three or four years ago, please try to imagine what it was three or four years ago. We want to go back to where we were about three or four years ago.
We've been really improving efficiency significantly since that. So if we do that, then I think we're on par with the competition. But what's not in line with the expectation, especially for the third quarter, is that at last, we're not able to improve marketing and mass retailers. But the competition is also competing as well. It's countering our activities. So compared with what took place, compared with the situation three or four years ago, I think we have to improve. We have to increase cost by as much as 10% compared to what we were three or four years ago.
So the 10% increase in cost was not something that we factored in in our initial plan. So that's the overall situation. Thank you.
Thank you for your response. So you talked about the increase in marketing costs that was unexpected. You mentioned that, of course, you have to match your competition. I take note of that. Now, when we get into fourth quarter, also for the next fiscal year, will the same trend continue? So costs could further increase during the fourth quarter and the next fiscal year?
Well, that's a very difficult question. Also, in the course of the third quarter, we were considering the ability to reduce that cost. But then, unfortunately, that was not possible because if we did that, our market share would be falling. That was very quickly visible. Now, February, March, and April is the biggest season. So if the current trend continues, then the situation that took place in the third quarter could be sustained on a longer-term basis.
But then, if we compare with the situation, if we compare with the situation three or four years ago, the increase in cost should not exceed 10%. So we're trying to say it's true that this year we're seeing a decline in the operating revenue because we're trying to go back to what we were three or four years ago, so during fiscal year 2020 to 2025, in particular the second half of 2025. I don't think we'll see a negative impact on operating profit at that juncture.
Actually, we'll be capturing customers with low churn rate. If we are able to successfully capture customers with lower churn rate and other competitions, it's going to be the same. But I think the current type of competition will not be prolonged. Of course, we need to reduce cost. But we are focused on capturing the user base at this moment. As a result, the cost could increase slightly next year, but the amount should not be that large next fiscal year. Thank you.
Thank you for that. Now, to turn to my second question, it's about telecommunication service revenue. In October last year, at NTT IR Day, Mr. Shimada, the president, talked about he does not expect the telecommunication service revenue to increase next fiscal year. That was his comment. That is because of the impact from Poikatsu . So he mentioned his forecast that the telecommunication service revenue will not increase next fiscal year.
So if that's the case, it's difficult to expect an increase in operating profit if the revenue is not increasing. So we see organic growth in smart life. But the profit from the organic growth in smart life is not that large.
So if telecommunication service revenue is to bottom out, when is that, do you think? Because the competition, it may be difficult, but is there a timeline where you expect that the telecommunication service will stop, will bottom out? Is it next fiscal year, or is it two years from now? What are your prospects? And also, every quarter, I ask this question, your competition. At the end of the day, we find that UQ is going to be the major pillar for KDDI. And in the case of SoftBank, a similar situation is going to be applied.
So again, that being the case, I think you need to revisit what to do about your irumo product because transition to irumo, I've seen the migration to irumo will continue over a very long time. That's the case, then.
The data usage and smart life promotion would not be possible if people continue to make transition and migration to irumo. So do you have any intention to review irumo? Is there something you need to consider this? I think that's the comment you made during the second quarter results presentation. But in terms of your branding strategy, are you not going to change your branding strategy down the road? Or do you believe that there's scope for review of your branding strategy? I'd appreciate your thoughts. Thank you. That's my second question.
Thank you. With regards to the trend of the mobile service revenue, you're right in pointing that out. We're making efforts, but our ARPU itself is not going to turn to positive territory. So we are seeing a lot of numbers, of course, involved in this business.
If we focus on consumer business, it's higher than compared to the competition. So it's important that we do not lower profit revenue from consumer business. With regard to the decline, it's becoming much smaller. Let me give you the breakdown. You shared with us your concern about irumo. It is one of the existing plans. But we have eximo, ahamo, and irumo. We have Gigaho and also Gigalight, these old plans. We're seeing migration from these old plans to eximo, ahamo, irumo. Actually, we see increasing on a per-unit basis, especially during the third quarter.
