Thank you very much for waiting, ladies and gentlemen. We'd like to now start the analyst meeting of the earnings results for the three-month period ended June 30, 2011. I'd like to introduce the participants. From the left, Ms. Kimiwada, General Manager of Accounting and Internal Control. Next to her, Mr. Goto, General Manager of Finance. Mr. Fujihara, Senior Vice President, CFO, and Director, SoftBank Mobile. As for today's agenda, first of all, Ms. Kimiwada, General Manager of Accounting, will present to you the overview of consolidated earnings results of SoftBank Corp. Then, Mr. Goto, General Manager of Finance, will explain to you about the financial position. Mr. Fujihara of SoftBank Mobile will talk to you about the business overview of the three telecommunications segments. Today's meeting will be a webcast on our website later. Now, Ms. Kimiwada, General Manager of Accounting, will talk to you about the consolidated earnings results of SoftBank Group .
Good afternoon. I'm Kimiwada. Thank you very much for coming to this meeting out of busy schedule. Following the earnings result announcement yesterday, I'd like to elaborate the results from accounting standpoints. Please look at page six. This is the consolidated P&L summary for the first quarter. Net sales increased 9% year-on-year. Operating income increased 12.3%. Ordinary income was up 19.2% year-on-year, and net income increased 4.9 x year-on-year. We recorded net income of JPY 94.7 billion in the first quarter. Page seven shows consolidated net sales by business segment. Mobile communications recorded strong sales and drove the increase of the total consolidated net sales. Broadband infrastructure's net sales decreased JPY 5.3 billion year-on-year, and fixed-line telecommunications and internet culture recorded steady growth in net sales.
Page eight. Mobile communications was also a driver of consolidated operating income growth. Fixed-line telecommunications recorded JPY 6.2 billion increase of operating income. Internet culture was up JPY 1 billion, while broadband infrastructure recorded a decrease of JPY 1.4 billion year-on-year. The details of the results of the three telecommunications companies of the SoftBank Group will be presented by Mr. Fujihara later in the session. Page nine is non-operating income and expenses and ordinary income. First, on the left, non-operating income net of non-operating expenses was JPY 5.1 billion positive, mainly due to the decrease in interest expense by JPY 5.3 billion. On the right is the waterfall chart to show the increase of ordinary income from the same quarter last year. Due to the increase in operating income of JPY 19.2 billion and net increase in non-operating income of JPY 5.1 billion, ordinary income increased JPY 24.3 billion year-on-year to JPY 151.2 billion.
Next page shows special income and loss and income before income taxes. First, special income and loss on the left. This quarter, we recorded JPY 13.9 billion of dilution gain from changes in equity interest in Renren from the company's IPO. This was one-off income and was recorded as special income. Renren is an equity method affiliate. On the right is the waterfall chart of income before income taxes from first quarter 2010 to first quarter 2011. Due to the increase in ordinary income of JPY 24.3 billion and net increase in special income of JPY 28.6 billion, income before income taxes was up JPY 53 billion- JPY 171.2 billion in this quarter. Page 11 shows net income in the first quarter. Please look at the graph on the left. Income taxes current were JPY 27.9 billion. Income taxes deferred were JPY 32.2 billion, and minority interest were JPY 16.2 billion.
Net income for the quarter was JPY 94.7 billion. On the right shows year-on-year increase factors. In the first quarter of fiscal 2010, we recorded JPY 26.4 billion as a correction of income taxes on Yahoo. That was one of the negative factors on our net income in first quarter 2010, and because of that, net income this quarter increased 4.9 x year-on-year to JPY 94.7 billion. Just for your information, we posted Yahoo's correction on income taxes on the P&L in the first quarter 2010, but actual cash out took place in July 2010. Page 12 shows comprehensive income for your reference. Please have a look at the page later. Page 13 is the breakdown of tax expenses. In the first quarter, there was no special one-off event regarding tax. There was nothing new about the items on the table.
Page 14 shows the difference in tax rates and loss carry forwards. First table on the top half, effective income tax rate for the quarter was 35.2% vs statutory income tax rate of 40.7%. Factors that push down the effective tax rates are listed under the main factors of difference on the table. We'll first decrease in variation allowance, mainly SoftBank Telecom Corp. Profitability of SoftBank Telecom has been improving steadily, and thus, in this quarter, we posted deferred tax assets, which we had not recognized before. This pushed down the tax rate by 6%. Also, dilution gain from changes in equity interest took out 3.7% from the tax rate. This was in relation to Renren, as I explained earlier. Renren is an equity method affiliate, and at this point, we don't expect the sale of the company, and thus, we don't recognize it in deferred tax accounting.
