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Time to Create a New DoCoMo Brand

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					Time to Create a New DoCoMo Brand




                      Annual Report 2005
                        Year Ended March 31, 2005
CONTENTS
    2      Financial Highlights

    4      Snapshot: DoCoMo Brand

    6      CEO’s Message: To Our Shareholders

  11       Special Feature 1: DoCoMo Brand | The Third Stage in Our Evolution

  12            Part 1: The Evolution of the DoCoMo Brand Thus Far

  13            Part 2: Why We Are Now Focusing on Brand Management

  14            Part 3: The Elements and Growth Strategy Required to Create a New Brand

  19       Special Feature 2: New Lifestyles—Created through the DoCoMo Brand

  23       DoCoMo Brand | The Foundation and Its Utilization Structure

  24            Research & Development and Intellectual Property

  27            Human Resources

  28            Financial and Financing Strategies

  29            Corporate Governance

  31            Compliance

  32            CSR

  35            Organization

  36            Board of Directors & Corporate Auditors

  37       DoCoMo Brand | Businesses and Companies

  38            The Relationship between Business Segment Data
                and DoCoMo Brand Strategy

  40            Operating Results Overview by Business Segment

  43            Subsidiaries and Affiliates

  46            Corporate Data

  47       DoCoMo in Figures

  53       Financial Section

119        Stock Information




Unless specifically stated otherwise, information in this annual report is as of July 2005.                            • The introduction of number portability in Japan may increase our expenses, and may lead to a decrease in our
                                                                                                                         number of subscribers if our subscribers choose to switch to other cellular service providers.
DEFINITION OF TERMS                                                                                                    • Limitations in the amount of frequency spectrum or facilities made available to us could negatively affect our
“Fiscal 2004” refers to our fiscal year ended March 31, 2005, and other fiscal years are referred to in a correspon-     ability to maintain and improve our service quality and level of customer satisfactions.
ding manner.                                                                                                           • The W-CDMA technology that we use for our 3G system and/or mobile multimedia services may not be intro-
                                                                                                                         duced by other overseas operators, which could limit our ability to offer international services to our subscribers.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS                                                                      • Our domestic and international investments, alliances and collaborations may not produce the returns or provide
The Annual Report contains forward-looking statements such as forecasts of results of operations, management             the opportunities we expect.
strategies, objectives and plans, forecasts of operational data such as expected number of subscribers, and expected   • Our PHS business, which is expected to operate at a loss until the service is terminated, may incur greater losses
dividend payments. All forward-looking statements that are not historical facts are based on management’s current        than we project.
plans, expectations, assumptions and estimates based on the information currently available. Some of the projected     • As electric payment capability and many other new features are built into our cellular phones, and services of par-
numbers in this report were derived using certain assumptions that are indispensable for making such projections         ties other than those belonging to our corporate group are provided through our cellular handsets, potential
in addition to historical facts. These forward-looking statements are subject to various known and unknown risks,        problems resulting from malfunctions, defects, or missing of handsets or imperfection of services provided by such
uncertainties, and other factors that could cause our actual results to differ materially from those contained in or     other parties may arise, which could have an adverse effect or our financial condition and results of operations.
suggested by any forward-looking statement. Potential risks and uncertainties include, without limitation, the fol-    • Social problems that could be caused by misuse or misunderstanding of our products and services may adversely
lowing;                                                                                                                  affect our credibility or corporate image.
                                                                                                                       • Inadequate handling of subscriber information by our corporate group or contractors may adversely affect our
• Competition from other cellular service providers or other technologies could limit our acquisition of new sub-        credibility or corporate image.
  scribers, retention or existing subscribers and average revenue per unit (ARPU), or may lead to an increase in our   • Earthquakes, power shortages, malfunctioning of equipment, and software bugs, computer viruses, cyber attacks
  costs and expenses.                                                                                                    and other problems could cause systems failures in our networks, handsets or other networks required for the
• The new services and usage patterns introduced by our corporate group may not develop as planned, which                provision of service, disrupting our ability to offer services to our subscribers.
  could limit our growth.                                                                                              • Concerns about wireless telecommunications health risks may adversely affect our financial condition and results
• The introduction or change of various laws or regulations or the application of such laws and regulations to our       of operations.
  corporate group may adversely affect our financial condition and results of operations.                              • Our parent company, Nippon Telegraph and Telephone Corporation (NTT), could exercise influence that may
                                                                                                                         not be in the interests of our other shareholders.
          A n y w h e re i n L i f e

            DoCoMo mobile phones are
 the right fit for each of our customers’ lifestyles,
thereby gaining the appreciation of our customers.
[ A G E 1 0 , E L E M E N TA RY S C H O O L S T U D E N T ]
[AGE 18, SENIOR HIGH SCHOOL STUDENT]
[ A G E 2 0 , PA RT- T I M E J O B B E R ]
[AGE 24, YOUNG OFFICE WORKER]
[AGE 32, ENTREPRENEUR]
[AGE 36, HOMEMAKER]
[AGE 53, ARCHITECT]
[ A G E 6 5 a n d 6 7 , E L D E R LY C O U P L E ]
                                                          |1




To ensure that our customers continue to appreciate us,

  now is the time to revitalize the “DoCoMo brand.”
2              |                                            FINANCIAL HIGHLIGHTS (U.S. GAAP)
                                                                                     NTT DoCoMo, INC. AND SUBSIDIARIES
Financial Highlight




                                                                                          YEARS ENDED MARCH 31




                                                                                                                      Millions of yen (excluding per share data)                 Millions of U.S. dollars1
                                                                                                                                                                                 (excluding per share data)

                                                                                                               2003                    2004                        2005                  2005
                      Operating Results
                      Operating revenues ....................................................              ¥4,809,088              ¥5,048,065               ¥4,844,610                  $45,184
                       Wireless services .....................................................              4,350,861               4,487,912                4,296,537                   40,072
                       Equipment sales ......................................................                 458,227                 560,153                  548,073                    5,112

                      Operating income .......................................................              1,056,719                1,102,918                     784,166                 7,314

                      Other (income) expense.............................................                        13,751                     1,795                  (504,055)              (4,701)

                      Income before income taxes, equity in
                        net losses of affiliates, minority interests
                        in earnings of consolidated subsidiaries
                        and cumulative effect of accounting change ..........                               1,042,968                1,101,123                   1,288,221               12,015

                      Net income .................................................................         ¥ 212,491               ¥ 650,007                ¥ 747,564                   $ 6,972

                      Per Share Data2&3 (Yen and U.S. dollars)
                      Basic and diluted earnings per share ..........................                      ¥      4,254            ¥      13,099            ¥       15,771              $147.09
                      Shareholders’ equity per share....................................                         69,274                   76,234                    84,455               787.68
                      Dividends declared and paid per share 4 .....................                                 200                    1,000                     2,000                18.65




                      1. Translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers using the noon buying rate in New
                         York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2005,
                         which was ¥107.22 to U.S.$1.00.
                      2. Per share data have been adjusted to reflect the stock split (five-for-one) that took effect on May 15, 2002.
                      3. In the calculation of per share data, treasury shares are not included in the number of shares outstanding during or at the end of the year.
                      4. The dividends declared and paid per share are presented in the year they were paid.




                                 Operating Revenues and                                         Net Income (Loss) and ROE                                                        ROCE
                               Income before Income Taxes
                      (Billions of yen)                                                 (Billions of yen)                                   (%)            (%)
                      6,000                                                             800                                                  20             25


                      5,000
                                                                                        600                                                  15            20

                      4,000
                                                                                        400                                                  10            15

                      3,000

                                                                                        200                                                   5            10
                      2,000

                                                                                           0                                                  0              5
                      1,000


                          0                                                            -200                                                   -5             0
                                   ’01      ’02      ’03      ’04      ’05                           ’01       ’02   ’03    ’04     ’05                              ’01   ’02    ’03    ’04      ’05
                                 Operating revenues                                              Net income (loss) (left)
                                 Income before income taxes                                      ROE (right)
                                                                                                                                                                                         |3




                                                                                                                                                                                         Financial Highlight
                                                                                                  Millions of yen (unless otherwise specified)               Millions of U.S. dollars1

                                                                                          2003                      2004                      2005                   2005
Financial Position
Total assets .................................................................       ¥6,058,007                 ¥6,262,266               ¥6,136,521                 $57,233
Total debt 5 ..................................................................       1,348,368                  1,091,596                  948,523                   8,847
Total shareholders’ equity ..........................................                 3,475,514                  3,704,695                3,907,932                  36,448

Cash Flows
Net cash provided by operating activities ..................                         ¥1,584,610                 ¥1,710,243               ¥1,181,585                 $11,020
Net cash used in investing activities...........................                       (871,430)                  (847,309)                (578,329)                 (5,394)
Free cash flows 6 ..........................................................            713,180                    862,934                  603,256                   5,626
Adjusted free cash flows
  (excluding irregular factors and changes in
   investments for cash management purpose) 7 ..........                                  468,915                   862,934                1,003,583                   9,360

Other Financial Data
EBITDA8 .....................................................................        ¥1,836,264                 ¥1,858,920                 1,625,661                $15,162
Capital expenditures 9 .................................................                853,956                    805,482                   861,517                  8,035
Research and development expenses...............................                        126,229                    124,514                   101,945                    951

Financial Ratios10
Operating income margin...........................................                          22.0%                      21.8%                     16.2%
EBITDA margin8 .........................................................                    38.2%                      36.8%                     33.6%
ROE ............................................................................             6.3%                      18.1%                     19.6%
ROCE11 .......................................................................              22.1%                      22.9%                     16.2%
Equity ratio.................................................................               57.4%                      59.2%                     63.7%
Debt ratio12 .................................................................              28.0%                      22.8%                     19.5%
 5. Total debt = Short-term borrowings + Current portion of long-term debt + Long-term debt
 6. Free cash flows = Net cash provided by (used in) operating activities + Net cash provided by (used in) investing activities
 7. Irregular factors represent the effects of uncollected revenues due to bank holidays at the end of periods. Changes in investments for cash man-
    agement purpose were derived from purchases, redemption at maturity and sales of financial instruments held for cash management purpose
    with original maturities of longer than three months. For the reconciliations of these Non-GAAP financial measures, see page 118.
 8. EBITDA = Operating income + Depreciation and amortization expenses + Loss on sale or disposal of property, plant and equipment + Impairment loss
    EBITDA margin = EBITDA / Total Operating revenues. For the reconciliations of these Non-GAAP financial measures, see page 118.
 9. Capital expenditures are calculated on an accrual basis for the purchases of property, plant and equipment, and intangible and other assets.
10. ROE and ROCE ratios are calculated using the simple average of the applicable year-end balance sheet figures.
11. ROCE (Return on capital employed) = Operating income / (Shareholders’ equity + Total debt)
12. Debt ratio = Total debt / (Shareholders’ equity + Total debt)




         EBITDA and EBITDA Margin                                                         Free Cash Flows                                                Debt Ratio

(Billions of yen)                                           (%)         (Billions of yen)                                               (%)
2,000                                                        40         1,500                                                            35


                                                                                                                                        30
                                                                        1,000
1,500                                                        30
                                                                                                                                        25

                                                                          500
                                                                                                                                        20
1,000                                                        20
                                                                                                                                        15
                                                                              0

                                                                                                                                        10
  500                                                        10
                                                                       -1,500
                                                                                                                                          5


     0                                                         0       -2,000                                                             0
             ’01       ’02      ’03      ’04       ’05                              ’01     ’02      ’03     ’04     ’05                         ’01   ’02    ’03     ’04    ’05
           EBITDA (left)                                                           Free cash flows
           EBITDA margin (right)                                                   Adjusted free cash flows
                                                                                   (excluding irregular factors and
                                                                                    changes in investments for cash
                                                                                    management purpose)
4                 |                                                 S N A P S H O T: D o C o M o B R A N D
Snapshot: DoCoMo Brand




                         A Strong DoCoMo Brand—the Very Condition for Being a Winner

                         Even under this increasingly competitive environment, continuous growth is possible by building up a
                         strong brand—this is the DoCoMo philosophy.


                                            [ H I S T O RY O F T H E D o C o M o B R A N D ’ S D E V E L O P M E N T ]
                         The power of the DoCoMo brand, which enabled the rapid dissemination of the mobile phone as “voice communi-
                         cation infrastructure,” was further heightened by establishing a market for the mobile phone as "IT infrastructure”
                         with the start of “i-mode” service in 1999. And now, the challenge begins to establish a new DoCoMo brand by
                         developing the mobile phone as “lifestyle infrastructure.”

                                                  DEVELOPMENT HISTORY OF THE MOBILE PHONE IN TERMS OF TOTAL DoCoMo SUBSCRIBERS

                                                                                                                                                  No. of subscribers (Millions)
                                  July 2004                                                                                                                                 50
                                  “Osaifu-Keitai: i-mode FeliCa ” service launch
                                                                                                                                                                              40


                                                                                                                                                                              30
                                  February 1999
                                  i-mode service launch                                                                                                                       20

                                  April 1994
                                  Liberalization of                                                                                                                           10
                                  handset sales

                                                                                                                                                                               0
                              CY 1994           1996         1997          1998           1999             2000      2001         2002          2003        2004       2005
                                                 Stage one:                                                          Stage two:                                 Stage three:
                                       Voice communication infrastructure                                         IT infrastructure                        Lifestyle infrastructure
                                  Source:Telecommunications Carriers Association




                               [ E L E M E N T S S U P P O RT I N G T H E D o C o M o B R A N D ’ S C O M P E T E N C E ]
                         1. Strong Financial Foundation and Business Scale
                         DoCoMo has a strong financial position, backed by the ability to generate stable cash flows. We believe this is an
                         indispensable base for providing stable and continuous service to our more than 40 million subscribers, and also the
                         force supporting the strength of the DoCoMo brand. DoCoMo passes along our merits of scale, which we enjoy as
                         Japan’s largest mobile phone service provider, to customers via further improvements in products and services.




                                           FREE CASH FLOWS AND DEBT RATIO                                                      SUBSCRIBER SHARE IN THE MOBILE PHONE MARKET

                              (Billions of yen)                                                     (%)
                              1,500                                                                  40
                                           Free cash flows*1 (left)
                                           Debt ratio*2 (right)

                                                                                                                                                   Vodafone
                                                                                                                                      Tu-Ka         17.3%
                              1,000                                                                   30
                                                                                                                                      4.1%

                                                                                                                                                                 NTT DoCoMo
                                                                                                                                                   au              56.1%
                                                                                                                                                 22.5%
                                500                                                                   20




                                  0                                                                   10
                                        FY 2000       2001    2002        2003     2004                                                                     (As of the end of March 2005)
                                                                                                                                              * Based on the cumulative number of subscribers
                                                                                                                                              Source: Telecommunications Carriers Association
                                                                      “                  ”      “
                                                                  ”
                                                                             ’ equity + Total debt)
                                                                                                                                             |5




                                                                                                                                             Snapshot: DoCoMo Brand
  [RECENT TRACK RECORD IN RE-STRENGTHENING THE DoCoMo BRAND]
 In 2004, under a “customer-oriented” management approach, the DoCoMo brand was further strengthened by bol-
 stering each of the individual elements serving as the basis for the brand. This included everything from an
 enrichment of our lineup of handsets, improvement of network quality and revision of our rate structure, to improve-
 ments in after-service. Results have steadily appeared, as for example in reductions in the cellular churn rate.