All the people who transition to a new plan during the third quarter is now increasing in their unit price. Now, on the other hand, you asked whether we should allow the current price to continue with irumo. I have some sense of urgency.
I believe we share the same sense of urgency. This is just my personal view. But I think their strategy needs to be always considered. Hopefully, we'll be able to improve their approval and also improve customer satisfaction. That is the philosophy that we'd like to adopt as much as possible. We have eximo, ahamo, irumo. There is a three-tiered plan. We are trying to move people up to higher data bucket plans. Of course, there are cases where there is downward pressure where people are now tempted to downgrade their plan.
The one major challenge we see is that new customers are tending to choose irumo. If we can address that issue, then at least we will be able to prevent further decline in our pool. Even include the impact from Poikatsu .
So as far as the timeline is concerned, hopefully sometime during next fiscal year, we have to work so that we'll be able to do that. But we have the details about the next fiscal year. So once we have the details, we hope we'll be able to communicate that to you.
Thank you. We'd appreciate that. That's all for my question. Thank you very much.
Next, Nomura Securities. Mr. Masuno, please unmute and go ahead with your question.
This is Masuno from Nomura Securities. I have two, or maybe three, questions. The first question is that regarding disclosure in the full year, JPY 26 billion of operating increase, and the numbers differ by JPY 100 billion. On the company side, having this difference of JPY 100 billion and not revising the numbers. I've never seen such a thing. Why are you not revising these numbers? Many things are moving, and how the company responds is changing is what I think. Can you comment?
Well, first of all, sorry that I caused you worries. However, for our case, compared to the conventional years, how did we do things have changed, and this is preaching to the choir if I explain this to you, Mr. Masuno. The largest control we have is sales and marketing or marketing expenses, and the network promotion expenses, etc., those did occur. But these two, well, what the other competitors are doing, we're going to respond to them, and also, regarding the network quality, if we can build up a network quickly, we'd like to do that thoroughly as well.
So instead of coming up with the guidance of the profit level, but the revenue and MNP level guidance is something that we are providing you first. What we're going to do from there. What is troubling us is the marketing expenses towards March. We have to look at the competitors' actions. This is the part that's difficult to give out guidance. Other than this, cost reduction measures and asset sales, we have to do various things that we can.
At this point, being able to have a solid visibility like the conventional years, and this is going to be this and that, giving you a thorough explanation is difficult. This 35% and strengthening the customer base, thoroughly doing that, that is going to lead us to securing the shareholders' value in the future. We are focusing on these measures.
Understood. It's 60% of profit of listed company. Of course, I know you have a relationship with the exchange. Anyway, the second question is on a consolidated basis, DOCOMO and communications. Once the two are integrated, at the start, they were saying that synergy in two years was JPY 100 billion and four years was JPY 200 billion in terms of profit. And we had high expectations toward the integration. And right now, the profit is declining. So your business scope is probably the same as SoftBank and KDDI.
I think it needs to be further unified or integrated is how I feel. And I did mention this before. The two companies probably need to fully merge. I think you need to merge that far and unify that far. What do you think about this?
I would like to answer from the latter part of your question. Have an integration and do things. I personally think so. But whether merge an entity, let's put aside. This, what we're doing right now, is going to continue to be done. And we'd like to focus on working as one. And as explained before, the enterprise part, IoT, 5G, there are these keywords. And we're saying that it's good that we were integrated. And the solution is increasing.
The B2B2X entity group is working on this, the data and other elements that can be used in marketing, utilizing the data instead of exploiting the customers. But we will have visibility into the customers' behaviors. And that can be used in our marketing activities. So from the front line of businesses, they're saying, "Oh, let's work together and let's look at the data together." So we need to look at this point and look at the organization as well. But in that sense, working together, we can generate the synergy.