This pushed down the tax rate by 3.7%. Next, loss carry forwards. We were using loss carry forwards on a consolidated basis steadily. The total amount as of the end of June 2011 stood at JPY 71.9 billion. Valuation allowance for that amount was JPY 36.9 billion. Thus, D TA relating to loss carry forwards on the balance sheet is JPY 34.9 billion. The amount on the balance sheet reduced dramatically from the past. Page 15, financial results of non-consolidated subsidiaries and affiliates. We don't consolidate those less material subsidiaries and affiliates. This page shows financial impacts of those non-consolidated companies. As you can see on the table, the impacts of non-consolidated companies on net income and interest-bearing debt are almost none. Consolidated balance sheet analysis starts from page 16. You can find analysis of variance with the figures as of the end of March 2011 on the outline column.
Please have a look at these pages later. Page 25 shows equity trend. As of the end of June, as you can see on the graph, equity ratio rose to 16.8%. Page 27 is about consolidated cash flow. First, operating cash flow was +JPY 107 billion. The rightmost item in operating cash flow section shows income tax paid. Usually, income tax is paid in the first quarter and third quarter. In the first quarter, we paid the unpaid tax for fiscal 2010 that was finalized. Investing cash flow was - JPY 76.1 billion, and financing cash flow was - JPY 146.9 billion. Details will be explained in the finance section of this meeting later. The balance of cash and cash recovery at the end of the period was JPY 729.8 billion. This page doesn't mention WBS refinance.
The matter is elaborated in the subsequent event section of consolidated financial reports and will be explained by Mr. Goto shortly. That is it from my side.
Thank you, Ms. Kimiwada. We would like to move on to the financial position by Mr. Goto, General Manager of Finance. Mr. Goto, please.
I am Goto, General Manager of Finance. Thank you for your time today. Starting from page 30, I would like to start with main financing activities in the first quarter. We had quite a few events in the first quarter. First of all, we issued the unsecured straight corporate bond for both individual investors and institutional investors in June. I will explain in detail at the following pages. It was really a good deal as we were able to provide the best term compared to the past issuance of SoftBank. In addition, we had two sets of JPY 50 billion convertible bonds, and one of which was converted to the common stock. In July, as Ms. Kimiwada mentioned earlier, we structured a syndicated loan for the refinance of acquisition finance of Vodafone K.K. We didn't have much investment in this quarter. A major one was approximately JPY 5 billion investment into Gilt Group in the U.S., which is an online shopping site for registered members. EBITDA and EBITDA margin remained stable. Consolidated EBITDA was JPY 254.2 billion, and EBITDA margin was also steady. Looking at this quarter, broadband infrastructure and mobile communication showed 1% decline. However, those are the movements at the 30% level, so we don't have much concern about it. On page 32, interest-bearing debt. We have been making smooth repayment and now down to JPY 1.8 trillion level. On this slide, you still see the gray bar, which indicates the outstanding of WBS, and this will be changed to the loan and cash flow of SoftBank Corp. level by the end of October.
The ratio of SoftBank loan will become larger. Therefore, we are considering to balance that by increasing corporate bond issuance to some extent among the whole allocation. However, we would like to keep the conservative operation on this and do not expect any drastic change. Lease obligations on page 33, this also remains stable with a little bit of a bump of JPY 400 billion. Cash position was about JPY 750 billion by the end of June this year. Excluding cash of those listed companies, including Yahoo Japan Corporation and also SoftBank Mobile, about JPY 270 billion is the controllable cash by SoftBank Corp. In addition to that, we have about JPY 150 billion of unused portion of credit line facility by the end of June. Therefore, we keep quite a good level or maybe a little too much of cash position.
Net interest-bearing debt is also making steady reduction, now close to go below JPY 1 trillion. We have no concern about achieving the target of hitting JPY 970 billion by the end of March 2012. Page 36. This page shows long, short, and fixed variable ratio of interest-bearing debt. As you can see, the ratio of long-term increased at the end of June. This is an annual comparison, and last fall, we had a term loan finance of more than JPY 100 billion. In addition, we issued JPY 130 billion corporate bond in this June. That is why we have a higher ratio of long-term debt. Graph on your right shows the fixed variable ratio. As we had variable term loan, we have a higher ratio of variable here. I would like to keep this level in the meantime.