                                                      CHURN RATE BY MOBILE PHONE SERVICE PROVIDERS

                   (%)
                   2.5

                          Tu-Ka
                   2.0
                            Vodafone

                               au
                   1.5


                          NTT DoCoMo
                   1.0



                   0.5
                               3Q        4Q           1Q       2Q          3Q   4Q            1Q         2Q          3Q         4Q
                           FY 2002                                  2003                                      2004
                         Source:Each company’s data




 2. R&D and Intellectual Property: Simultaneous Pursuit of Scale and Quality
 DoCoMo’s research and development expenses are distinguished by their outstanding scale as they cover a truly
 vast scope of research and development activities. These extensive R&D activities range from improvement of cur-
 rent products/services to new and innovative R&D that aims to provide the next global standards in mobile
 telecommunication methods. The resulting technological capacity is the springboard for the DoCoMo brand.
  These R&D efforts will be rewarded by business results as they reinforce the DoCoMo brand’s strength. DoCoMo
 actively files patents not only in the mobile telecommunications systems field—our forte to date—but also in the
 IP network field, and fields with transactions linked to “brick-and-mortar” businesses.


COMPARISON BETWEEN MOBILE PHONE SERVICE PROVIDERS                                              NUMBER OF PATENTS FILED BY DoCoMo
                    BY R&D EXPENSES
 (Billions of yen)                                                              (No. of patents)
 140                                                                            800
           NTT DoCoMo                                                                    Domestic
           KDDI*                                                                         Overseas
 120       Vodafone
                                                                                600

100
                                                                                400
 80

                                                                                200
 20


  0                                                                                  0
        FY 2000      2001         2002    2003        2004                                   FY 2000      2001       2002    2003     2004
      * KDDI Corporation conducts its mobile phone business under the                    * Foreign patents are recorded by country.
        brand names au and TU-KA. Its R&D expenses also include expenses
        allocated to items other than the mobile phone business.
      Source: Each company’s data
6                           |                          CEO’S MESSAGE: TO OUR SHAREHOLDERS
CEO’s Message: To Our Shareholders




                                     As president of DoCoMo, I firmly believe that if we can
                                     achieve a place in the hearts and minds of our customers
                                     as a provider of entirely unique services, the possibilities
                                     for growth will be unlimited, no matter how challenging the
                                     business environment.

                                         The DoCoMo brand once dominated the market, and
                                     there are clear signs that the brand’s strength is recovering.
                                     I will devote my full efforts to accelerating the restoration
                                     of the DoCoMo brand and creating new markets for the
                                     Company, thereby creating the kind of business capable of
                                     benefiting both society and our shareholders.




                                              Fiscal 2004: Operating Environment and Consolidated Results

                                     Strengthening the DoCoMo Brand to Enable Continued Growth
                                     In fiscal 2004, ended March 31, 2005, we solidified our base in preparation for a new growth phase.
                                         The operating environment in the mobile communications industry became even more challenging in fiscal
                                     2004 as the mobile phone penetration rate increased, competition between service providers intensified, and the
                                     likely introduction of mobile number portability in fiscal 2006 loomed over the horizon. Amid these conditions,
                                     our top priority was bolstering the DoCoMo brand, with the goal of winning the overwhelming support of our
                                     customers, thereby enabling our continued growth going forward. Under this guiding philosophy, we worked to
                                     improve our mobile phone businesses in all respects, including our lineup of handsets, network quality, rate struc-
                                     ture, and after-sales service.
                                         In addition, we restructured our business portfolio to enable us to focus resources on mobile phone business-
                                     es. During fiscal 2004, we stopped accepting new subscribers in such low-margin businesses as Quickcast and
                                     City-Phone. As for our PHS business, we also ceased accepting new subscribers on April 30, 2005 and recorded an
                                     approximate ¥60.4 billion impairment loss on our PHS-related business assets at the end of fiscal 2004.


                                     Up-Front Investments Steadily Yielding Results
                                     In fiscal 2004, DoCoMo recorded declines in both revenues and income, with consolidated operating revenue
                                     totaling ¥4,844.6 billion, down 4.0% year-on-year, and operating income amounting to ¥784.2 billion, down
                                     28.9%. The main factor behind the fall in operating revenues was a decline in ARPU, a consequence of a strategic
                                     rate reduction. The main factors causing operating income to decline were: (1) a 2.7% increase in revenue-linked
                                     variable expenses, including an increase in handset costs incurred as part of the process of migration of sub-
                                     scribers from mova services to FOMA services; and (2) a 2.0% rise in depreciation expenses, stemming from an
                                     increase in capital expenditures.
                                         However, up-front investments to enable future growth steadily yielded results, including a vastly improved
                                     cellular churn rate, a rebound in our market share of monthly net additions, and favorable progress in the migra-
                                     tion of subscribers to FOMA services.
                                         Note that income before income taxes and net income rose 17.0% and 15.0%, respectively. This primarily
                                     reflected the recording of ¥501.8 billion in gains on the sale of stock in AT&T Wireless Services, Inc. a DoCoMo-
                                     affiliated cellular operator in the United States.
                                                                                                                         |7




                                                                                                                         CEO’s Message: To Our Shareholders
                  DoCoMo’s Growth Strategy: Progress and Prospects

Brand Strength—The Source of Corporate Growth
A company must truly win the support of its customers and establish a favorable presence in its spheres of busi-
ness to fully realize its growth potential and profit potential, and to consistently increase its enterprise value. In
other words, it must create a brand.
    DoCoMo is still a young company, having been in business for only 13 years. Nevertheless, it has created a
solid brand in Japan’s mobile phone industry, clearly superior to its rivals in both technological strength and quali-
ty of service. First, the Company established a base for its mobile phone business as “Voice communication
infrastructure” by implementing rate system reforms—including the introduction of a system under which sub-
scribers can buy their handsets rather than rent them and the abolition of large security deposits and new
subscriber fees—helping to make Japan a leader among industrialized countries in terms of mobile phone penetra-
tion. Next, the Company vastly expanded the potential of its mobile phone business as “IT infrastructure” by
launching i-mode, the world’s first wireless digital data communications service platform including e-mail and
Web content service, as well as i-appli, a Java-based mobile application platform.
    In this manner, we established a brand image of providing easy-to-use, yet cutting-edge mobile network serv-
ices of consistently high quality, which enabled us to establish a wide lead over the competition and open new
areas of the mobile phone market. We then devoted all our energies to conducting leading-edge R&D and com-
mercializing the results in order to further increase the innovativeness of our technologies and the superiority of
our services (qualities that lie at the core of the DoCoMo brand).


Strengthening Each of the Elements That Form the Basis of Our Brand
All that aside, we were undeniably somewhat slow and less than meticulous in meeting the needs of our cus-
tomers, which diversified quickly as the mobile phone market grew, and we allowed our rivals to take the lead in
the areas of handset design and service. Having reflected on these facts in a forthright and candid manner, in fiscal
2004 we instituted a “customer-oriented” management policy, and conducted a detailed review of each element of
our business, including our handsets, networks, rate structure, and after-sales service.

                                                    We initiated a frank reassessment of our actual strengths in
                                                    each of the areas that combine to form the DoCoMo brand,
                                                    including our product strength, our service capabilities, and
                                                    our ability to create new markets.


1. Augmenting Our Handset Lineup | Through our strong co-development program with handset manufacturers,
DoCoMo has worked to launch numerous new technologies and increase the functionality of our mobile phone
handsets. However, the number of customers who are truly eager to use the latest features is limited, and a grow-
ing number of customers want greater diversity in available handsets, both in terms of design and the amount of
functionality provided. To meet these varied needs, we have announced the 901i series of high-end FOMA models,
and have started selling the 700i series of lower-priced handsets with limited features. In fiscal 2004, we launched
a total of nine new handset models that meticulously reflect customer needs, including a highly easy-to-use model
aimed at middle-aged and older customers, a model for business users who do not need camera functionality, and
a dual-mode model with wireless LAN capability.


2. Enhancing Networks | By the end of fiscal 2003, the FOMA service area reached 99% of the population of
Japan. Yet, within this service area, FOMA could not always function in places such as subway stations, under-
ground arcades, and the interiors of office buildings. In fiscal 2004, we worked to enhance service within these
8                           |
CEO’s Message: To Our Shareholders




                                     interior spaces and sought to further improve call quality within the existing service area.


                                     3. Revising Our Rate Structure | We have taken aggressive steps to strengthen our competitiveness, including a
                                     reassessment of our rate structure. We have enhanced our menu of “Family Discount” services by increasing the
                                     size of discounts, enabling free e-mail between family members, and allowing family members to share unused free
                                     calling minutes. In addition, we have aggressively and strategically revised various rates, such as by introducing a
                                     flat-rate service for i-mode access and revising our Packet Pack plans, in an effort to counter the perception that
                                     DoCoMo has higher rates, increase customer retention, and stimulate new demand.


                                     4. Improving After-Sales Service | Returning to our original premise of a “customer-oriented” stance, we think it
                                     is highly important to enhance our support system and augment our after-sales system to make our services more
                                     convenient and to allow our customers to use these services comfortably. With that in mind, we have established a
                                     24-hour e-mail-based customer service center, and for members of the DoCoMo Premier Club, we now provide
                                     three years of free handset repairs and free-of-charge battery pack replacements for DoCoMo users of over two years.


                                     Opening of New Business Spheres Starting in Earnest
                                     Obviously, the possibilities for further growth in existing spheres of business are limited. With the goal of creating new
                                     value that exceeds our customers’ expectations, we have taken the following actions in the following spheres of business.


                                     1. Augmenting Services Linked with the “Brick-and-Mortar” Business | The Japanese mobile phone market has
                                     already reached 88 million subscribers. However, we do not view the market as saturated; rather, we think this
                                     market represents one of the largest forms of infrastructure in Japan. Our new goal is to accelerate the uptake of
                                     services linked with the “brick-and-mortar” business (which merges our services and various commercial transac-
                                     tions through the external interface functions of our mobile phones), and to thereby make the mobile phone an
                                     even more useful tool in everyday life and business.
                                           At the core of our services linked with the “brick-and-mortar” business is our “Osaifu-Keitai” service, in
                                     which an built-in contactless IC chip (FeliCa*) allows a DoCoMo mobile phone to replace any number of items
                                     necessary for everyday life, including transit passes, credit cards, and keys. As of July 22, 2005, the number of
                                     subscribers using mobile phones with wallet functions “Osaifu-Keitai” had already surpassed the 5 million mark,
                                     while 22,000 shops were accepting the “Osaifu-Keitai” service as of the end of June 2005. In addition to the cur-
                                     rent pre-paid “Osaifu-Keitai” payment service, we also intend to seize new business opportunities by offering
                                     post-paid credit payment services.
                                     * FeliCa is a registered trademark of Sony Corporation. FeliCa is a contactless IC cards technology developed by Sony Corporation.



                                     2. Promoting Global Business | Over 17 million Japanese people now travel overseas each year. However, very
                                     few people take their mobile phones with them. We consider global roaming services a business sphere with sig-
                                     nificant potential for expansion. In December 2004, we began selling dual-mode FOMA/GSM mobile phones
                                     (GSM is the 2G technology used in Europe), and, in addition to our existing voice roaming services, we launched
                                     global packet communications roaming services. By enabling our customers to use the same i-mode services they
                                     enjoy in Japan while overseas, we have significantly increased the convenience of our mobile phones.


                                     3. Expanding Audiovisual Traffic | We are working to spread the adoption of videophone and other video com-
                                     munications technologies with the aim of creating a new communications culture. For the time being, we will
                                     focus our efforts on promoting the use of these technologies on our core user base (customers in their 20s and
                                     30s), marketing the innovativeness of our original services.
                                                                                                                       |9




                                                                                                                       CEO’s Message: To Our Shareholders
    Aiming to Restore the DoCoMo Brand, and Then for Further Growth

                                                   There are clear signs that the DoCoMo brand is recovering
                                                   strength, including a growing base of new subscribers and a
                                                   decline in the churn rate to the lowest level ever.


Measures to Strengthen the DoCoMo Brand Steadily Yielding Results
Although our operating income declined in fiscal 2004, as I discussed earlier, a number of initiatives met with suc-
cess and I am confident that the strength of the DoCoMo brand is again on the rise.
    Net subscriber growth in the overall mobile phone market decreased by around 15% year-on-year in fiscal
2004, but DoCoMo experienced growth of around 15%. DoCoMo’s share of net subscriber growth rebounded to
49% in fiscal 2004, after having fallen to 36% in fiscal 2003. In addition, the churn rate (which we consider an
important indicator) among our roughly 49 million subscribers improved by 0.2 percentage points in fiscal 2004,
falling to 1.01% from 1.21% in fiscal 2003. Of particular note, the churn rate in the fourth quarter of fiscal 2004
decreased by 0.4 percentage points year-on-year to 0.96%, a quarter in which the churn rate typically rises.
    FOMA has solidified its position as next-generation infrastructure faster than we expected. The migration to
FOMA is proceeding smoothly, and as of July 2005, the number of FOMA subscribers exceeded 14 million. We
anticipate that FOMA users will account for around one-half of all DoCoMo mobile phone subscribers by the end of
March 2006. We will strive to control the costs associated with the migration to FOMA through the introduction of
the 700i series and the reduction of handset procurement costs through the purchase of handsets from overseas
vendors. Thus, we have laid the groundwork for making 3G handsets the main type of mobile phone in use.


Stepping Up Efforts to Develop Business Models and Services Unique to DoCoMo
Through an alliance with East Japan Railway Company (JR East), DoCoMo subscribers using mobile phone with
wallet functions will be able to pay for train fare and to purchase goods sold at station kiosks from January 2006.
Prior to this, our competitors also start making their products compatible with FeliCa services in fall 2005, and we
expect such services to win widespread adoption very quickly. We intend to develop this business by leveraging
our advantages as a pioneer in this area (including in compatible handsets, services, and service administration),
and to thereby enhance our competitive strength.
    In April 2005, DoCoMo has concluded a business and capital tie-up agreement with Sumitomo Mitsui
Financial Group, Inc., Sumitomo Mitsui Card Co., Ltd., and Sumitomo Mitsui Banking Corporation to engage
in the joint promotion of a new credit-payment service. And also in July, we entered into a capital tie-up with
Sumitomo Mitsui Card Co., Ltd.. DoCoMo will introduce a new brand for its credit card service, of which the
platform will be jointly developed by DoCoMo and Sumitomo Mitsui Card, thereby establishing an original
credit-card payment platform using “Osaifu-Keitai” in fiscal 2005. In addition, we intend to further expand the
adoption of the “Osaifu-Keitai” service and establish a new traffic-independent revenue stream by creating a
new credit payment market in the area of micropayments, which has historically been paid primarily in cash.
    Through these efforts, we are increasing still further the convenience of our mobile phone as lifestyle infra-
structure.
10                           |
 CEO’s Message: To Our Shareholders




                                                           Aiming to Grow Together With Our Stakeholders

                                       The Support of Stakeholders Helps Create a Strong Brand
                                       I am firmly aware that building a strong DoCoMo brand depends on having the support of our stakeholders,
                                       including customers, society in general, and shareholders. We at DoCoMo will strive to enhance the Company’s
                                       product strength, service capabilities, and market-creation capabilities. In addition, we will take proactive steps to
                                       act in a socially and environmentally responsible manner. Moreover, we will work even harder to manage the
                                       Company in a transparent manner, and in a way that reflects the views of all stakeholders.