But in the enterprise side, the SI part, the smart life part, because we had the PSTN negative factor, it seems that it's not increasing. But we are experiencing an increase in enterprise. And if we were alone as DOCOMO, we were not able to increase it this far. And that is the same for communications as well. So there are many areas that we can work together to grasp new business opportunities. And lastly, in the smart life enterprise area, how much synergy are we enjoying? Of course, we are checking that in detail. And we have exceeded JPY 100 billion.
And the original towards JPY 200 billion, we are on track to achieve that. But consumer communications, the smart life enterprise, and the consumer communications, which is the base, the pace of the declining subs were faster than what we have expected.
That is the challenge as a business we have to overcome and the reflection that we have. Once we came at NTT DOCOMO and Comware, what's not going well is that the base is facing a crisis. This NTT DOCOMO and Comware synergy is going to increase, and we will operate as one and unify more. We are seeing an effect to a certain level.
Thank you. Regarding the rates, it's been 10 years since Y!m obile came into the market. It's been 10 years. Within that, it's still discussing what you're going to do with your rates. irumo, eximo, what are you going to do about that? I'm sure there's some complex setup there, but ahamo's rate setting, I think it is too low. Even Y!m obile or UQ, they have higher rates. I think you need to increase the price or the rate for ahamo. What do you think about that?
Thank you very much for pointing that out. If we can increase it, we want to from the CFO perspective. But the way we look at this is that, as mentioned before, we have the challenge of the user base and ahamo's competitiveness. If it's there and if it's low price, then we can increase it. But JPY 53.3 billion of mobile communications revenue going down, half of the reason is that the user number declined. So more than increasing the ARPU, preventing the user number to go down is what we need to work on. Enterprise increase in revenue.
After PSTN migration, we need to increase the revenue as well. So half of the JPY 50 billion, the net declining, we have to stop that. Within this situation, ahamo exists. What you pointed about ahamo, maybe you are having in mind increasing from 20 GB to 30 GB. The other competitors are coming out with the 30 GB plan as well. After three years, the ahamo users, the traffic is simply increasing. We are keeping an eye on the market situation. It's not that we have simply lowered the price. Also, ahamo started to, the users started to decline.
We are doing this. From the MNP perspective, how does it sit on the customer side? The two lower rates, of course, we would like to re-examine it. But well, of course, ahamo, we are thinking that maybe there is still room to make changes.
The UQ's plan, you just have to line yourself up with the Komi-komi Plan. Then it will be JPY 1,980. UQ's Komi-komi plan, you don't have to go under that, sorry, than JPY 2,980.
I will be repeating myself as your feedback. I do understand what you're saying, but as I said, if we look at the daily trend, we were thinking what we do about existing users of ahamo, that's where we have started, so not just a simple price decline. Therefore, we implemented Poikatsu, which ended up being the same as the other competitors, but we are trying to maintain and attract the users through this, and we have received your feedback seriously, so we would like to review that internally. Thank you.
Next, Tokunaga-san from Daiwa Securities. Please unmute your microphone and then go on to your question.
Thank you. Can you hear me? Yes, we hear you. Yes, we hear you, sir. Thank you, My name is Tokunaga from Daiwa Securities. I have two questions.
The first question this relates to what was asked by Mr. Kikuchi in his follow-up question. Right now, the acquisition cost is quite high. So you want to lock in customers with potentially lower churn rate. So right now, because of compared with the situation, the future should improve. On the other hand, point, so it's beneficial for Poikatsu to increase than point return. It's going to actually need to increase the marketing cost. That's my concern. So can you talk about the impact on your performance with regard to the Poikatsu movement? Should we be concerned?
Also, how much are we doing to be concerned about your intention to further spend marketing cost? That's my first question. Thank you.
As you pointed out, Tokunaga, the point program is going to be the key here. That is true. So I'd like to go back to the situation of management of our academic sphere. So this might have a larger impact in terms of the short-term marketing cost increase. With regard to how we structured and designed the Poikatsu program, we had the following thought. First of all, communication ARPU will increase as a result. And then we will present points. So what happened to the gap or differential between the two?