Page 37 shows credit spread, and we don't see any big movement in the past three months. We experienced a Lehman shock, and I am quite sure that there will be another environmental change like we experienced. I myself became 48 years old this February, and looking back at the past, I remember that we saw that Monday in 1987, same year as my graduation, and the financial crisis in 1997. We had a Lehman shock in 2008. It looks like we are experiencing such a credit crunch or equity market change every 10 years. Therefore, I should say that we may experience another one in 5 years- 10 years from now. Moreover, we may have to expect such risks in an even nearer term considering advancements of financial engineering, such as derivative, increase of notional value, and speedy settlement.
To be prepared for any drastic change in the market, we do realize the importance of the loan, even though I said earlier that we would consider increasing the proportion of bond issuance. Page 38. These are two bonds we issued in this June. To encourage investors' appetite, we focused on the adjustment of term to achieve a 1% rate for individual investors. It was the first issuance after we upgraded to A level. We focused on the spread tightening for institutional investors to confirm the demand. Both of the deals were very meaningful for us. Bond redemption schedule on page 39. Corporate bonds issued two years ago with quite a high yield for individual investors were redeemed in the first quarter. Remaining are JPY 15 billion to be redeemed in fiscal year 2011 and JPY 95 billion and JPY 49.9 billion in fiscal year 2012.
Other than that, we had buyback of preferred share issued to Vodafone K.K., and the remaining JPY 200 billion out of the total of JPY 400 billion will be repaid in April 2012, which is already included in the annual financial plan. Next, I would like to explain the status of WBS refinance. It started in November 2006 with a little bit below JPY 1.4 trillion, and we were able to accelerate the repayment as a result of being able to build a robust structure which generated affluent cash flow than we expected. Loan balance was a little bit over JPY 600 billion by the end of June. On July 22, we executed the loan agreement for the refinance with 17 banks, including Mizuho Corporate Bank.
On July 27, we made repayment by executing the first borrowing, and we scheduled to make full repayment with executing the second borrowing and SBM funds in hand on October 27, 2011. Outline of new loan shows on page 41. First loan execution was July 27, and second execution is October 27, 2011. JPY 150 billion will be repaid on March 27, 2013, JPY 200 billion on March 27, 2014, and JPY 200 billion on March 27, 2015. Interest rate is a variable rate with a rating grid and currently 1.4%. S&P announced the upgrade of our rating the other day. If Moody's also announces the upgrade, we are quite sure that the rate will go down to 1.2%. I believe that the whole repayment by the end of October will give a good influence on our rating. There are no collateral guarantees, and covenants are quite light.
General covenants for the syndicated loan, such as profit, debt, and group covenants, which is much lighter than those we had for WBS. Along with this loan execution, interest per expense is expected to be reduced by JPY 60 billion. This is really difficult to calculate accurately because WBS was allowed to repay with best effort with maximum 13 years. The upper line of the graph fluctuates. It depends on how soon we can repay. This JPY 60 billion may be misleading, but at least it can be your reference. Therefore, we put the repayment assumption in the minimum case for the comparison. As an upfront cost, we expect a JPY 40 billion, excuse me, JPY 45 billion, including prepayment premium class B2 and some commissions.
We cannot simply say that the merit come out of this interest reduction is JPY 60 billion - JPY 45 billion, which is JPY 15 billion, but we expect about JPY 20 billion- JPY 25 billion. On page 43, debt EBITDA multiple is also making steady improvement, and especially net interest-bearing debt EBITDA multiple is to mark below 1.0. On page 44, debt equity ratio, net debt equity ratio is now 1.5 x. Under the current pace, I am expecting the ratio will be below 1x sometime soon. Equity ratio on page 45 with a steady profit accumulation and also a JPY 50 billion conversion to the common stock in this first quarter, it is now improved to 16.8%. Credit rating on page 46, JCR is now rating us A -. S&P upgraded us to BBB- recently. Moody's is under review for possible upgrade and expecting the upgrade at the completion of refinance.
At the same time, rating for WBS is making some changes recently. Class A senior portion keep high, no change, and rating for class B on your right side continue to upgrade due to increase of probability of full and early repayment of WBS. Page 48. This is something familiar to you. There is no change for this one. Recent several activities by our CEO may cause you some concerns, but there are no concerns at all internally, and the achievement of these commitments remains our top priority. Page 49 also remains as our top priority items. Cumulative two years, free cash flow, commitment of net interest-bearing debt, and no major investments that prevent commitment from being met until the achievement of the commitments. Lastly, page 50 shows our financial strategies for fiscal year 2011. This also has no change at all, so please confirm them later. Thank you very much.