                                       Return to Shareholders
                                       DoCoMo management believes that returning profits to shareholders is an important issue. With the continued
                                       payment of a stable dividend as our basic policy, we are also considering buying back shares in a flexible manner.
                                       In fiscal 2004, we paid a total of ¥2,000 per share in dividends, a ¥500 increase from fiscal 2003. We plan to dou-
                                       ble our total dividends in fiscal 2005 to ¥4,000 per share. In addition, in fiscal 2003 we repurchased 1.58 million
                                       shares (for ¥394.9 billion), followed in fiscal 2004 by another 2.32 million shares (for ¥425.2 billion). We intend
                                       to keep the shares repurchased as treasury shares and limit the amount of such treasury shares to approximately
                                       5% of its total issued shares. Any treasury shares kept in excess of this limit will in principle be cancelled at the
                                       year-end or at other times. (Note that we cancelled 1.48 million shares at the end of fiscal 2004.)

                                      So long as we have a strong brand, the possibilities for
                                      growth are unlimited.


                                       Re-Establishing the Strength of the DoCoMo Brand While Maintaining a Pioneering Spirit
                                       The operating environment surrounding the mobile phone industry certainly has its challenges. However, I believe
                                       that by frankly assessing customer needs, enhancing our core competencies, and continuing to create new value in
                                       excess of expectations, we will build a strong DoCoMo brand. I am confident that this is the correct path toward
                                       becoming the ultimate victor in a “survival of the fittest” world.
                                           We at DoCoMo believe in our hearts that so long as we have a strong brand, the possibilities for growth
                                       are endless, and we will continue striving to be a revolutionary company, using the mobile phone to establish
                                       new markets.



                                       July 2005




                                       Masao Nakamura
                                       President and Chief Executive Officer
                                                  | 11




                  Special Feature 1

DoCoMo BRAND | THE THIRD STAGE IN OUR EVOLUTION
12                                                      |             Making the DoCoMo Brand Even Stronger Will Increase Our Competitive
                                                                      Advantage and Shareholder Value

                                                                      The mobile phone has become an essential part of peoples’ daily lives as “Communication infrastructure”
                                                                      (both voice and data). A strong DoCoMo brand has made this possible and has fueled our rapid growth. Our
 Special Feature 1: DoCoMo Brand | The Third Stage in Our Evolution




                                                                      brand strength is the sum of our product strength, service strength, and market-creation strength. We at
                                                                      DoCoMo are now working to further increase the strength of the DoCoMo brand, further develop the mobile
                                                                      phone as a communications tool, and create new mobile phone markets through the development of non-
                                                                      communications applications, with the aim of making mobile phones even more useful to the daily and
                                                                      business lives of our customers.


                                                                                                                                                   PA R T 1
                                                                                          T H E E V O L U T I O N O F T H E D o C o M o B R A N D T H U S FA R

                                                                      Stage One (1992-1998):                                           We also worked to make our hand-                 attention on the limits of our business
                                                                      “Anytime, Anywhere, with Anyone”                            sets smaller and lighter, and to improve              model at the time, which relied solely
                                                                      DoCoMo began operations in 1992, when                       their continuous standby times. We also               on voice communications fee income. At
                                                                      the percentage of the population using                      implemented several fee-structure                     that point, we undertook a major shift
                                                                      mobile phones in Japan (the penetration                     reforms that were groundbreaking at the               in strategy, propelling ourselves into a new
                                                                      rate) was only around 1%, and it took the                   time. For example, we stopped requiring               stage of earnings growth by establishing
                                                                      Company only a little more than four                        large security deposits, abolished new                a data communications business, through
                                                                      years to acquire more than 10 million                       subscriber fees, and started allowing cus-            which we would provide information and
                                                                      subscribers. As a voice communications                      tomers to buy their handsets rather than              entertainment through mobile phones.
                                                                      tool, the mobile phone had by that point                    rent them. This caused demand to surge,                     The service that made this concept
                                                                      achieved penetration throughout Japan.                      and high volumes allowed us to vastly                 a reality was i-mode, which we launched
                                                                           Then as now, we listened carefully                     lower handset prices.                                 in February 1999. i-mode was the
                                                                      to the opinions of our customers, who, in                        We consider the period from 1992                 world’s first service platform for e-mail
                                                                      the end, are the source of our growth.                      through 1998, in which we created and                 and web content through wireless digi-
                                                                      Most of their complaints involved calls                     nurtured the market for mobile phones                 tal data communications. Three years
                                                                      not connecting properly. The reason for                     as a new type of communications infra-                after its launch, the number of i-mode
                                                                      this was that, at the time, most of our                     structure, to be the first stage in the               subscribers reached approximately 30
                                                                      wireless base stations were arrayed only                    evolution of the DoCoMo brand ——                      million, firmly entrenching DoCoMo at
                                                                      along roadsides. With a strong sense of                     making mobile phones and DoCoMo                       the top of the industry. By creating a
                                                                      mission, we established a nationwide net-                   synonymous with each other.                           market for mobile phones as IT infra-
                                                                      work of base stations, and transformed                                                                            structure, we increased the strength of
                                                                      the shape of our service area from a col-                   Stage Two (1999-2003):                                the DoCoMo brand still further. We
                                                                      lection of lines to an unbroken surface.                    “From Volume to Value”                                consider this the second stage in the
                                                                      This set the stage for major growth.                        By 1996, we had already focused our                   evolution of the DoCoMo brand.

                                                                                                                                 EVOLUTION OF MOBILE PHONE SERVICES

                                                                                       “Anytime, Anywhere, with Anyone” (Voice)
                                                                      No. of
                                                                      subscribers
                                                                                                                          “From Volume to Value” (Internet access)
                                                                      (Millions)                                                                                 “Mobile phone services useful for daily life and business”
                                                                                                                                                                                                (linkage with brick-and-mortar services)
                                                                                         Voice communication                                                            48.8 million*
                                                                                         infrastructure                            IT infrastructure                                     Lifestyle infrastructure
                                                                               40                                                                                       44.0 million*


                                                                                              Cellular phone subscribers                                                                                          Camera (mega-pixel)
                                                                                              i-mode subscribers
                                                                                                                                                                                                                  Infrared transmission
                                                                                              FOMA subscribers
                                                                               20                                                                                                                                 Contactless IC
                                                                                                                                                                                                                  External memory
                                                                                                                                                                        11.5 million*                             Bar code reader
                                                                                                                                                                                                                  High-resolution display
                                                                                0
                                                                            FY ’94      ’95      ’96     ’97       ’98     ’99     ’00     ’01     ’02     ’03   ’04    ’05                                 *As of the end of March 2005
                                                                      Liberalization of handset sales          i-mode service launch FOMA service launch
                                                                                   ’94/04                             ’99/02               ’01/10
                                                            PA R T 2                                                               | 13
          WHY WE ARE NOW FOCUSING ON BRAND MANAGEMENT

Comprehensive Brand Strength                  ny that has a strong brand can estab-      intended to allow companies in other
Attracts Customers                            lish a highly superior position, and       industries to enter the mobile phone




                                                                                                                                   Special Feature 1: DoCoMo Brand | The Third Stage in Our Evolution
Enhancing the strength of the DoCoMo          having a strong brand leads directly       market, 2006 will likely see the intro-
brand as part of the Company’s man-           to high growth potential and high          duction of mobile number portability,
agement base is crucial to achieving          profitability. In addition, a company      under which customers will be able to
sustainable growth. In the mobile             with the ability to provide unique         switch mobile phone service
phone market to date, the ability to          products and services becomes highly       providers while keeping the same
build networks and other forms of             resilient in the face of change in the     phone number. Doing nothing in the
infrastructure, and the ability to pro-       external business environment and          face of these changes in the business
vide stable service, are the most             can maintain its position in the mar-      environment would likely require us
important capabilities. Today, howev-         ket. Thus, having a strong brand also      to compete on price alone. Converse-
er, the necessary infrastructure is           enables a company to dramatically          ly, establishing a truly robust brand
largely in place, peoples’ lifestyles are     increase its stability. Enterprise value   with unique features exclusive to
highly diverse, and customers have a          is essentially the aggregate of growth     DoCoMo services and products could
choice of mobile phone service                potential, profitability, and stability,   in turn actually make an increase in
providers. For these reasons, the abil-       and we believe enhancing our corpo-        competition advantageous to us. This
ity to attract customers has become           rate brand will have a direct, positive    thinking has prompted us to re-evalu-
important as well. We believe cus-            effect on our enterprise value.            ate the strength of our brand and
tomers are drawn to brands that                                                          work to enhance it.
reflect comprehensive strength, com-          A Strong Corporate Brand
prising in part product strength,             Enables Aggressive Management
technological strength, and price             The penetration rate of mobile
strength.                                     phones in Japan has exceeded 70%.
                                              Experiences in the European and
The Corporate Brand Is Also                   other foreign countries’ markets sug-
Important to Shareholder Value                gest that there may still be some room
Corporate brand strength can be               for this rate to increase, but clearly,
enhanced by adopting the customer’s           the Japanese market is close to being
point of view, but we think strong cor-       mature. Meanwhile, competition is
porate brand is also extremely                becoming increasingly intense. In
important to shareholders. A compa-           addition to developments that are



                    MANAGEMENT FOR STRENGTHENING BRAND POWER, AS CONCEIVED BY DoCoMo


                                                 Maximization of corporate value




    Product and service brands                                                             Management brand
                                                        High profitability
    •Price competitiveness                                                                 •Risk management capacity
    •Product competitiveness                            High growth                        •Governance
     (product lineup, attractiveness, etc.)                                                 (transparency and soundness)
    •Marketing capacity                                 High sustainability                •Capacity for social contributions
    •etc.                                                                                  •etc.




                                                       Business foundations

                                                       •Personnel
                                                       •Technology
                                                       •Financial Strength
                                                       •etc.
14                                                      |                                                                             PA R T 3
                                                                       THE ELEMENTS AND GROWTH STRATEGY REQUIRED TO CREATE A NEW BRAND

                                                                      In enhancing a brand, it is important       introducing the FOMA 700i series,                                  full web-browsing functionality. In
                                                                      to carry out a strategy of differentia-     which is priced lower than the 900i                                addition, it is GSM compatible and
 Special Feature 1: DoCoMo Brand | The Third Stage in Our Evolution




                                                                      tion in existing markets and services,      series and offers a more streamlined                               has wireless LAN functionality.
                                                                      as well as to exhibit creativity in ven-    set of FOMA functions.                                                  We will continue to aggressively
                                                                      turing into completely new areas and             In addition, we launched a total of                           develop and introduce handsets with
                                                                      markets. The ability to meet cus-           nine new models during fiscal 2004                                 a clear target audience in fiscal 2005
                                                                      tomers’ needs, as well as the ability to    aimed at addressing highly specialized                             and thereafter.
                                                                      create the needs themselves, enhances       needs. These include the N900iG, a dual-
                                                                      brand strength and thereby leads to         mode FOMA/GSM handset that can be                                  (2) Strategy for Differentiating and
                                                                      increased competitiveness.                  used overseas, and the N900iL, a dual-                                 Enhancing Infrastructure
                                                                           In this section, we will discuss       mode handset that merges fixed-line and                            We believe that to support the full-
                                                                      our efforts aimed at creating a new         mobile communications through on                                   fledged expansion of FOMA and the
                                                                      DoCoMo brand, examining the hard-           board wireless LAN functionality.                                  growth of packet communications
                                                                      ware side first, and then the software           In fiscal 2005, we have launched                              volume, it is vital to make progress in
                                                                      side.                                       the FOMA M1000 handset, which is                                   building high-speed, economically
                                                                                                                  aimed at business customers. This                                  efficient networks by expanding serv-
                                                                      1 | Hardware                                model is able to access regular web-                               ice areas further, shifting core networks
                                                                                                                  sites designed for PCs, thereby offering                           to IP-based ones, and increasing wire-
                                                                      (1) Strategy for Differentiating and
                                                                          Enhancing Handsets                                                                  ENRICHED HANDSET LINEUP
                                                                      Creativity is what we at DoCoMo have                                                                                         After
                                                                                                                    First half of               Latter half of
                                                                      leveraged to make the necessary break-        fiscal 2004                 fiscal 2004                                        fiscal 2005

                                                                      throughs in our handset lineup. In fiscal
                                                                      2004, we not only worked to meet our
                                                                      customers’ diverse needs and preferences         FOMA                  F900iC          N900iL     901i                                901iS               902i

                                                                      in such areas as design, functionality,           90X
                                                                                                                       Series                                                   N900iG
                                                                      and price; we also developed the kinds of
                                                                      handsets that arouse such needs and                                                             FOMA                  700i                  701i                     702i
                                                                      preferences in the first place.                                                                  70X
                                                                                                                                                                      Series
                                                                           In response to the diversification
                                                                      of customer needs, we introduced                                                                                                                Project terminal
                                                                                                                                               FOMA Raku-Raku PHONE                                           M1000     Generic module          HSDPA
                                                                      several handsets with strong design              FOMA
                                                                                                                      /Others
                                                                      sense, starting in July 2004 with the                                                                                                               Overseas vender

                                                                      premini series and continuing with
                                                                                                                                           506iC      253i                            N506iS
                                                                      the Music PORTER handset. We also                mova
                                                                      introduced handsets aimed primarily                                 premini                     premini-S    premini-II
                                                                      at older customers, starting in Sep-                                                               Music PORTER        premini-IIS

                                                                      tember 2004 with the easy-to-use                 FOMA COVERAGE: No. of Outdoor BTSs* and Indoor Systems Installed
                                                                      FOMA Raku-Raku PHONE.
                                                                                                                  (No. of base stations)                                                                          (No. of systems installed)
                                                                           In December 2004, we launched          25,000                                                                                                            12,500
                                                                                                                                     No. of outdoor base stations (left)
                                                                      the FOMA 901i series, high-end models                          No. of indoor systems (right)                                                            23,600
                                                                      with expanded functionality. In June                           Population coverage
                                                                                                                  20,000                                                                                                               10,000
                                                                      2005, we launched the FOMA 901iS                                                                                       99.9%
                                                                                                                                                                                             (04/12)
                                                                      series, in which all models are equipped
                                                                                                                                                                                                         16,200
                                                                                                                  15,000                                                                                                                7,500
                                                                      with wallet functions for “Osaifu-                                                                       99%
                                                                                                                                                                                                                   r
                                                                      Keitai” service, PDF file capability, and                                                        11,700                                   the           5,500
                                                                                                                                                                                                             Fur sion
                                                                                                                                                                                                                an
                                                                      a wider coverage area (usable in rural      10,000                                                                                    exp                         5,000
                                                                                                                                                          91%
                                                                      areas such as mountainous sites).                                                                                ra   ge           3,800
                                                                                                                                                    6,200                         cove
                                                                           To address those customers who                                                                    door
                                                                                                                   5,000                                               DC in                                                            2,500
                                                                                                                                    60%                          p on P 1,670
                                                                      would like to try FOMA, but feel                                              Ca   tc h -u
                                                                                                                              1,700
                                                                      somewhat intimidated by the technol-                            70             150
                                                                                                                       0                                                                                                                    0
                                                                      ogy, in February 2005 we began                           FY 2001              2002               2003                          2004                  2005
                                                                                                                                          Nationwide service launch (’02/4)                                              (Forecast)
                                                                                                                           *BTSs: Base Transceiver Stations
                                                                                                                                                                              | 15


less network speed.                                       tiveness by carrying out a strategic                  important. Hence, we consider it neces-
     We have rapidly installed equip-                     rate revision. We knew that this rate                 sary to increase customer satisfaction