The nature of the marketing cost is that there's a question of whether customers will use the nominal value. We can't give you details because of the competitive situation. But the nominal value is seen by the customers and the actual implementation. There's a difference between the two. Also, when customers use more services, the points increase and then the transaction volume will increase. So the positive impact and increase of transaction volume is much larger.
Poikatsu has already exceeded 500,000. Things have become very clear. We found that as a result of Poikatsu programs, customers are seeing increase in their transaction volume. We have launched the PLATINUM Card. We also offer d Card GOLD for young customers as well. I think there's a way to recoup those investments and costs. I think we are able to control the impact. We need to be mindful to control this over the medium term. We'll make sure that we do a very good job at this. Thank you.
Thank you. G oing forward, are you saying that you'll be having positive territory once the current program is over?
We can give you the concrete timeline. Also, this is upfront cost. It's especially involving mass retailers with regard to marketing costs at large retail shops. It really is up to the competition. So we can't give you a truthful guidance that we're going to definitely decrease it. But that's the intention that we have. I'm sure that the competition also has the same feeling as well.
Thank you very much for that. Let me ask my second question. It's on a similar topic. The other day, the financial results presentation by KDDI, on a monthly basis, net increase seems to be improving. That was part of the presentation material. In your case, though, what is the situation at your company? Also, we see a big March sales. Now, you're seeing positive territory in the MNP. I think you might spend more marketing costs in order to reinforce your situation. How do you see it? So can you give us more detailed numbers?
What are your thoughts about the analysis of the competition in the marketplace on a monthly basis?
Again, we cannot show you all the cards because we don't want to stimulate the other competition. In the case of MNP, we worked to do a lot more starting from October. And we have seen a lot of impact. In November, we entered a cruising period. December was a Christmas sales. So we had the largest number in December. So from November to December, we saw a very strong jump in the positive territory as far as MNP is concerned. But it's not with regard to any particular competition. Again, we can't give you further details, but that is the situation.
Thank you. That's all for myself. Thank you very much for your response. That's all. Thank you.
Next, Citigroup Global Markets Japan, Mr. Tsuruo, please unmute and ask your question. I unmuted.
Thank you very much for the opportunity to ask you a question. The first question in the material page 6, it is, I believe, this JPY 38.1 billion marketing and reinforcement cost, a negative number, cost reduction, how you were able to recover some of it. If you can vaguely share that with you, I would like to know. And with the conversation I had with NTT before, your company's structural reform that you are working on right now or going to work on, I won't ask for the exact amount, but by when, what are you trying to do? Can you explain, please?
JPY 38.1 billion breakdown, if I speak it in detail, then you'll know how much we are spending for marketing expenses. So it is within the several 10 billions.
For the cost reform, as the holding company said, the key is utilizing technology such as AI, and this is preaching to the choir. The consumer communications service, the network, and the marketing are the most costly ones. Excluding that, the operation side, the channels operation cost or call center costs, those will become the main ones. These are the areas that we can implement AI. Therefore, the areas that we can implement AI, work on it. For the areas that we can increase the sales, we have the strategy to improve it.
Expenses-wise, the operation part utilizing AI is going to be quite effective is how we look at it. Once the efficiency improves on the operation side, as Mr. Hiroi explained before, then there will be some room to maybe consolidate such operation parts. We don't have it in detail. So next step is career guidance, but we're hoping that we can thoroughly work on this. Sorry, it is kind of an ambiguous way of an answer.
The operating expenses, you're going to reset it and bring it to the conventional one. Then the operating profit, it seems it's not going to recover that much. If that is the case, just is AI utilization enough? I think that much more of a fundamental structural reform is required. If you are already thinking about it, that's fine. Can you share what you're planning to do?