Thank you, Mr. Goto. Lastly, we will have Mr. Fujihara, who is in charge of finance of three telecommunications companies of SoftBank Group, present you the business overview of the Communication segment.
I am Fujihara, in charge of finance of three telecommunications companies. I will present you the operational status. Page 54 summarizes the three telecommunications companies. Every business made a good start overall. Two things to be noted. On your far right-hand side graph, mobile communications contributed to the operating income increase by JPY 13.8 billion, which accounts for 72% of SoftBank consolidated, and mobile communications keep being a strong driver for the profit. Operating income for broadband infrastructure decreased, and that of fixed-line telecommunication increased. However, some of those were JPY 4.7 billion. It accounts for about 24% of SoftBank consolidated, so these two businesses may also have made a contribution to some extent.
Now I would like to go into details of each business. Page 56. Broadband infrastructure business, unfortunately, keeps decreasing in profit. We keep making effort to increase lines, so this trend continues in the big picture. Page 57. 4.12 million lines in total. One year ago, it was 4.01 million, and we made effort to increase the number since then, so we were able to hit the bottom. This time, the number of Hikari exceeded 1 million for the first time. On your right-hand side graph, the number of Hikari exceeded 1 million. We added a few of them from this time. The number is still small, and it was just JPY 1,620, but we will keep working on this business to increase in both ARPU and the number of lines. Along with this additional disclosure, we have changed the base of ARPU for ADSL to installed line base.
Our pool figures based on the traditional calculation are also available on the appendix. On page 58, CapEx. First quarter was JPY 5.7 billion, 16% completion against the annual plan of JPY 35 billion. A little bit of a slow start. We are expecting a large increase from the previous year, mainly due to the enhancement of IP backbone network. Depreciation and amortization keep showing a decreasing trend as of today. That is all for the broadband infrastructure. Now going into fixed-line telecommunications. On page 60, on your left-hand side, operating income was JPY 12.9 billion, JPY 6.3 billion increase year-on-year. Enhancement of corporate lines and efficient management remain as a main focus to sustain this trend. In addition, the group strategy is also contributing to this business.
Last fiscal year, especially after the third quarter, mobile communications made CapEx to enhance 1.5 GHz network for better coverage, and that expanded the business opportunity for fixed-line telecommunications from the last third quarter. In addition, the group synergy with WILLCOM started to realize from the latter half of the previous fiscal year. These synergies were not there at the same time period of the previous year. I am expecting the same trend for the second quarter. I am expecting that the third quarter also follow the same trend. However, the impact may be a bit weaker year-on-year basis as we started to see some synergy then. Overall, we made a good start for the operating income. Page 61, OTOKU Line. There is a solid improvement of ARPU due to the enhancement of corporate lines. Page 62.
Annual plan for CapEx is JPY 38 billion, a bit higher than the previous fiscal year, and 17% has been completed in the first quarter. Depreciation and amortization keep flat. At the launch of OTOKU Line service, we recorded lease on our CapEx, and the trend of the lease is disclosed this time. Dotted line shows the impact to our P&L and still higher than solid line. However, we are expecting to narrow this gap to zero in a few years to contribute to our profit. That is all for the fixed-line telecommunications. Now, mobile communications. Page 64. Left side graph shows the net sales. SBM consolidated net sales was JPY 520 billion, JPY 73.4 billion, or 16.4% increase year-on-year. It contributed to a 9% increase of SoftBank consolidated net sales.
Upper bar indicates a sale of mobile handsets and accessories, which was JPY 33.4 billion, or a 24% increase year-on-year. The number of handsets shipped is already disclosed, and the contribution from the increase of handsets sold accounts for 21.6%. Remaining 2.7% came from the increase of unit price. Telecom revenue increased by JPY 40 billion, or 13%, of which 16% came from the volume increase, and the remaining - 3% is from unit price. On your right-hand side, how we make a growth of this part is the key for our business. End quarter, the net sales increased by JPY 40 billion, or 13%. Looking at the previous fiscal year, annual net sales increased at 13.3%, and we are keeping about the 13% level and making steady progress here. We believe this net sales is a source for everything. Therefore, we would like to keep focusing on this. Page 65.
Operating income increased by JPY 13.8 billion, or 13.5% year-on-year. Record high revenue and profit, same as consolidated results. It is also record high quarter result. Page 66. Number of subscribers is a key to increase sales, and net additions are marked 730,000, record high in the first quarter on a quarterly basis. Page 67. Number of monthly net additions. Incremental was 33,000, accounting for 5%. On a monthly basis, we had a jump in May and a decline in June, year-on-year basis. This is due to the termination of the student discount campaign and the launch of the iPhone white model in May. To see the big picture, it is better to see the average between May and June results. Red graph shows MNP net additions. It was about 190,000, 1.5 x increase year-on-year, making steady progress. Page 68. Churn rate and upgrade rate.