                                                                                                                                                                              Special Feature 1: DoCoMo Brand | The Third Stage in Our Evolution
ment to expand our service area, not                      reduction would depress revenues                      even further, and in April 2004 we
only outside of buildings, but inside as                  temporarily, but we decided to imple-                 launched the DoCoMo Premier Club,
well, in response to strong customer                      ment it with the goal of establishing a               providing meticulous member services
demand. We have finished installing                       firm customer base for further growth                 that are a step ahead of our competitors.
In-Building Mobile Communication                          in the future, and with the expecta-                       DoCoMo Premier Club members
Systems (IMCS) in around 3,800 loca-                      tion that technological innovation                    accumulate points in accordance with
tions (equivalent to the number of                        and an increase in the number of sub-                 the frequency of their mobile phone
locations in the mova network), with                      scribers will lower our costs.                        use at a preferred conversion rate two
the service area now encompassing all                          Specifically, starting in April 2004,            to five times greater than that of non-
subway stations in Tokyo. In addition,                    we enriched the “Family Discount”                     members. Such points can be exchanged
we have worked to create a more effi-                     service menu for subscribing families                 for travel coupons, restaurant coupons,
cient IP router network, involving IP                     to DoCoMo, providing discounts on                     and similar items upon the purchase
routers and optical transmission lines                    monthly basic fees and calling fees,                  of a new handset. Members also receive
acting as relays, and in late fiscal                      free e-mail between family members,                   such services as free handset repairs
2004, we completed the separation of                      and to share unused portions of                       for three years and free replacement
the voice and packet networks.                            monthly data and voice allowances for                 batteries for handsets in use two years
Through the use of a highly cost effec-                   up to two months. These changes were                  or more. In addition, the DoCoMo
tive IP router network, we hope to                        primarily intended to enhance our                     Premier Club i-mode site has started
make the cost of future networks far                      ability to sign up entire families as sub-            to provide individualized information
lower than that of the existing ATM                       scribers. In addition, in June 2004, we               for members.
network. For wireless networking, we                      began offering a flat-rate FOMA packet                     As of the end of April 2005, there
plan to commercialize High Speed                          service, dubbed “pake-houdai.” In                     were more than 30 million DoCoMo Pre-
Downlink Packet Access (HSDPA) in                         advance of this move, we lowered                      mier Club members, accounting for over
fiscal 2006. This communications proto-                   FOMA’s Packet Pack rates. These                       60% of all DoCoMo subscribers. The
col will enable higher downlink speeds,                   measures are all efforts to attract and               churn rate among club members is lower
with the maximum speed averaging                          lock in middle to high-end users.                     than the overall subscriber churn rate.
3.6Mbps upon its introduction and                                                                                    In October 2003, we began offer-
eventually reaching around 14Mbps.                        (2) Strategy for Differentiating and                  ing, ahead of our competitors, “Air
                                                               Enhancing After-Sales Service                    Download” service, a system that uses
                                                               and Support                                      wireless communication technology
2 | Software                                              Given the slowing growth of new sub-                  for upgrading the software on a sub-
                                                          scriptions and the Japanese mobile phone              scriber’s mobile phone. This allows a
(1) Strategy for Differentiating and                      markets’ movement toward maturity, we                 subscriber to solve any handset soft-
    Enhancing Our Rate Structure                          think the implementation of a retention               ware problems that may arise without
We worked in a proactive manner in                        strategy for existing DoCoMo customers                visiting a DoCoMo shop or other retail
fiscal 2004 to enhance our competi-                       (i.e., preventing churn) is extremely                 location for a software upgrade.



“Family Discount” SUBSCRIPTION RATE                         “pake-houdai” USER BREAKDOWN                       “DoCoMo Premier Club” MEMBERSHIP



  Subscription rate (%)                                                                                        (Million)                                                (%)
  60                                                                                                           40                                                        70
                                                                                                                       Number of “DoCoMo Premier Club” members (left)
                                              ts                                                                       Sign-up rate (right)
                                       e poin
                               ercentag                                                                        30                                                       60
                          +8 p
                                                                            Monthly
                                                                             data
  30                                                                                                           20                                                       50
                                                                              (%)
                                                                            2004/6
                                                                            2004/9                             10                                                       40
                                                                            2004/12
                                                                            2005/3
                                                                                        New subscribers
   0                                                                                                            0                                                        0
                 FY 2003                           2004                                 Existing subscribers                ’04/6     ’04/9    ’04/12     ’05/3
16                                             |


                                                                      3 | Strategy for Venturing Into                                    service, with the goal of creating a new        service providers. Packet communica-
                                                                          New Areas                                                      market for credit payment using                 tion, videophone, and SMS (Short
 Special Feature 1: DoCoMo Brand | The Third Stage in Our Evolution




                                                                                                                                         mobile phones. We are working to                Message Service) global roaming serv-
                                                                      1) Creating Markets for the “Brick-                                expand the range of credit payment to           ices became available in certain countries
                                                                          and-Mortar” Alliances Business                                 include fields involving small sums,            and regions in December 2004. In
                                                                      As one method of creating new markets,                             which are now usually paid for with             these and other ways, the efforts we
                                                                      we at DoCoMo are working to enhance                                cash, and thereby make further                  have made to date are leading to an
                                                                      our services linked with “brick-and-                               progress in turning the mobile phone            increase in revenues from global roam-
                                                                      mortar” businesses. This involves an                               into lifestyle infrastructure.                  ing services.
                                                                      entirely new business model, in which
                                                                      the mobile phone, which has achieved a                             2) Expanding Globally                           3) Creating a Culture of Mobile
                                                                      penetration rate of nearly 70% in Japan,                           We have worked to establish relation-               Video Communications
                                                                      evolves beyond the scope of voice and                              ships with mobile phone service                 Videophone service is the most promi-
                                                                      data communications, becoming a use-                               providers around the world to pro-              nent characteristic of FOMA (and is
                                                                      ful tool in a wide variety of daily life and                       mote both 3G services using the                 also a strength of the W-CDMA for-
                                                                      business situations.                                               W-CDMA format as well as the i-mode             mat), and is a prime example of our
                                                                            The key to the service is Mobile                             service. This has resulted in an                creativity. We believe this service will
                                                                      Wallet, a mobile phone equipped with                               increase in both the number of coun-            allow us to create another new market
                                                                      a contactless IC chip (FeliCa). By inte-                           tries where 3G services using the               (namely, the field of video communi-
                                                                      grating the functions of the many                                  W-CDMA format is available, as well             cation), and we forecast that the
                                                                      kinds of cards normally in one’s wallet                            as the number of i-mode service                 number of subscribers using handsets
                                                                      (such as ID cards, credit cards, and                               providers. As of the end of March               with videophone functionality will rise
                                                                      various member cards), the mobile                                  2005, the i-mode service area encom-            to around 24 million by the end of fis-
                                                                      phone can be put to a variety of uses                              passed nine countries and regions.              cal 2005. We think that an increase in
                                                                      (including shopping) as a lifestyle tool.                          And going forward, plans are being              the number of FOMA users will in
                                                                      As of July 22, 2005, the number of                                 made to launch the i-mode service in            itself increase the opportunities for
                                                                      subscribers using mobile phones with                               11 countries and regions, while the             use as well as accelerate this technolo-
                                                                      wallet functions “Osaifu-Keitai” had                               number of subscribers of all mobile             gy’s penetration. In addition, we
                                                                      already surpassed the 5 million mark,                              phone service providers participated            believe that establishing new applica-
                                                                      while 22,000 shops were accepting the                              in the i-mode service alliance (i.e.            tions for this technology, increasing
                                                                      “Osaifu-Keitai” service as of the end of                           potential i-mode users) exceeds 190             its appeal, and promoting its diffusion
                                                                      June 2005.                                                         million. As of the end of July 2005,            (for example, by enhancing its func-
                                                                            Going forward, through an alliance                           the WORLD WING / WORLD WALKER                   tionality, steadily increasing the range
                                                                      with Sumitomo Mitsui Card Company,                                 service was available in 127 countries          of situations in which it can be used,
                                                                      Limited, we will create a credit pay-                              and regions through global roaming              and increasing content) will help to
                                                                      ment platform for “Osaifu-Keitai”                                  contracts with overseas mobile phone            increase our profitability.

                                                                                                             NEW CREDIT-PAYMENT SERVICE                                                             USAGE OF i-mode ROAMING


                                                                                        Payment methods                   Usage            Payment terminal                  Future                   No. of i-mode roaming users (left)
                                                                                                                                                                                                      Average no. of accesses per user (right)
                                                                                          Card Issuing Business                                 Member retail                Enhance
                                                                                                                                                  shops                    combination   (users)                               (No. of accesses)
                                                                                                                      Shopping, etc.                                                     20,000                                                40
                                                                      Existing credit     •DoCoMo                                                                           with other
                                                                                                                      in Japan/abroad
                                                                      card (incl.         •Sumitomo Mitsui                                       Credit card                 payment
                                                                                                                      [Magnetic stripe
                                                                      international        Card                                                  capability                  services
                                                                                                                       contact IC*]
                                                                      brands)             •Others
                                                                                                                                                                                         15,000                                                30
                                                                                                                                                                           •e-money
                                                                                            Linked/converged                                    Develop & install          •Transpor-
                                                                                            services and credit                                 unified terminal            tation
                                                                                                                                                                           •etc.         10,000                                                20

                                                                      “Osaifu-            •i-appli for
                                                                       Keitai”             credit use                 Shopping, etc.           FeliCa capability                          5,000                                                10
                                                                      payment             •Wallet functions           [FeliCa]
                                                                      service              for “Osaifu-Keitai”

                                                                                                                                                                                             0                                                  0
                                                                                                                                                                                                      ’04/12     ’05/1     ’05/2       ’05/3
                                                                                                                  Credit brand business                                                           * Service launch on Dec. 25, 2004.

                                                                                        * Contact IC: EMV compliant (international IC standard used in financial sector)
                                                                                        Note:     is a trademark of FeliCa Networks, Inc.
                                      | 17




                <<



ALL YOU NEED IS YOUR MOBILE HANDSET
                <<
18   |




                         <<



         ALL YOU NEED IS YOUR MOBILE HANDSET
                         <<
                                                  | 19




                  Special Feature 2

NEW LIFESTYLES—CREATED THROUGH THE DoCoMo BRAND
20                                                      |             Creating New Lifestyles—That Is What Only DoCoMo Can Do

                                                                      At DoCoMo, our mission is to be a pioneer in the mobile phone industry—a mission in which we take great
                                                                      pride. This means not only providing mobile phones with all the functions people want, but also mobile
                                                                      phones with functions people did not even realize were possible.
                                                                          We at DoCoMo continue to create more than just new mobile phone uses or even new mobile phone
                                                                      lifestyles by leveraging to the utmost our growth base (which consists in part of our organization, personnel,
                                                                      technical capabilities, and marketing capabilities). This leads to increased enterprise value for DoCoMo, and in
                                                                      turn to profits for our shareholders.
 Special Feature 2: New Lifestyles—Created through the DoCoMo Brand




                                                                                CREATING A NEW CULTURE OF MOBILE VIDEO COMMUNICATIONS

                                                                      [REMOTE MONITORING]
                                                                      Are you worried about the pet you have put in a pet hotel? Do you wish you could see this loved one? Now DoCoMo can help.

                                                                                                                                              [Explanation of Functions and Applications]
                                                                                                                                              Imagine that you have had to put your precious family pet
                                                                                                                                              in a pet hotel, and now you are worried about how it is
                                                                                                                                              coping with being separated from the family. Now, if you
                                                                                                                                              use a pet hotel equipped with a FOMA-compatible live
                                                                                                                                              camera, you can leave your pet there with peace of mind.
                                                                                   Videophone
                                                                                                                                              By simply accessing the pet hotel’s live camera using the
                                                                                                                                              videophone function of your mobile phone, you can check
                                                                                                                                              to see how your pet is doing. If the pet hotel’s live camera
                                                                                                                                              has a speaker, you can even talk to your pet.




                                                                                                     MOBILE PHONES IN A BORDERLESS AGE

                                                                      [GLOBAL ROAMING]
                                                                      Enjoy the same convenience and peace of mind during your travels—You can keep the same telephone number and e-
                                                                      mail address, and even use i-mode!

                                                                                                                                              [Explanation of Functions and Applications]
                                                                                                                                              With a DoCoMo mobile phone, you can receive voice calls
                                                                                                                                              and text messages in 127 foreign countries and regions*
                                                                                                                                              using the same mobile phone number you use in Japan.
                                                                                                                                              You can even use i-mode in 45 foreign countries and
                                                                                                                                              regions,* including the US and the UK.
                                                                                                                                                   If you have an N900iG or M1000 FOMA Global
                                                                                                                                              Roaming Service-enabled handset, you can use the handset
                                                                                                                                              you use in Japan in other countries. If you do not have one
                                                                                                                                              of these models, you can use our overseas-use mobile
                                                                                                                                              phone rental service to enjoy our global roaming service.
                                                                                                                                              *As of July 31, 2005
                                                                                                                                                            | 21




                                        > REMOTE MONITORING
                                        You do not have to worry if you
                                        have no choice but to leave




                                                                                                                                                            Special Feature 2: New Lifestyles—Created through the DoCoMo Brand
                                        your family pet in a pet hotel.
                                        Using FOMA to access a live
                                        camera placed in the hotel, you
                                        can watch your beloved pet
                                        even while you are apart.




                                                                             < BAR CODES (QR CODES)
                                                                             After taking a picture of bar
                                                                             code (QR code) shown on
                                                                             magazines, the desired infor-
                                                                             mation can then be accessed
                                                                             by simply pressing the URL
                                                                             displayed on the screen.




                                                                                                                      V  “Osaifu-Keitai”
> GLOBAL ROAMING                                                                                                      When buying items at conven-
Paris 8:00 - Kyoto 15:00. You                                                                                         ience stores/vending machines or
can stay in touch whenever you                                                                                        checking-in at the airport, all you
want, even while you are away,                                                                                        have to do is to hold your mobile
with your usual mobile phone                                                                                          phone with wallet functions to
and usual number.                                                                                                     the scanner (reader)—It is such a
                                                                                                                      simple and easy process!




Coca-Cola (Japan) Company, Limited   All Nippon Airways Co., Ltd.         Japan Airlines International Co., Ltd.   am/pm Japan Co., Ltd.
                                                                          Japan Airlines Domestic Co., Ltd.
22                                                      |                      OUR NEW MOBILE PHONES ARE MORE THAN COMMUNICATIONS TOOLS
                                                                                               —THEY ARE LIFESTYLE TOOLS

                                                                      [Osaifu-Keitai*]
                                                                      Your mobile phone can help streamline your overstuffed wallet.