The radical or fundamental reform, yes. So we think the same way, and we believe so regarding the operation part that I've explained just now, so is it going to be a four-digit 100 millions? The consumer communications, the majority of expenses, the network, and others.
But the other areas, of course, fundamentally do the reform and change it. But not just those areas, but bringing back the marketing expenses to what it used to be, that whether we can further lower it or not is something we need to think. And that is going to be the medium-term challenge we need to work on. And the network too, in order to expand the user base, we need that. We are working on to build up the network at a lower cost than the competitors, and we are setting benchmarks. And that's how we are building up the medium-term plan.
So this part has quite a large effect, so we would like to thoroughly work on it. However, because the competition exists in terms of the marketing expenses, we cannot simply say that we're going to lower it. However, in a medium-term perspective, of course, we would like to work on it fundamentally and also increase the revenue, so Smart Life and enterprise business, especially the new areas in enterprise. We would like to be able to explain that in the medium term as a medium term. Thank you.
Shifting over to eximo and the materials are 61%. The previous quarter was 60%, and the next quarter, you're going to aim for over 60%. Then even though you reinforce Poikatsu and others, it seems that it's not generating that much effect, or it seems like it is running out of breath or slowing down. The purpose of this question is that you are implementing various sales promotions, and from the perspective of improving RPU, how is it effective or not effective? That's how you're looking at it,
So it is individual numbers, movements, if I may explain. eximo's shifting rate to eximo, we would like to increase it more. And it's quite an aggressive plan that we had. That's what holdings said also. The outflow regarding MNP, we reinforced to stop that. So irumo coming from the outside, that ratio went up from ahamo to eximo. That movement has slowed down. And ahamo became an attractive place to shift over. But what we are prioritizing is to not decrease the users. And with that, we would like to maintain the RPU flat or increase it.
So in that sense, the speed of ARPU going up has gone down. But on the other hand, MNP has turned positive is our understanding. So I think the order of doing things is that way. But the good news for us is that the rate of people selecting eximo has increased. And that is the positive effect of Poikatsu.
So the net adds of eximo recently, it's not that there is a large amount every month. So compared to the Poikatsu number, the Poikatsu is working positively to a certain extent. And if we didn't have that, it would have become a horror story. And more subscribers would have been to ahamo and irumo. So how much can we utilize this? And recently, the platinum offer is being effective. And the gold economic sphere we're used to, we have created. And so Gold users also is going to be effective is how we think. And through this, we would like to increase the eximo ratio thoroughly.
Okay, understood. My last question, sorry for many questions. My third question is regarding the network quality. Page 23 in the material. It was very easy to understand the situation, and it's very helpful.
Right now, up to what point have the network improvements progressed? And how much more do you need to do? Looking at the customer satisfaction, it seems like there's still more improvement that needs to be done. And it needs to be improved, taking time. And the progress situation of the investment that you're making and also the outcome of that is what I'd like to know.
This part is the part that deviated from what I expected. We wanted to improve the network quicker than this. But we need to find a location to have the network device there and make negotiations and then construct it. And since the new organization or before that, we are actually controlling the process. But in order to increase the number of APs, it's going to take a bit of a long time.
But the areas that we have the most complaints from the customers, we are able to respond to that. Or where is the area that has the more clear connection, we are being able to provide that. But we thought that we can move quicker. And the network complaints and the satisfaction level of the customer is reflecting what we have achieved. So regarding this network quality improvement, at this point, I cannot give you the detailed numbers. We need to improve more, but it is moving forward in terms of improvement.
So how many quarters are you behind than what you have expected in terms of constructing base station improvement?
Well, the base stations, creating new base stations, there is quite a hardship that I explained, but it's not several quarters. It's about a quarter delay. But this is an urgent challenge for us. Maybe the way I said was exaggerated, but that's about the delay that we're experiencing.
Thank you.
Are there any other questions? If not, then we'd like to conclude the session for the presentation for that results for the quarter of fiscal year 2024. Thank you for your kind attendance. Thank you very much.