Churn rate, unfortunately, increased year-on-year. Let me add some explanation here. Quarterly movement was 1.02%- 1.08%. 3G postpaid was from 0.99% - 1.03%. The difference between those two was simply from prepaid, so let me use the postpaid figure for explanation. Churn rate of postpaid was from 0.99% - 1.03%, 0.04 percentage point increase, mostly due to corporate users. If we only look at consumers, churn rate improved by 0.05 percentage point year-on-year. We made an improvement in customers, but not in corporate users. This is because of churn from corporate users who joined the installment program two years ago and finished payment this time. Mainly, there are lower pool customers. For the second quarter and going forward, we are expecting the same trend of churn in corporate users.
Therefore, we forecast a churn rate increase in the second quarter, but when it comes to the third and fourth, churn rate is expected to calm down. Improvement of churn rate is one of our most important challenges, so we would like to bring this down by the latter half of this fiscal year. Upgrade rate on your right increased year-on-year this time. Last year, iPhone was launched at the end of June. Therefore, contribution was marginal, and some users were hesitant to upgrade to the new model release. This quarter did not have such influence and had quite a contribution of upgrades, including upgrades from iPhone to iPhone, in addition to upgrades from the conventional handset. Android models also contribute to the total volume of upgrade, and in total, it was a positive effect for ARPU. Page 69.
Because we keep acquiring new customers, churn rate from those new customers or those who have never changed their SBM handset models in this slide was 1.55%, relatively higher than total churn rate. On the other hand, churn rate of users who have changed their SBM handset models at least once in the past was 0.49%. We still see quite a gap between those two, and this is one of our characteristics in churn rate. Page 70. New super bonus ratio. Subscription ratio on your left stables recently, and some decrease in cumulative installment user ratio due to the finish of the installment program. Installment sales receivables balance on your right decreases due to the sale of installment sales receivables. This quarter also made sale of JPY 62.9 billion.
It was higher than the same period of the previous fiscal year, which was JPY 55 billion, mainly due to more number of installment sales receivables along with more number of handsets sold. On the other hand, sale of installment sales receivables means revenue from the sales, but also a release of future collection. Therefore, account receivables have both revenue from the sales and the release of future collection and see a bigger impact to the operating cash flow at the beginning of the program and then gradually reduces. The impact to the operating cash flow last year was JPY 64.6 billion and JPY 26.2 billion for this year. Page 71. Our ARPU was JPY 4,210. It decreased by JPY 80 year-on-year. This is mainly due to a reduction of access charge by JPY 100. It has some impact from lower unit price. Therefore, in total, it was about a flat result.
Data ARPU increased by JPY 190 year-on-year and JPY 70 quarter- on- quarter, a little stronger result in this quarter. Page 72 for more details. This is a gross figure comparison excluding monthly discounts impact. Decrease in basic monthly charge plus voice was - JPY 360. JPY 100 is from access charge, as I mentioned earlier. Remaining is due to the increase of those data-exclusive devices such as iPad, Pocket Wi-Fi, data card, and PhotoVision, which does not generate voice revenue. Data ARPU is making steady progress, and contribution by iPhone is quite large. Android started making some contributions as well. Monthly discounts are decreasing mainly due to the finish of the installment program. Page 73. This shows ARPU comparison year-on-year. It decreased by JPY 80 year -on- year, but it was JPY 20 +. If we exclude the impact from access charge price reduction, this is the impact to our revenue.
Page 74 is for your reference, average cash income per subscription, including handset installment payment. Page 75. CapEx. Annual plan was JPY 404 billion and spent JPY 84 billion, 21% completed in the first quarter. Last fiscal year, CapEx spending was low in the first quarter, but this quarter, initiatives were quite clear, such as coverage improvement, initiatives for demand increase, completion of 1.5 GHz for ultra-speed service. That is why we recorded slightly higher than before. Depreciation and amortization was JPY 45.2 billion, JPY 8.6 billion increase year-on-year. Due to the termination of 2G, depreciation and amortization for the first quarter of fiscal year 2011 decreased compared to the previous fiscal year, resulted in profit increase, but depreciation and amortization increased this year, which is a factor for profit decrease.