                                                                                                                                                             [Explanation of Functions and Applications]
                                                                                                                                                             You can use a “i-mode FeliCa”-enabled mobile phone to
                                                                                                                                                             replace much of the contents in your wallet, including
                                                                                                                                                             small change, credit cards, and various membership cards.
                                                                                                                                                             Small change replacement | Once you sign up and charge
 Special Feature 2: New Lifestyles—Created through the DoCoMo Brand




                                                                                    Speedy data transmission/                                                your “Osaifu-Keitai” with “e-money,” you can use it to pay
                                                                                           reception                 Member’s Card           Ticket          for purchases at convenience stores and drug stores. All
                                                                                                                                                             you need to do is to hold the mobile phone to the scanner
                                                                                                                                                             (reader) at the store.
                                                                                                                                                             Credit card replacement | If your “Osaifu-Keitai” has your
                                                                                                                                                             credit card information, you can use it to charge store pur-
                                                                                                                     Transportation         Key / ID         chases to your credit card.
                                                                                                                                                             Transit pass replacement | You can use your “Osaifu-Keitai,”
                                                                                                                                                             instead of a transit pass, to pass through the automated tick-

                                                                                                       ¥                  ¥                    ¥             et wicket at the train station. (Start of service is slated for
                                                                                                                                                             January 2006.)
                                                                                                                                                             Ticket replacement | Whether it be airline tickets or tickets for
                                                                                                    Shopping             Finance        Online Shopping
                                                                                                                                                             movies, you can do everything you need—from ticket purchases
                                                                      * What is “Osaifu-Keitai”?                                                             to check-in (admission) procedures—with your “Osaifu-Keitai.”
                                                                        “Osaifu-Keitai” refers to mobile phones equipped with contactless IC card, as        Membership card replacement | Is your wallet overstuffed with
                                                                        well as its useful function/services enabled by the IC card. With this function,
                                                                                                                                                             video rental membership cards, sports club membership cards,
                                                                        mobile phones can be utilized as electronic money, credit card, electronic ticket,
                                                                        membership card, airline ticket, and more.                                           and the like? Now you can load the information on your mem-
                                                                                                                                                             bership cards onto your “Osaifu-Keitai” and use it instead.



                                                                      [BAR CODES (QR CODES)*]
                                                                      Mobile phone cameras can read bar codes (QR codes), opening up a variety of possible uses.

                                                                                                                                                             1) Services for business users:
                                                                                                                                                             [Explanation of Functions and Applications]
                                                                                                                                                             If you have business cards printed with a bar code (QR
                                                                                                                                                             code) containing such information as your company’s
                                                                                                                                                             name, division, office phone number, and e-mail address,
                                                                                               Information Display                                           your customer can easily add this information to the
                                                                                                                                                             address book on his or her mobile phone, and access your
                                                                                                                                                             company’s website without having to input its URL. In this
                                                                                                                                                             manner, bar codes (QR code) can support your business.
                                                                                                                                                                  You can also provide customers with details on your
                                                                                                                                                             company’s products and services by putting a bar code (QR
                                                                                                                                                             code) with that information on your posters, brochures,
                                                                                                                                                             magazines, and the like. This allows you to present visually
                                                                                                                                 Name                        uncluttered printed materials, while still providing detailed
                                                                                                                                 Company name                information.
                                                                                        “Read code by camera”                    Division name
                                                                                                                                 Address                     2) Services for individual users:
                                                                                                                                                             [Explanation of Functions and Applications]
                                                                                                                                 Phone number
                                                                                                                                                             In Japan, people traditionally send New Year’s cards to
                                                                                                                                 E-mail address
                                                                                                                                                             friends and business associates. Many have long wished for
                                                                                                                                                             a way to include their voices and faces with these greetings,
                                                                                                                                                             and now bar codes (QR codes) have made it possible. You
                                                                                                                                                             can now use a FOMA handset to shoot an i-motion movie
                                                                                                                                                             and upload it to a website. By having your New Year’s
                                                                                                                                                             cards printed with a bar code (QR code) containing the rel-
                                                                                                                                                             evant URL, recipients can hear and see your own New
                                                                                                                                                             Year’s greeting.
                                                                      Bar code (QR code) printed on a business card                                          * QR code is a registered trademark of Denso Wave Incorporated.
                                                                 | 23




D o C o M o B R A N D | T H E F O U N D AT I O N A N D I T S
                        U T I L I Z AT I O N S T R U C T U R E
24                                                |              R E S E A R C H & D E V E L O P M E N T A N D I N T E L L E C T U A L P R O P E RT Y


                                                               DoCoMo is in the rare position of being a mobile phone service provider that offers mobile communications
                                                               services while actively conducting its own R&D. Our technological strengths have been built on the back of
                                                               practical R&D projects, whose results fuel the introduction of new services that facilitate our top market share,
                                                               and revolutionary research that targets the future global standard for communications technologies. These
                                                               strengths are the source of the DoCoMo brand, and the following explains in more detail our strategy for R&D
                                                               and intellectual property.
                                                               * DoCoMo aims to increase the value of our entire field of intellectual assets, including not only R&D and intellectual property, but also organizational assets
                                                                 and human resource assets. For more information on organizational and human assets, please see “Human Resources” on page 27 as well as other relevant
                                                                 sections of this chapter.
 DoCoMo Brand | The Foundation and Its Utilization Structure




                                                               1 | R&D Structure and                                 with manufacturers.                                    with frequent discussions aimed at
                                                                   Fields of Focus                                      The results of R&D have been                        improving customer satisfaction through
                                                                                                                     numerous. They include the provision                   the development of new products and
                                                               Basic Stance and Areas of R&D                         of mobile terminals with multiple new                  services. In fiscal 2004, such coordination
                                                               As a mobile phone service provider,                   functions capable of responding to                     resulted in the development of mova
                                                               we develop distinctive leading-edge                   diverse customer needs, and also the                   handsets with unique product concepts
                                                               technologies and services that handset                introduction of various equipment that                 and distinctive features such as premini,
                                                               manufacturers and our partner compa-                  aim to ensure high network efficiency                  prosolid, and Music PORTER handsets,
                                                               nies fully utilize. It is on this basis that          and reliability.                                       visionary developments ahead of our cus-
                                                               we aim to build a superior business.                                                                         tomers’ needs. Also, we developed the
                                                                   The three main fields of our R&D                  R&D Structure and Organization                         network equipment tailored to the intro-
                                                               are wireless access technology, network               With the NTT DoCoMo R&D Center                         duction of the “pake-houdai” flat rate
                                                               technology, and multimedia interface                  as the core of its structure, our R&D                  service for data communications.
                                                               technology. We are conducting a wide                  organization consists of three laborato-
                                                               range of R&D activities from improve-                 ries (Network Laboratories, Wireless
                                                               ments to existing products and services               Laboratories, Multimedia Laborato-                     2 | Topic: Technology to Watch
                                                               to the realization of 4G mobile commu-                ries), nine departments, and three                     —DoCoMo Achieves 1Gbps Packet
                                                               nications systems, aiming to position                 overseas bases.                                           Transmission in 4G Field Experiment
                                                               the Company for further growth. Our
                                                               R&D expenditures are allocated appro-                 Close Coordination between the                         In May 2005, DoCoMo achieved 1Gbps
                                                               priately to the above fields based on                 R&D and Business Divisions                             real-time packet transmission in the
                                                               our strategy. And also, we are promot-                The R&D divisions and Business divi-                   downlink at the moving speed of about
                                                               ing our R&D under strong collaboration                sions actively coordinate their operations,            20km/h in a field experiment on



                                                                      Trends in R&D Expenditures                                               Research Organization and Each R&D Field
                                                                            (total amount)


                                                                                                                                                     R&D Activities toward Practical Use
                                                               (Billions of yen)
                                                               150                                                                      Network Management                             Network System
                                                                                                                                       Development Department                      Development Department

                                                               125                                                                         IP Core Network                              Radio System
                                                                                                                                       Development Department                      Development Department

                                                               100                                                                        IP Radio Network                             Global Network
                                                                                                                                       Development Department                      Development Department

                                                                                                                                         Customer Equipment
                                                                75                                                                     Development Department

                                                                50
                                                                                                                                                        Basic and Applied Research

                                                                25                                                           Wireless Laboratories             Network Laboratories            Multimedia Laboratories


                                                                 0
                                                                      FY 2001      2002   2003   2004   2005                          Research and Development                        R&D General Affairs
                                                                                                                                         Planning Department                             Department
                                                                                                                                                                        | 25


fourth-generation (4G) radio access.                 *2: MIMO multiplexing: A technology in which                 ning. In particular, in matters involving
                                                         several different data streams are transmitted
This is the latest achievement in DoCo-                  on independent radio propagation paths                   important themes such as those related
Mo's ongoing development of key radio                    using the same frequency and time slot in                to standardization and key services,
                                                         order to achieve very high frequency spec-
access technology for 4G mobile com-                     trum efficiency.                                         we strengthen coordination among
munications.                                                                                                      related departments and systemati-
    The 1Gbps real-time packet trans-                                                                             cally implement research into other
mission was realized through Variable                3 | Measures to Improve the                                  companies’ patents. Utilizing this
Spreading Factor-Spread Orthogonal                       Value of Intellectual Property                           research, we actively promote strategic




                                                                                                                                                                        DoCoMo Brand | The Foundation and Its Utilization Structure
Frequency Division Multiplexing (VSF-                                                                             applications for patents.
Spread OFDM* 1) radio access and                     The Intellectual Property Department
4-by-4 Multiple-Input-Multiple-Output                serves as DoCoMo’s center with regard                        Strengths and Future Approach to
(MIMO) multiplexing*2 using “adap-                   to intellectual property matters. Coor-                      Patent Applications
tive selection of surviving symbol                   dinating with the R&D divisions and                          DoCoMo’s patent appraisal rate* is
replica candidate” (ASESS) based on                  Business divisions, the Intellectual                         high especially in areas like access net-
Maximum Likelihood Detection with                    Property Department aims to strength-                        works and other areas related to mobile
QR decomposition and the M-algorithm                 en the power of DoCoMo’s intellectual                        telecommunications systems. In addi-
(QRM-MLD), which was developed by                    property, handling matters from patent                       tion, since fiscal 2000, we have been
DoCoMo.                                              application, acquisition, and manage-                        actively promoting patent applications
    DoCoMo will continue to conduct                  ment to the active utilization of the                        in IP Network (IPNW) fields and relat-
field trials as part of its program to devel-        Company’s patents and management of                          ed business fields.
op radio access technology for 4G                    intellectual property risk.                                     The pace of domestic patent appli-
mobile communications in cooperation                                                                              cations has accelerated since fiscal
with the International Telecommunica-                (1) Intellectual Property Acquisi-                           1999, with over 700 applications
tion Union Radiocommunication Sector                      tion and Management                                     being filed in each of the past three
promoting international standardization.             Activities to Ensure Strong Patent Rights                    years. At the same time, our foreign
The telecommunications council of                    DoCoMo maintains a basic policy of                           patent application count has climbed,
Japan's Ministry of Internal Affairs and             acquiring patents relating to ideas as                       reflecting the overseas expansion of
Communications aims to see 4G services               the foundation of its technology and                         the i-mode service and the increase in
commercialized in the country by 2010.               services, thus utilizing strong rights in                    domestic patent applications, with the
*1: VSF-Spread OFDM: It enables high-speed           its business activities.                                     number of foreign patent applications
    packet communication both in the cellular
    system and in local area such as hot-spot area
                                                         To this end, we push patent applica-                     maintaining a level of about 200 over
    and indoor office environments by the same       tion in a planned manner, along with                         the past three years.
    air interface and only by changing major
    radio parameters.
                                                     R&D and service development plan-                               Going forward, we will actively con-



                              Example of Coordination between the R&D Divisions and Business Divisions

                                                                                      R&D divisions
                                                                                       A variety of information will be presented, including research and development
                                                                                       themes, a chart of research and development plans, and an agenda for outside
                                                                                       activity (standardization activities, academic conferences, etc.).

                                                                                      Business divisions
                                                                                        A variety of information will be presented, including service
                                                                                        specifications and a chart of service plans
                                                               Inventors
                                                                              St




                                                                                              — Deliberation on patent filing plans, and countermeasures for
                                                                                ren




                                                                                                impeding patents at other companies
                                                                                   gt




                                                                                                 •Patent map creation
                                                                                     he




                                                                                                 •Creation of technological classifications charts
                                                                                      ni n




                                                              Three in one                       •etc.
                                                                                          g




                                                           Patent discussions by
  Creation of detailed statements                              three parties
  Investigation of patents at other companies
  (Primarily investigations of new points)                                          Intellectual
                                                 Patent                              property
                                                 office                            management
                                                          — Improve proposals
                                                            by inventors



                                                                                                           Systematic “digging out of inventions”
                                                                                                           Investigation of patents at other companies
                                                                                                           (Implementation of debriefings on the results of
                                                                                                            investigations)
26                                                |


                                                               tinue to file domestic patent applications                    strategic patent application activities                    research before the introduction of a
                                                               for projects that we expect will have                         contribute to our continuing leadership                    service. In the event that we receive a
                                                               long-term and large implementations                           in technology and superior business                        warning, the Intellectual Property
                                                               and benefits. These include, for exam-                        development. Additionally, our patents                     Department serves as the contact point
                                                               ple, essential patents in connection with                     are helping to secure our initiatives in                   for the Company and works closely
                                                               standards for the expansion of W-                             standardizing systems such as the inter-                   with related departments as well as our
                                                               CDMA, patents for IPNW, transactions                          national standard W-CDMA system and                        attorneys, patent agents, and other
                                                               linked with “brick-and-mortar” busi-                          other technologies that compose plat-                      experts to respond to the warning.
 DoCoMo Brand | The Foundation and Its Utilization Structure




                                                               nesses, video clip delivery, and other                        forms such as i-mode services where our                       To respond better to infringements
                                                               business fields. Also, we will actively                       technology is increasingly becoming the                    on our rights by other companies, we
                                                               continue to file foreign patent applica-                      de facto standard.                                         are strengthening management capabil-
                                                               tions where we see opportunities for                                                                                     ities including such measures as
                                                               overseas development.                                         Technological Development and                              establishing an internal reporting route
                                                               *Patent appraisal rate = Number of patent appraisals /        Diffusion, and Licensing                                   to alert us to any third-party infringe-
                                                                (Number of patent appraisals + Number of
                                                                rejected appraisals)
                                                                                                                             DoCoMo’s policy is to license widely                       ment use of our trademarks.
                                                                                                                             under reasonable terms the technolo-
                                                               Generating New and Timely Intellec-                           gy we have developed in-house. As a                        Measures to Prevent Information
                                                               tual Property                                                 result, with the development and dif-                      Disclosure*
                                                               In line with amendments to Japan’s                            fusion of the W-CDMA system and                            The Intellectual Property Department
                                                               Patent Law, we established new Company                        i-mode service, our technology and                         takes the lead at DoCoMo in blocking
                                                               rules in March 2005 under which we                            know-how is increasingly becoming                          leaks of our intellectual assets such as
                                                               pay compensation to the inventor for                          widely accepted and providing the                          technological know-how and other
                                                               disposition at each of the three stages of                    Company with increased licensing                           intellectual property gathered during
                                                               patent application, registration, and                         revenues.                                                  joint development work with other
                                                               actual confirmation of the results. In                                                                                   companies by concluding non-disclo-
                                                               particular, with regard to our imple-                         (3) Measures to Manage Intellectual                        sure agreements and other technical
                                                               mentation guarantee, we are further                               Property Risks                                         know-how agreements with such com-
                                                               improving our incentives to the inven-                        Risk Management Structure                                  panies.
                                                               tor by increasing cap rates relative to                       The R&D divisions, Business divisions,                     * For details regarding information security with
                                                                                                                                                                                          respect to compliance, please see page 31.
                                                               implementation performance amounts.                           and Intellectual Property Department
                                                                                                                             all work together with the aim of thor-
                                                               (2) Active Use of Intellectual Property                       ough intellectual property risk
                                                               Utilization for DoCoMo’s Business                             management. To avoid violating other
                                                               and Standardization Efforts                                   companies’ rights, DoCoMo conducts
                                                               The patents we acquire through our                            thorough patent and trademark