JPY 8.6 billion multiplied by 4 equals JPY 30 billion more, which may not be too far from your expectation, even though it depends on the progress of the CapEx from now on. Page 76. Inventory and allowance. Inventory was very stable. We would like to keep this level from a finance point of view, but it also depends on the cycle of the products. Therefore, it may fluctuate to some extent, but we would like to balance that to keep the management efficiency. Allowance is decreasing, as you can see from the right-hand side graph. Installment itself is increasing along with the increase of sales, and the amount decreases from that, so quality itself is slightly improving. Page 77. Last slide, acquisition cost. It sustains a solid trend. Even though there are some changes in product mix or initiatives, it is quite stable in the overall picture.
One thing to be noted is that we are recording quite good net additions while having some increase in churn, which means more costs than is supposed to be from the level of the acquisition. We would like to revise that towards the latter half of this fiscal year. That is all from me. In summary, the first quarter was in line with our forecast and made quite a good start. There may be some movement due to new product release and so on, but we would like to keep up with our good work. Thank you very much.
Thank you, Mr. Fujihara. Thank you for your kind attention. Now, we would like to have a Q&A session until 3:00 P.M. If you have any questions, please raise your hand and wait for the microphone. Please state your name and affiliation before questions. To receive questions from as many people as possible, we would like to limit to three questions per person. Please allow us to remain seated. Any questions?
Thank you for your presentation. I'm Takahashi from Mizuho Securities. I have two questions, Mobile and Fixed-line communication segments. Earlier in your presentation about the Mobile communication segment, you said the sales of mobile handsets and accessories, excuse me, didn't increase as much. It sounded to me the figure didn't reach your expectation. What is the outlook from the second quarter on? Please elaborate on that. My second question is about Fixed-line communication, so it may be about SoftBank Telecom. Of four business segments in the SoftBank's consolidated accounting, I need to hear more about agent business. Is the agent business profitable enough to be an income growth driver independent from the mobile communications business? If possible, could you tell us more about the first quarter results by segment?
Thank you for your question. First, your question about handset. As the disclosed net sales of mobile handsets and accessories show, the net sales of handsets were small considering the increase in the number of handsets sold. As the unit price of handsets was increasing, the mix of products affects the net sales. The more iPhone and Android handsets sell, the higher the unit price gets. The net sales depend on the mix of products, and there is nothing to worry too much about. Of course, if a pool increases from high-cost handset users, that makes business sense. Yet, the first quarter results were not because of a big change in trend, but because of the change in product mix. Please see it that way. Now, a question about fixed-line communications, agent business. I guess you were talking about mobile business agents. Actually, at an entity level, SoftBank Telecom runs a mobile business as an agent business.
At the segment level, the mobile communication segment in our consolidated group aggregates the figures of all the mobile businesses. Thus, the results of mobile business run by SoftBank Telecom are aggregated to the mobile communication segment. The sales of mobile agent business don't directly affect the results of fixed-line communications segment. For the past five years, the business operations were run in compliance with WBS Covenant, which is LBO finance, with arm's length transaction being a primary requirement. We were careful about arm's length transactions more than usual, and we discreetly maintained the interest of both parties. We will continue to maintain win-win relations.
Going back to the net sales of mobile handsets and accessories, you said unit price went up. Unit price was up, but cost was up too. Was that why the net sales this year were not as good as that of last year's?
Unit price of handsets was up, but expected profit in a pool differs depending on products. Currently, the sales of high-end products like smartphones are increasing, so unit price is increasing, but expected revenue is also increasing. That's a positive trend for the business.
Thank you.
Any other questions? Please raise your hand. Any questions? A gentleman on the second row. Please.
I 'm Masuno from Nomura Securities. I have two questions, or rather three questions. The first question is, ARPU, I understand the access charge impact. In fiscal 2010, JPY 80 out of JPY 320 was access charge impact per quarter. We see access charge impact this year again and will probably do next year. What are other impacts? Could you give us figures? For example, how much is a pool excluding module impact, and how much is the change from last year?
I suppose the impact of data handset is the biggest of all, but could you tell us more about that?
What is your second question?
The second question is about churn. You said the churn rate of individual customers improved, but corporate users' churn rate deteriorated. Maybe I missed that part, but could you tell us the churn rate of corporate users and the change in churn rate? Also, could you tell us the outlook of churn rate improvement with a specific number? The third question is about fixed-line communications. Operating income grew year-on-year, and the reasons behind were the provision of network to mobile communications business and the lower access charge. My question is, if the provision of network to mobile communications business will increase or not, traffic will surely increase. Will the operating income of fixed-line communications continue to grow?
First question was about ARPU. We don't disclose ARPU excluding module, but we would have seen a year-on-year increase in ARPU without module impact. However, there's one thing to take note of when making a year-on-year comparison of ARPU. Comparison of fiscal 2011 and fiscal 2010 is apple to apple because both years are in 3G network, but comparison of fiscal 2010 and fiscal 2009 is a comparison of 3G and 3G +, 2G. Even though the year-on-year increase is the same 13%, this year we see a 16% increase in the number of users and a negative increase in ARPU, but last year saw a 6.5% increase in the number of users and a 6.5% increase in ARPU. We acquired customers in the same way during the three-year period. The difference is due to the fact that the comparison is not apple to apple.
When comparing fiscal 2010 and fiscal 2009, please take note of the impact of 2G on the number of users ARPU. The next question was about churn rate. In terms of 3G postpaid, the rate is expected to fall from 0.93% to 0.88%. We expect moderate improvement in the churn rate of individual users. Regarding the outlook from the second quarter on, it's up to what customers will do after they pay off their installment balance. PhotoVision will see the end of the installment payment period for the first time. There are also some products whose two-year contract expired, so it's up to how customers would behave when their contract expires. Generally speaking, products with a higher churn rate generate a lower pool. In other words, a higher churn rate doesn't have as big an impact on business as it seems.
As I said earlier, the churn rate of corporate users will go up in the second quarter, but we would like to improve the churn rate as a whole in the second half. That's the direction. The third question was about fixed-line communications. The strong trend started from the third quarter last year because of the new buildup of 1.5 GHz and the expansion of areas. Those were big business opportunities for Telecom . An increase of operating income is expected to continue, but income growth has been strong recently. Earlier, I talked about BB's IP backbone. The areas of BB's support are expected to grow as well. Operating income growth is expected not only in Telecom but also in BB.
Let me check if I understand you. You said ARPU would increase year-on-year without module. As ARPU decreases JPY 80 year-on-year, module impact is about JPY 80. Is that right?
That's a reasonable guess. We see it simple. The number of users which is disclosed x ARPU is the most appropriate way to calculate revenue. We are going to disclose the number that way.
Are you saying you place importance in the growth rate of service revenue?
Yes, that's very important.
Back to the churn rate, you mentioned 0.93% to 0.88%. What was that about?
That's the churn rate of individual 3G postpaid users.
Any other questions? Please raise your hand.
I'm Matthew of CLSA. Sorry, I don't speak Japanese very well, but I would like to ask why the margin of Mobile Communications was lower year-on-year.
That's because the margin of handset is low. That's the main reason.
Any other questions?
I'm Takahashi of Merrill Lynch. In the earnings results announcement yesterday, I heard the impact of the renewable energy business would be about 3% to your consolidated net income. Does that mean you expect the size of the renewable energy business to be a maximum of 3% of net income? Also, about rising churn rates of corporate customers. Could you tell us about the reasons of churn?
About the first question, energy. The gentleman meant to say the impact was minimal, and thus he said somewhere lower in a few percent. I don't quite remember he said 3%, but I didn't hear 3 in internal meetings. The key message was the impact was small.
Then what is the impact in the first place?
I don't know. There's no plan about revenue or profit at all. Let me step back. The vision of the initiative was explained by the Chairman, and we agree.
From a business standpoint, it cannot be our business. It depends on if a bill for implementing the feeding tariff system based on gross metering will pass and what a new law will be. Once a bill gets passed, we can take it from there. We will discuss internally, and once the plan comes up, we will disclose it. Right now, nothing has been determined. If we do start an energy initiative, our core business will remain the 3G telecommunications business and the internet business, and the energy initiative will be a very small initiative as we disclosed yesterday.
About the churn, the reason is that corporate users in a two-year contract or installment contract don't renew their contract. That's what we observed. In other words, we are not able to retain corporate users we acquired two years ago.
Any other questions?
I'm Kikuchi [Gabri], Nu Asset Management . You have made investments in lots of things in the first quarter. Yesterday, I heard about the investment in Tianzhuo Town, China. Could you tell us the key business you have invested in the first quarter?
Investment in the first quarter is covered on page 30 of this material. I talked about gilt. Other than that, there was no big investment in the first quarter. Gilt is not big enough to be subject to disclosure, but this is the only case of investment that has financial impact.
Thank you.
Any other questions?
I'm Hayakawa, Credit Suisse. I came in late, so I might have missed this, but about finance, please. In the first quarter of 770, tangible fixed assets acquired. Around half is sold and leased back. Could you tell us your policy, if any, of the use of lease in fixed asset acquisition, like how much percent would be. Please back. Do you have any plans or policy?