                                                                              Trends in the Number of Patent Applications                              Distribution in the Number of Patent Applications by Field



                                                                                                                                         Domestic
                                                                (No. of applications)                                                    Overseas
                                                                800
                                                                                                                                                      General Mobile Communications
                                                                                                                                                                         Access NW
                                                                600                                                                                                         Core NW
                                                                                                                                                                     Packets Specific
                                                                                                                                                                               IPNW
                                                                                                                                                                    Terminal Specific
                                                                400
                                                                                                                                                                          Operations
                                                                                                                                                       Information/Display Processing
                                                                                                                                                               Data Communications
                                                                200                                                                                                  Business Model
                                                                                                                                                                   QC, PHS, Satellite
                                                                                                                                                                  Other Technologies
                                                                  0
                                                                      FY 92    93   94    95   96    97    98   99      00   01   02   03    04                                         0       10        20        30        40        50
                                                                                                                                                                                                                                       (%)
                                                                * With regard to foreign patents, multiple country applications for the same patent   * Total number of national patent applications filed during FY1992 to FY2004
                                                                  are counted as one application.                                                       (existing or pending at the Patent Office as of the end of March 31, 2005).
                                                       HUMAN RESOURCES                                                                                | 27


The key to the challenges and the creation of a brand in our move from a communications infrastructure com-
pany to a lifestyle infrastructure company lies clearly with our employees. Our necessary human resources
are (1) persons who respond constantly to change in a flexible and bold manner, never forgetting the spirit of
taking on challenges with customer-oriented thinking in mind, and (2) persons with the capability to facilitate
the interaction and fusion of DoCoMo’s various talented people. As such, in our recruitment and nurturing of
such employees, DoCoMo is enhancing its various systems.




                                                                                                                                                      DoCoMo Brand | The Foundation and Its Utilization Structure
1 | Systems to Enhance Employee                        results of an employee’s job perform-           send them necessary job information to
    Motivation                                         ance and the actions that enabled the           facilitate their smooth return to work.
                                                       employee to accomplish those results.               Additionally, we consider it impor-
In-House Staff Recruitment and                         The system’s evaluation standards are           tant to help disabled individuals
Entrepreneurship to Boost Motivated                    open and through discussions with their         become independent members of socie-
Employees                                              managers, employees set clear work              ty. To this end, we are actively hiring
In August 2001, DoCoMo introduced                      goals and are motivated by self-direction       disabled individuals. As of the end of
an in-house staff recruitment system                   and proactive work performance. By              fiscal 2004, 2.0% of our total workforce
that aggressively seeks employees                      appropriately evaluating achievements           was disabled.
infused with strong desires to take on                 and job performance as well as provid-
new challenges.                                        ing feedback, we strive to improve
   In March 2001, DoCoMo introduced                    employee motivation and to foster a             2 | Developing Competitive
an entrepreneurship system with the                    spirit of taking on challenges.                     Human Resources
goal of creating venture businesses as
well as revitalizing the internal compa-               Securing a Workforce with Diversity             To develop human resources that can
ny and fomenting an entrepreneurial                    and Vitality                                    respond with precision to the increas-
mindset among our employees. The                       To enable motivated employees to bal-           ingly diversified and sophisticated
entrepreneurship system encourages                     ance both their home and work lives, we         needs of consumers and overcome stiff
employees to propose new business                      are enhancing our support systems for           competition, we are implementing
ideas, upon which the most promising                   child rearing and caring for elderly and        capability development programs in a
plans will be developed to establish                   sick family members. We have extended           planned and systematic way. As such,
new companies. Through this system,                    the period of leave an employee can take        we are enhancing two main training
three companies have already been                      for child rearing from the child’s birth        systems. One is the Career Enhance-
established. (As of March 2005.)                       until three years of age, and the period for    ment Training Program, which develops
                                                       part-time work from the child’s birth to        skills required by each hierarchical
Personnel Evaluation System to                         six years of age. Our employees can take        level in the Company. The second is
Increase Employee Motivation                           about one and a half years of nursing leave     the Self-Directed Skills Development
Starting from April 2001, DoCoMo                       and engage in three years of short-time         Program, which allows employees to
introduced a personnel evaluation sys-                 work (including nursing leave period). For      select a development path based on
tem that focuses attention on both the                 those employees taking leave, we also           their own chosen career aims.




                                        Companies Established Under the New Internal Venture System

 Company Name             Established      Capital        Representative   Company Description

 Double Square,          March 2003     ¥100 Million    Ichimi Koshihara   Designed for corporations and local governments with the aim of sup-
 Inc.                                                                      porting improvements in women’s work/life balance, this company plans,
                                                                           creates, and operates websites that offer information on women’s support
                                                                           and welfare issues.
 DoCoMo                   May 2003      ¥175 Million    Tamao Sakuma       Designed for intranets, this company plans and creates content that
 Tametan, Inc.                                                             offers information services to boost employee’s operational efficien-
                                                                           cy. It also operates websites.
 Allucher, Inc.     October 2004         ¥45 Million    Satoko Ohno        As a support for marketing activities aimed mainly at women in their
                                                                           20s and early 30s, this company provides event planning, research,
                                                                           and consulting services utilizing mobile phones.
* As of March 31, 2005
28                                                |                                   F I N A N C I A L A N D F I N A N C I N G S T R AT E G I E S


                                                               Our solid financial position, backed by the ability to generate stable cash flows, is one of the important factors
                                                               that supports the strength of our DoCoMo brand’s products and services. We will allocate ample funds generat-
                                                               ed by our core businesses in an optimal balance between investment for new growth, return to shareholders,
                                                               and a strengthened financial position to achieve sustainable growth and maximize our corporate value. At the
                                                               same time, we will create new added value in the mobile business to boost further the DoCoMo brand.



                                                               Investment to Maintain and Rein-               management, we plan to pay dividends           Reduction in Debt
 DoCoMo Brand | The Foundation and Its Utilization Structure




                                                               force Business Equipment                       by taking into account our consolidat-         We are reducing total debt to secure
                                                               It is essential that we continuously           ed results and operating environment,          our debt capacity (flexibility in the pro-
                                                               invest in our core business under a            based on the principle of stable divi-         curement of funds in the future), while
                                                               long-term vision to achieve sustainable        dend payments.                                 making efforts to maintain a balance
                                                               growth. We utilized ¥861.5 billion                 In fiscal 2004, we instituted a ¥2,000     with shareholders’ equity that has been
                                                               worth of capital expenditure in fiscal         per share dividend, a 10-fold increase         reduced due to the purchase of treas-
                                                               2004 and plan to spend ¥848.0 billion          from fiscal 2000 when we paid a ¥1,000         ury stocks. We have reduced
                                                               in fiscal 2005. In fiscal 2005, we will        per share dividend (which translates           consolidated debts by ¥494.6 billion
                                                               invest to improve the quality of both          into ¥200 per share in light of our five-      over the past four years, from ¥1,443.2
                                                               our indoor and outdoor networks cor-           for-one stock split carried out in 2002),      billion at the end of fiscal 2000 to
                                                               responding to customer usage scenes,           and we plan to pay ¥4,000 per share in         ¥948.5 billion at the end of fiscal 2004.
                                                               and respond to the migration of our            fiscal 2005. We believe that higher divi-
                                                               subscribers to FOMA services and               dends will help broaden DoCoMo’s               Internal Reserves and Liquidity
                                                               increased traffic in data communica-           shareholder base (e.g. individual              We will allocate internal reserves to
                                                               tions. We will do so while also trying         investors) and have the effect of secur-       active research and development
                                                               to enhance efficiency and reduce costs         ing long-term holdings of DoCoMo               efforts, capital expenditures, and other
                                                               of capital expenditure by introducing          shares and stable shareholders. More-          investments in response to the rapidly
                                                               new equipment and lowering procure-            over, as an operator of business geared        changing market environment. The
                                                               ment costs for supplies and equipment.         toward end users, we can expect that           Company will endeavor to boost its
                                                                                                              higher dividends will bolster the com-         corporate value by introducing new
                                                               Strategic Investment for Growth                petitiveness of our core business.             technologies, offering new services,
                                                               We will proceed with strategic invest-             We will continue to take a flexible        and expanding its global businesses
                                                               ment activities such as investments and        approach regarding share repurchases as        through alliances with new partners.
                                                               alliances by examining fully the prof-         part of the execution of an agile capital          Our balance of cash and cash equiv-
                                                               itability and efficiency of invested capital   policy for the return to shareholders, for     alents stood at ¥838.0 billion at the end
                                                               as well as the synergy effect and comple-      the enhancement of capital efficiency,         of fiscal 2003 and at ¥770.0 billion at
                                                               mentarity with existing businesses. The        and in response to the changing business       the end of fiscal 2004. We believe it is
                                                               scope of possible investment is not lim-       environment. In fiscal 2004, we repur-         necessary to have a certain level of liq-
                                                               ited only to mobile phone business             chased ¥425.2 billion worth of shares          uidity on hand at any given time so
                                                               fields, but it also includes possible part-    (approximately 2.32 million shares), and       that we can continue business opera-
                                                               nerships with a broad range of businesses      for fiscal 2005, the Ordinary General          tions even in the event of contingencies
                                                               that can be expected to help broaden           Meeting of Shareholders approved the           such as the suspension of the fund settle-
                                                               our revenue base. In July 2005, we made        acquisition of up to ¥400.0 billion worth of   ment function of financial institutions.
                                                               an issued equity investment of ¥98.0           shares (approximately 2.20 million shares.)    Furthermore, we are investing a por-
                                                               billion in Sumitomo Mitsui Card Com-               As for treasury stock, we intend to        tion of funds retained in preparation
                                                               pany, Limited (through this investment,        keep the shares repurchased and limit the      for strategic investment for growth in
                                                               we acquired 34% of the company’s com-          amount of such treasury stock to approx-       the future for a duration of more than
                                                               mon shares.)                                   imately 5% of the total issued stock. Any      three months following a comprehen-
                                                                                                              treasury stock held in excess of this limit    sive analysis of safety, liquidity, and
                                                               Return to Shareholders                         will in principle be cancelled. At the end     investment return. The balance of such
                                                               Believing that the provision of adequate       of March 2005, we cancelled 1.48 million       funds totaled ¥400.6 billion at the end
                                                               returns to shareholders is one of the          shares (equivalent to approximately 2.9%       of fiscal 2004.
                                                               most important issues in corporate             of all issued shares prior to cancellation).
                                       C O R P O R AT E G O V E R N A N C E                                                           | 29


To firmly establish a strong DoCoMo brand it is of the greatest importance that we gain the trust of our cus-
tomers and the unwavering trust of our shareholders in regard to our management.
     DoCoMo has created a corporate governance structure that enables us to pursue (1) quicker decision mak-
ing, and (2) enhanced auditing and control functions. In addition to this, we have enhanced our communication
with shareholders as we continually work to ensure swiftness of management, transparency, and soundness in
our management structure.




                                                                                                                                      DoCoMo Brand | The Foundation and Its Utilization Structure
1 | Corporate Governance Structure            number of corporate officers was             divisions among all our group compa-
                                              newly set at 21.                             nies, thus enabling us to implement
Basic Stance and Organization                    In putting a corporate officer system     audits that are effective and efficient.
DoCoMo has established a governance           in place, we transferred some of the busi-
system with a director and corporate          ness execution rights enjoyed by the         Advisory Board
auditor system at its core. We secure         Board of Directors to representative         We have established an Advisory Board
timely decision-making by flexibly con-       directors and our corporate officers. We     in Japan, consisting of experts from
vening Board of Directors meetings as         expect this will help to reduce the burden   diverse fields. This Advisory Board
needed. In addition, aiming to further        on the Board and thus realize: (1) a fur-    meets every month in principle. We
improve the flexibility and mutual            ther improvement in the Board’s              also established a similar Advisory
supervision function of the Board of          flexibility; (2) an enhancement of the       Board in the United States, which
Directors, we nearly halved the number        Board’s mutual supervision functions;        meets twice a year. The Advisory
of directors from 24 to 13. This was          and (3) more flexible business execution     Boards provide objective opinions and
prompted by the introduction of the           by the responsible corporate officers. On    proposals regarding management
corporate officer system, which is            the other hand, by having eight board        issues we face, and these opinions are
detailed below.                               members who will serve as corporate offi-    reflected in our business management.
    Besides maintaining three external        cers, we have made considerations to             The “i-mode Disaster Message Board”
corporate auditors, we have already           ensure that the supervisory function of      service was launched in January 2004,
strengthened our auditing capabilities        the Board continues to work effectively.     and the Mobile Society Research Insti-
by bolstering our staff of specialists and                                                 tute was established in April 2004, the
communicating more actively with the          Auditing Structure                           latter being established with the aim of
corporate auditors of our subsidiaries.       Our auditing structure consists of three     clarifying broadly the positive and neg-
    As the need arises, important mat-        pillars, namely audit by the Board of        ative impacts arising from mobile
ters related to fundamental policies like     Corporate Auditors, audit by independ-       phone use. Both of the above deal with
business operations and other key             ent public accountant, and audit by the      proposals forthcoming from the Advi-
management issues are discussed by            Internal Audit Office (“three audits”).      sory Boards.
the Corporate Strategy Committee,             The Board of Corporate Auditors meets
which consists of all representative          15 times each year, in addition to
directors, corporate officers, and full-      which the auditors always attend the         2 | Communication with
time auditors. The president and the          important internal company meetings.             Shareholders
Board of Directors rely on the commit-            In order to integrate these “three
tee’s advice as part of the decision-making   audits” to bring out the effect of synergy   Investor Relations (IR)
process.                                      and mutual complementarity, the Board        We utilize a variety of communication
                                              of Corporate Auditors and the Internal       methods to further enhance the rela-
Introduction of a Corporate Offi-             Audit Office meet at least once a month      tionship with our shareholders and
cer System                                    to confer on the audit status, including     investors, mainly through the head-
After the Ordinary General Meeting of         the internal controls system. In addition,   quarters’ Investor Relations Department.
Shareholders in June 2005, we intro-          the Board of Corporate Auditors and the      While the timely, appropriate, and con-
duced a corporate officer system with         independent public accountant meet on        tinuous disclosure of managerial
the aim of enhancing the Board’s man-         an as-needed basis to engage in close        information including financial results
agement supervision function and              exchanges of information. We are also        is of course a given, we also stress a
further reinforcing the Company’s             strengthening connectivity between the       process of dialogue, through which we
business execution capability. The            Board of Auditors and internal audit         receive feedback from investors and
30                                                |


                                                               sincerely put it to work in management.          from the president using “i-motion.”                      fruit. At the 14th General Meeting, the
                                                                   Direct communication involves                                                                          number of shareholders actually exer-
                                                               briefings on financial results conducted         Efforts to Facilitate the Exercising                      cising their right to vote reached
                                                               by top management each quarter. We               of Voting Rights                                          10,900,884, out of a total 17,124,315
                                                               also hold IR Roadshows in Japan and              As a means of more broadly reflecting                     shareholders with voting rights. (As of
                                                               overseas. In fiscal 2004, the IR Road-           the opinions of our shareholders in                       the end of March 2005, excluding NTT
                                                               show visited investors in a total of 153         management decisions, we are mak-                         holding company.)
                                                               companies in 14 foreign countries.               ing efforts to promote the exercising
 DoCoMo Brand | The Foundation and Its Utilization Structure




                                                                   At the same time, we also give due           of voting rights. The notice of convoca-
                                                               attention to fair disclosure. Briefings are      tion of the Ordinary General Meeting
                                                               distributed through a live, on-demand            of Shareholders and financial docu-
                                                               service provided via DoCoMo’s IR web-            mentation (together with annual
                                                               site, including presentations and Q&A,           business reports) are disclosed on our
                                                               in addition to live transmission using           IR website. In a normal year, the Gen-
                                                               FOMA. In order to also enhance the pro-          eral Meeting of Shareholders is held
                                                               vision of information to individual              in mid to late-June and the notice of
                                                               shareholders and investors, in October           convocation is sent out through the
                                                               2004 we renewed the section for individ-         mail during May, earlier than the two
                                                               ual investors on the IR website.                 weeks’ notice required by law.
                                                                   As part of our IR activities through             With regard to the computerization
                                                               mobile phones, we established an i-              of voting rights that were approved in
                                                               mode compatible IR website that can              the revisions to the Commercial Code,
                                                                                                                                                                          i-mode version of the
                                                               be also viewed on the mobile phones              we introduced Internet voting beginning                   IR website
                                                                                                                                                                          (Japanese only)
                                                               of other mobile service providers. In            with the 11th Ordinary General Meeting
                                                               addition to providing all kinds of IR            of Shareholders held in June 2002. In
                                                               information, this mobile site can                addition, we provided the voting method                                                voting website for
                                                                                                                                                                                                       shareholders
                                                               receive opinions concerning manage-              for the first time using the i-mode service
                                                                                                                                                                          Stockholders can vote for or against proposals by using
                                                               ment issues sent via mobile e-mail.              beginning with the 13th General Meet-                     a mobile phone equipped with i-mode functionality to
                                                               From May 2005, we also started the               ing in June 2004.                                         access DoCoMo’s corporate website, entering the voting
                                                                                                                                                                          code and password to do so.
                                                               distribution of a message video clip                 These efforts are steadily bearing




                                                                                           DoCoMo’s Business Execution and Management Supervision Mechanism

                                                                                                                              General Meeting of Shareholders

                                                                                                                   Appointment/dismissal of directors           Appointment/dismissal of
                                                                                                                                                                      corporate auditors
                                                                                                                                                                                                       Appointment/dismissal

                                                                                                                                                        Audit
                                                               Advisory Board                           Board of Directors                                            Board of Corporate Auditors

                                                                                                                   Appointment/supervision     Accounting audit
                                                                                                                                                                     Registered public accountants
                                                                         Advice
                                                                                                    Representative directors


                                                                                                                   Transfer business execution authority



                                                                                                                                                                         Internal Audit
                                                                                     Executive Vice President              Senior Vice President                                           Internal Audit Office
                                                                                       (Corporate Officer)                  (Corporate Officer)

                                                                                   Division Managing Directors, Branch General Managers and others
                                                    COMPLIANCE                                                                                                | 31


Compliance is essential to staying in business and thus forms the foundation of the DoCoMo brand (integrating
product and management brands). Acutely aware of the compliance risks in management, we are making com-
pany-wide efforts to strengthen compliance management.
    When contraventions of law or corporate ethics occur, it is often due to “corporate common sense” becom-
ing detached from “social common sense.” Our compliance activities are based on management that is openly
receptive to society, while our compliance structure consists of organizational aspects that are further backed
by concrete standards for action. Always bearing in mind that our business involves a great deal of private per-
sonal information, we aim to further raise our employee’s awareness about compliance as well as promote and




                                                                                                                                                              DoCoMo Brand | The Foundation and Its Utilization Structure
elevate the level of information security.



1 | Compliance Management                    information security policy and (2)                    closure. Concerning the personal infor-
In terms of organization, we appoint         managing and leading our activities                    mation of our customers, shareholders,
“risk compliance leaders” at all branches    pertaining to information security                     business partners, and employees, we
and all departments of our headquarters,     issues, so as to be fully compliant with               are making full-fledged efforts based
who are guided by the Compliance             the Personal Information Protection Law.               upon our Information Management
Promotion Committee, over which our          Based on guidance from relevant govern-                Regulations to heighten security man-
president presides. We have also creat-      ment ministries, we have uploaded our                  agement through the administration
ed a compliance helpline that functions      Privacy Policy Regarding Personal                      of terminals containing personal
as an internal notification system.          Information of our Customers to our                    information, education of employees,
    In operational aspects, we maintain      official website. This Privacy Policy sets             monitoring of contracted companies,
a set of Compliance Administration           out the purposes for collecting informa-               and strengthened checks of security in
Regulations, which clarify the standard      tion and provides information on a                     technological terms.
rules governing implementation and           customer consultation center for cases                 http://www.nttdocomo.co.jp/english/policy/privacy/
                                                                                                    index.html
operation of compliance management.          of complaint as well as information dis-
Additionally we also implement com-
pliance training sessions for all
employees by rank, from top manage-                                                   Code of Ethics
                                                                                    (Posted on April 2005)
ment down. Yet, even with criteria for
action in place, they have no useful                   Legal and ethical          We comply with the spirit and letter of all laws, regulations and rules,
                                                            compliance       1    and our conduct is based on the highest ethical standards.
meaning if it is the case that individuals
                                                                                  We, as a business, undertake an important role in the mobile
choose to ignore any contravention of                 Customer-focused            communications industry and we adhere to a "customer-first"
                                                   products and services     2    standpoint to provide valuable products and services to our customers.
the rules at their own discretion. To
                                                                                  We respect the human rights of our customers and spare no effort to
guard against such occurrences, we                 Respect for customer           manage and safeguard their personal information appropriately.
defined and published the NTT DoCoMo         human rights and protection     3
                                                 of personal information          We acknowledge the importance of corporate proprietary and
Group Code of Ethics in an endeavor                                               confidential information and take thorough precautions for sound
                                                       Management and             management and protection of such information.
to boost compliance awareness and set          safeguarding of corporate     4
                                                 confidential information         We disclose our company information in a timely and precise manner
thorough standards for highly ethical                                             to a wide range of stakeholders in Japan and overseas to enhance
                                                                                  the transparency of our business activities.
activities among all employees, includ-           Information disclosure
                                                                             5
                                                       and transparency
ing management.                                                                   We always trade and compete fairly, openly and freely in the Japanese
                                                                                  and overseas markets.
                                                           Fair, open and
                                                        free competition     6    We are always mindful that we are a member of international society
                                                              and trading         and actively participate in social activities as a good corporate citizen
                                                                                  while contributing to creating a safe and secure society.
2 | Protection of Personal Information
                                                       Corporate citizen          We maintain compatibility between our business activities and
With a view to respond swiftly and                   and social activities   7    environmental preservation by creating a world that is easier for
appropriately to the enactment of the                                             people to live in. In addition, we help preserve the environment and
                                                                                  contribute to building a sustainable society that supports human
Personal Information Protection Law,                        Tackling of
                                                                             8    activities into the future.
                                                   environmental issues
from September 2004 we established                                                We respect the rights and individuality of each one of our employees
                                                                                  and aim to realize a working environment that allows them to
Information Security Departments suc-              Respect for employee
                                                                                  develop their respective abilities and personalities.
                                                      human rights and       9
cessively at each of the NTT DoCoMo                         individuality
                                                                                  We properly recognize our role in implementing the NTT DoCoMo
Group’s nine companies. This depart-                                              Group Code of Ethics. The Senior Management dedicates themselves
                                                 In-house ethical system          to maintaining the Group’s ethics system and fostering an awareness
ment is responsible for (1) planning                   and commitment        10   of the ethical standards and principles among all employees
                                                                                  throughout the Group.
32                                                |                                                                         C S R


                                                               At NTT DoCoMo, it is our pride and mission that the communications infrastructure and communication servic-
                                                               es we provide not only contribute to customer convenience and economic quality, but also fulfill our
                                                               responsibility to society.
                                                                   We are further strengthening the DoCoMo brand, which customers and shareholders have cultivated,
                                                               through our sincere promotion of business activities and contributions to social development. Our activities as
                                                               a corporate citizen have gained us a deep level of trust from society as a whole, helping to facilitate the devel-
                                                               opment of a safe, peaceful, and prosperous society.
 DoCoMo Brand | The Foundation and Its Utilization Structure




                                                               1 | Examples of How Our Business           including preparations for power outages           2 | Measures to Achieve a Safe
                                                                   Operations Contribute to Society       during disasters, the stocking of spare                and Peaceful Society
                                                                                                          batteries at base stations, and the con-
                                                               As a leading mobile communications         struction of an i-mode backup center.              With the dissemination of mobile
                                                               company, we place top priority on          *As of the end of June 2005                        phones, a variety of social issues and
                                                               improving the convenience and eco-                                                            problems has appeared. From crimes
                                                               nomic quality of our customers’ lives.     (2) Ensuring Child Safety through                  based on the misuse of mobile phones
                                                               In addition, endeavoring for co-exis-          Videophone Functionality                       to spam mail, "one-ring” phone scams,
                                                               tence and co-prosperity with content       Enabling the monitoring of children                the use of phones while driving, and
                                                               providers, hardware manufacturers,         placed in kindergartens and nursery                poor phone manners while riding
                                                               and other companies and industries is      schools “anytime, anywhere” via                    trains, we are squarely addressing such
                                                               the very model of our corporate            FOMA videophone, this innovative                   social issues and taking sincere meas-
                                                               growth. As such, we would like to take     system is intended not only to make                ures with a sense of responsibility.
                                                               this opportunity to introduce aspects of   parents feel more secure, but the cam-
                                                               our contribution to society through our    eras installed onsite also serve as a              (1) Measures against Crime
                                                               business operations.                       security system to prevent intrusions              To prevent misuses such as billing
                                                                                                          by unauthorized individuals.                       fraud, a new law was promulgated in
                                                               (1) Enabling Communication                                                                    April 2005 that makes ID confirma-
                                                                    during Disasters                      (3) DoCoMo Hearty Style                            tion obligatory upon the sale of
                                                               Today, mobile phones have become a         We are strengthening “DoCoMo                       prepaid mobile phones. In advance
                                                               lifeline service indispensable for emer-   Hearty Style” through a set of activities          of this, we stopped accepting new
                                                               gency contacts and confirmation of         that include providing a universal                 applications for the Pre-Call prepaid
                                                               safety during disasters. From the start    design* and barrier-free products and              mobile phone service as of the end of
                                                               of operations in July 2004, the “i-mode    shops so that all people can enjoy the             March 2005. In addition, we are tak-
                                                               Disaster Message Board service”            convenience of mobile phones. In fiscal            ing measures to prevent counterfeit
                                                               (launched in January 2004) has posted      2004, we introduced the “FOMA Raku                 telephone numbers from being dis-
                                                               messages from approximately 150,000        Raku PHONE, ” which provides ease of               played on the screen of a called party
                                                               users (roughly 420,000 message regis-      operation for elderly users with func-             so that customers can use our
                                                               trations and confirmations).* During       tions such as voice output of content              phones safely.
                                                               the October 2004 Niigata Chuetsu           and one-touch dialing. In addition, the
                                                               Earthquake, the board was used by          number of barrier-free DoCoMo shops                (2) Measures for the Safety of
                                                               roughly 90,000 registrants, handling a     with such features as sign language                    Children
                                                               combined total of roughly 250,000 reg-     videophones has expanded to 253 loca-              Roughly one-half of junior high school
                                                               istrations and confirmations. In           tions nationwide. Use of “DoCoMo’s                 students in Japan have mobile phones,
                                                               January 2005, in an effort to further      Hearty Discount,” a billing plan that              as do nearly 90% of high school stu-
                                                               increase the level of convenience, we      reduces basic monthly charges by 50%               dents. In the future, the number of
                                                               established reciprocal links with          for physically challenged users, has               these low-age users is only expected to
                                                               mobile phone disaster message board        also increased to 360,000 people. (As              increase. We are thus taking a variety
                                                               services provided by other mobile serv-    of the end of March 2005.)                         of measures to ensure that children can
                                                               ice providers.                             *To design everything (including products, envi-   use their mobile phones safely.
                                                                                                           ronment, and services) that can be easily used
                                                                   In addition, we are advancing meas-     by all people, regardless of disability or age.      Specifically, we are offering “Kid's i-
                                                               ures to improve system reliability,                                                           mode” (access limitation functionality),
                                                                                                                                                         | 33


which restricts browsing of “independ-       4 | Promoting Environmental Pro-                      mation protection of our customers.
ent sites” including dating sites, as well       tection
as “Limit Plus,” which is a fee plan to                                                            2. e-Billing Service
curb mobile phone overuse. In addi-          We have established an environmen-                    We offer an e-billing service via i-
tion, in fiscal 2005, the DoCoMo Keitai      tal management system based on the                    mode as a means to confirm monthly
Safety School is being held in coopera-      DoCoMo Environmental Charter that                     billing statements, thereby conserving
tion with the educational agencies of        comprises our basic philosophy and                    paper resources as statements would
local governments in a variety of loca-      policies. All our employees are con-                  otherwise need to be printed and