There is no policy with a specific number for the coming months due to the cap relating to WBS. We will see CapEx remain flat. After that, we have a plan to increase CapEx. As CapEx increases, the number of fixed assets that could be leased back may increase as a result. I may discuss the potential use of leasing with Mr. Goto. I don't see any problem in the use of lease as long as it has a positive effect on business. Generally, as CapEx increases after WBS refinance is complete, lease will increase gradually. That is a natural direction. That said, we will make decisions taking account of circumstances.
Any other questions?
Hayakawa again about CapEx in the second half. The CapEx by mobile communication segment in the first quarter was around the same level of competitors. Started small. My question is when ramp-up in the second half will start? What is your outlook?
There will be no big change from the first quarter to the second quarter. For the second half, we need to consider lots of things, including licensing, new frequency, band allocation, products, and demand. I can say second quarter will be about the same as first quarter. We want to be flexible about the second half. Yet our plan of JPY 500 billion in this fiscal year and JPY 1 trillion in two years won't change. Please wait and see for a while.
I'm Masuno, Nomura Securities again . One more question about the lineup of handsets. iPhone is selling well, and that's great, but it seems to me product lineup is limited. On the shelves of shops, I see only iPhone. There used to be a wide range of handsets like Aquos Phone and Pantone. It doesn't offer a spot of choice to customers anymore. Without the wide range of products, you may lose customers. What's your strategy of product lineup other than iPhone?
The biggest number of our customers use handsets provided by shop. Considering that, we think having a variety of products is important. We will also continue to offer a varied lineup of Android handsets, maintaining a balance of product lineup. In addition, we have SoftBank Selection and other accessories for iPhone. Our strategy for SoftBank shop will be considered not only from the standpoint of handsets but also from accessories and services.
Any other questions?
About WILLCOM in alliance with KT, first, you are shoring up WILLCOM now. Is there any plan to make the company a consolidated subsidiary with 100% ownership? If so, do you see the end in sight in turning around the company? Second question is about KT. It may be a matter of SoftBank Telecom . What is the business plan for the second half and fiscal 2012? Have you received inquiries about AI data centers already and how many?
WILLCOM's business is picking up, centering on sales activity, and synergy effects among group companies are getting stronger. Especially, collaborative initiatives are increasing in corporate and customer sales teams. All the teams are now located in Shio Domain Building to preserve synergy. Operational initiatives are producing results. Yet the company is still in the middle of a business turnaround involving court. Making steady effort is required. It is important to improve the company's performance. That way, options for business will increase. We would like to make the best choice of options.
As of now, however, there is no plan for making the company a subsidiary, much less a time schedule. We are excited at business with KT. We are receiving inquiries for many reasons. We are now preparing for the business. Construction is working in progress in South Korea as well. It will be the second half of this year or fiscal 2012 when we could tell you some figures about the business. Please wait until then. Again, we are excited at the business with KT.
Back to WILLCOM, it recorded very strong net addition. How is the company's financial situation compared to a couple of years ago? Is the company making profit? Borrowing aside, what is the progress in improvement? Is there anything you could tell us now?
In summary, WILLCOM is doing well now. That said, the company is in the middle of a business turnaround. As the process involves court, we can't make comments on the company's performance. I can say you don't have to worry too much about the company.
Any other questions?
I'm Moriyuki of SMBC Nikko Securities. You mentioned SoftBank Selection enhancement earlier. I take it that amid the deterioration of handset profitability, you are going to enhance accessories. Margin and penetration of accessories are high. I see great potential. What's the current status? Do you have a specific timeline for enhancement?
When more and more people are using covers on iPhone, I think demand will increase. As of now, some SoftBank shops are selling accessories effectively. There are other SoftBank shops needing improvement. We should work to narrow the gap from now on. In the group, the selection business is taken care of by SoftBank BB, which has experience in retail.
SoftBank BB will need to enhance SoftBank Selection to grow it to be another driver of income growth. The impact on the mobile communication segment is small, but the impact on sales agent income is huge. SoftBank Mobile will also help to make SoftBank shops more appealing to customers and allow them to generate more income. Shop enhancement will be a group-wide effort.
The profit may go to sales agents. Are you going to reap the profit back in the form of incentive or something so that SoftBank can enjoy the benefit of enhancement?
We would like to make the initiative a win-win for sales agents and us. No plan for reaping profit back.
Any other questions? No more? Thank you very much. Now, we'd like to close the analyst meeting of the earnings results for the three-month period ended June 30, 2011.