                                                                                                                                                         DoCoMo Brand | The Foundation and Its Utilization Structure
tions. The intent of this program is to      tinuing DoCoMo’s environmental                        mailed. In fiscal 2004, we sent out
instruct children on even safer mobile       protection activities under a system                  19.08 million e-bills, which conserved
phone practices, thoroughly instilling       headed by top management, making                      about 493 tons of paper resources.
in them valuable rules and measures to       environmental consciousness a priori-
avoid trouble and to promote safe            ty. We have expanded our ISO 14001                    3. Introduction of Clean Energy
phone usage.                                 international environmental certifica-                We are introducing facilities that uti-
                                             tion to the entire organization, and                  lize natural energy including solar
(3) Public Awareness Activities              individual measures are being taken                   and wind power generation to reduce
    involving Mobile Phone Man-              by the DoCoMo Group as well as at                     our impact on the environment. With
    ners while Driving                       individual DoCoMo companies to                        concern for the environment in every
In the revised Road Traffic Law that         prevent global warming and decrease                   detail, we are constructing our base
came into effect in November 2004,           waste production.                                     stations and office buildings while
penal provisions have been established                                                             preserving our precious natural envi-
against the use of mobile phones while       (1) Examples of Environmental                         ronment. As of March 2005, the
driving. At NTT DoCoMo, in addition              Protection Activities                             DoCoMo Group had solar power sys-
to our notifying the public of this          1. Collection and Recycling of Handsets               tems in 49 locations, wind power
revised law, we have urged customers         Each DoCoMo shop collects used                        systems in eight locations, and 31
to set their phones on “drive mode”          handsets, batteries, and battery charg-               cogeneration systems, providing a
before driving and extended from             ers from customers, and a 100%                        total of 105,090MWh of electricity.
October 2004 to March 2005 our call-         recycling rate is being achieved via
ing etiquette public relations campaign      nonferrous metal manufacturers to                     (2) Environmental Accounting
to encourage drivers to make phone           reduce waste production and effec-                    In fiscal 2003 and 2004, our environ-
calls or send e-mails only after stopping    tively utilize resources. In addition,                mental protection costs and actual
at a safe location.                          by destroying used handsets onsite,                   economic benefits of environmental
                                             we are respecting the personal infor-                 protection measures were as follows:

3 | Customer Satisfaction (CS)               Environmental Protection Costs                                                          (Millions of yen)
    Activities                                                                                        FY2003                            FY2004
                                             Category                                        Investment   Expense              Investment    Expense
                                             Business area costs                                1,159      9,204                  1,555      10,397
Being a company that practices the slo-        Including pollution prevention costs                —          15                     —             8
gan “DoCoMo Grows Together with                Including global environmental protection costs 1,131       5,514                  1,504        6,724
                                               Including resource recycling costs                  28      3,674                     51        3,665
Customers,” we implement customer            Upstream and downstream costs                        700      1,403                    304          508
satisfaction surveys on a daily basis at     Management activity costs                            397      3,770                    538        2,778
DoCoMo shops and information cen-            R&D costs                                          1,401      5,489                  3,036        5,909
                                             Social activity costs                                 —         192                     —            71
ters, and make efforts to satisfy our        Environmental damage costs                            —          —                      —            —
customers further based on customer            Total                                            3,657     20,057                  5,433      19,664
opinions and requests.
                                             Actual Economic Benefits of Environmental Protection Measures (Millions of yen)
   In line with this, many opinions and
                                             Main effects                                                                         FY2003      FY2004
requests concerning DoCoMo products          Revenue        Revenue from sale of recycled handsets and
and services are reflected speedily in                      dismantled communications facilities                                   1,209         512
                                                            Revenue from e-billing service
our business activities through meas-        Cost savings   Reduction in printing and mailing costs due to e-billing service
ures such as CS promotion committees.                       Reduction in energy costs due to installation of in-house power
                                                            generation facilities                                                  2,310       3,175
                                                            Reduction in energy costs due to use of low-pollution vehicles
                                                            Reduction in purchasing costs due to reuse of dismantled              13,801      15,720
                                                            communications facilities
                                             Total                                                                                17,320      19,407
34                                                |


                                                               (3) Assessment of Corporate                            other physical support, for a combined                  3. International Contributions
                                                                   Environmental Measures                             total of 30 million yen.                                To support childhood education in Asia,
                                                               In the annual rating by Innovest                                                                               since 1998 we have been building ele-
                                                               Strategic Value Advisors Inc., an U.S.                 Specific examples                                       mentary and junior high schools through
                                                               investment research firm, in March                     1. International Mobile Workshops –                     a non-government organization in areas
                                                               2004, we ranked first among telecom-                      Picture this                                         of northern Thailand that do not possess
                                                               munications companies worldwide.                       In an effort to promote children’s                      educational facilities. By the end of
                                                                                                                      “digital expressive power” and                          December 2004, we had built seven
 DoCoMo Brand | The Foundation and Its Utilization Structure




                                                                                                                      “capacity to understand different cul-                  schoolhouses. For fiscal 2005, we plan to
                                                               5 | Non-Business Social Contribu-                      tures,” a mobile workshop entitled                      provide assistance to southern Thailand,
                                                                   tion Activities                                    “Picture this” was held in April 2005.                  which sustained damage during 2005
                                                                                                                      The workshop involved the creation                      Sumatran earthquake. In addition, in
                                                               We strive to make a unique and identi-                 of a collaborative photo story by                       terms of environmental protection field
                                                               fiable contribution to society through                 Japanese and French elementary and                      support, we have been planting trees
                                                               our activities mainly in the areas of                  junior high school students utilizing                   from April 2004 in ecological preserva-
                                                               childhood education, international                     i-mode-equipped mobile phones.                          tion area of Sumatra with important
                                                               contributions, and environmental pro-                      And also, it was designated as a                    ecosystems through an international
                                                               tection, aiming to achieve an even                     memorial event for the 2005 Japan-                      environmental non-government organi-
                                                               smoother development of communica-                     EU Year of People-to-People Exchanges                   zation.
                                                               tions and a prosperous society.                        by Japan and EU member countries.
                                                                   In fiscal 2004, we provided much                                                                           4. DoCoMo Woods Reforestation
                                                               support in response to large-scale disas-              2. Mobile Communications Fund                              Campaign*
                                                               ters. Concerning the Niigata Chuetsu                   Through the Mobile Communications                       As part of our natural environment
                                                               Earthquake in October 2004, we pro-                    Fund, a specified nonprofit corporation,                protection activities, we have been
                                                               vided mobile phones/satellite phones                   we are carrying out support activities in a             planting trees and repairing walkways
                                                               free of charge and extended donations                  broad range of fields, such as fostering                in Japan's forests since 1999. To date,
                                                               and employee fundraising contributions                 human resources in the mobile commu-                    we have conducted 25 DoCoMo
                                                               totaling 24.00 million yen. In addition,               nications field, supporting exchange                    Woods campaigns that have reforest-
                                                               during the 2004/2005 earthquake off                    students from a variety of Asian countries,             ed a total of about 470 hectares.
                                                               the coast of Sumatra and the Indian                    and carrying out social welfare assistance.             *DoCoMo Woods utilizes the Forestry Agency’s
                                                                                                                                                                               corporate forests system and the National Land
                                                               Ocean tsunami, we extended fiscal sup-                 In fiscal 2004, under the theme of “Pro-                 Afforestation Promotion Organization’s Green
                                                               port through donations and employee                    tect Children,” we granted assistance in                 Fund-Raising Campaign system.
                                                               fundraising (including our matching                    the amount of 24 million yen to citizen                 For more information about our CSR activities,
                                                                                                                                                                              please visit NTT DoCoMo’s website at:
                                                               gift program) and made contributions                   groups tackling issues such as non-atten-               http://www.nttdocomo.com/companyinfo/citizen-
                                                               of wireless telecommunications equip-                  dance at school, bullying, and social                   ship.html
                                                               ment, school rebuilding support, and                   reclusive children.




                                                               A mobile power-generator, which was dispatched to      The DoCoMo Keitai Safety School, which is being held    DoCoMo Eco Tower, a cellular phone base station com-
                                                               restore communications services following the earth-   in cooperation with the educational agencies of local   pletely self-powered by solar and wind power generation.
                                                               quake in the Chuetsu district of Niigata.              governments in a variety of locations.
                                             O R G A N I Z AT I O N                                                       | 35
                                             — NTT DoCoMo, Inc. —




  Board of Directors                                    Research and Development Planning Department
                                                        Network Laboratories
  President and CEO                                     Wireless Laboratories
                                                        Multimedia Laboratories




                                                                                                                          DoCoMo Brand | The Foundation and Its Utilization Structure
                                                        Network Management Development Department
Corporate   Board of
            Corporate   Research and Development        IP Core Network Development Department
Auditors
            Auditors    Division                        IP Radio Network Development Department
Corporate
                                                        Customer Equipment Development Department
Auditor’s                                               Network System Development Department
Office                                                  Radio System Development Department
                                                        Global Network Development Department
                                                        R&D General Affairs Department
                                                        Network Planning Department
                                                        Radio Access Network Engineering Department
                                                        Core Network Engineering Department
                        Network Division
                                                        Service Quality Management Department
                                                        Network Technical Support & Operations Center
                                                        Wireless Technology Standardization Department
                                                        Global Business Department
                        Global Business Division
                                                        Global Coordination Department
                                                        Product Department
                                                        Multimedia Sevices Department
                        Products & Services Division    Ubiquitous Services Department
                                                        Content & Customer Relations Department
                                                        Platform Department
                                                        System Marketing Department I
                                                        System Marketing Department II
                                                        System Marketing Department III
                        Corporate Marketing Division
                                                        Corporate Marketing Promotion Department
                                                        Product Business Department
                                                        Solution Business Department
                                                        Marketing Planning Department
                                                        Marketing Strategy Department
                                                        PHS Business Department
                        Marketing Division
                                                        Sales Promotion Department
                                                        Customer Service Department
                                                        Billing Service Department
                                                        Information Systems Department
                                                        Procurement and Supply Department
                                                        Mobile Society Research Institute
                                                        Intellectual Property Department
                                                        Public Relations Department
                                                        Corporate Citizenship Department
                                                        General Affairs Department
                                                        Personnel Development Department
                                                        Accounts and Finance Department
                                                        Investor Relations Department
                                                        Information Security Department
                                                        Internal Audit Office
                                                        Customer Satisfaction Department
                                                        Affiliated Companies Department
                                                        Corporate Strategy & Planning Department
                                                        Branches (Marunouchi, Shinjuku, Shibuya, Tama, Kanagawa, Chiba
                                                        Saitama, Ibaraki, Tochigi, Gunma, Yamanashi, Nagano, Niigata)
                                                                                                    (As of May 1, 2005)
36                                                |                        B O A R D O F D I R E C T O R S & C O R P O R AT E A U D I T O R S
                                                                                                             — NTT DoCoMo, Inc. —
 DoCoMo Brand | The Foundation and Its Utilization Structure




                                                                                                                                              From left
                                                                                                                                              Kunio Ishikawa
                                                                                                                                              Senior Executive Vice President
                                                                                                                                              Masao Nakamura
                                                                                                                                              President and Chief Executive Officer
                                                                                                                                              Masayuki Hirata
                                                                                                                                              Senior Executive Vice President
                                                                                                                                              Seijiro Adachi
                                                                                                                                              Senior Executive Vice President




                                                               President and Chief Executive Officer                     Member of the Board of Directors

                                                                   Masao Nakamura (1)                                        Sakuo Sakamoto



                                                               Senior Executive Vice Presidents                          Corporate Auditors

                                                                   Masayuki Hirata (1)                                       Keisuke Nakasaki (2)

                                                                   Kunio Ishikawa (1)                                        Shinichi Nakatani (2)

                                                                   Seijiro Adachi (1)                                        Shoichi Matsuhashi (2)

                                                                                                                             Michiharu Sakurai
                                                               Executive Vice Presidents
                                                                                                                             Kazuo Yamanaka
                                                                   Takanori Utano* Chief Technical Officer

                                                                   Kiyoyuki Tsujimura*
                                                                                                                                                                          (As of June 21, 2005)
                                                                   Takashi Sakamoto*

                                                                   Shuro Hoshizawa*

                                                                   Yoshiaki Ugaki* Chief Financial Officer


                                                               Senior Vice Presidents

                                                                   Harunari Futatsugi*

                                                                   Kenji Ota*                                                                        (1): Representative Director
                                                                                                                                                     (2): Full-time Corporate Auditor
                                                                   Noriaki Ito*                                                                      *Concurrently serve as a Corporate Officer
                                                                     | 37




D o C o M o B R A N D | B U S I N E S S E S A N D C O M PA N I E S
38                               |            T H E R E L AT I O N S H I P B E T W E E N B U S I N E S S S E G M E N T D ATA
                                                                A N D D o C o M o B R A N D S T R AT E G Y

                                           Reinforcing core businesses, particularly FOMA, the 3rd generation mobile phone with high-speed,
                                           high-capacity telecommunications. This is DoCoMo’s policy of accelerating business development in
                                           fields where we can make maximum use of our competence.


                                                                                     [ C O N C E N T R AT I O N O N C O R E B U S I N E S S ]
                                           We stopped accepting new applications for PHS and Quickcast (wireless calling), which are losing their positions
                                           in the market, at the end of April 2005 and the end of June 2004, respectively.* Quickcast services will be termi-
                                           nated at the end of March 2007. Regarding PHS, we are considering the termination of services, while keeping an
                                           eye on the state of customer usage. Going forward, we will focus management resources on the mobile phone
                                           business, particularly the FOMA service.
                                           *In addition, new applications are no longer being accepted for the “CITYPHONE” service as of the end of September 2004, or for the “Pre-Call” service as of March 2005.



                                             PROFITS AND BUSINESS SCALE FOR PHS AND QC BUSINESSES                                                       NUMBER OF SUBSCRIBERS FOR PHS AND QC BUSINESSES

                                               (Billions of yen)                                                           (%)                           (Thousands)
                                               100                                                                          2.5                          2,000

                                                 80                                                                        2.0

                                                                                                                                                         1,500
                                                 60                                                                        1.5

                                                 40                                                                        1.0
 DoCoMo Brand | Businesses and Companies




                                                                                                                                                         1,000
                                                 20                                                                        0.5

                                                  0                                                                        0.0
                                                                                                                                                          500

                                                -20                                                                       -0.5

                                                -40                                                                       -1.0                                0
                                                       FY 2002                      2003                 2004                                                     FY 2002                2003            2004
                                                      Operating revenues for Quickcast business (left)   Operating loss for Quickcast business (left)                   PHS business
                                                      Operating revenues for PHS business (left)         Operating loss for PHS business (left)                         Quickcast business
                                                      Percentage of Total Operating Revenues (right)
                                                  Note: The PHS business's operating loss for fiscal 2004 does not include an impairment loss on PHS assets of ¥60.4 billion.




                                           [ P R O M O T I O N O F H I G H - S P E E D , H I G H - C A PA C I T Y T E L E C O M M U N I C AT I O N S ]
                                           We have positioned FOMA, which facilitates high-speed and high-capacity telecommunications, as our main serv-
                                           ice, and we are promoting its dissemination by enriching our handset lineup and improving the network quality.
                                           As a result, the number of FOMA subscribers exceeded 10 million in February 2005 and reached 11.5 million at
                                           the end of March the same year.

                                               [1]                                           RATIO OF FOMA SUBSCRIBERS TO TOTAL CELLULAR SUBSCRIBERS

                                                         (Thousands)                                                                                                                                     (%)
                                                         12,000                                                                                                                                           30


                                                         10,000                                                                                                                                          25


                                                           8,000                                                                                                                                         20


                                                           6,000                                                                                                                                         15


                                                           4,000                                                                                                                                         10


                                                           2,000                                                                                                                                          5


                                                                 0                                                                                                                                        0
                                                                            1Q          2Q     3Q            4Q          1Q           2Q          3Q     4Q        1Q       2Q          3Q      4Q
                                                                                        FY 2002                                            2003                                  2004
                                                                                 Number of FOMA subscribers (left)                Percentage of FOMA subscribers to total cellular subscribers (right)
                                                                                                                                                           | 39




                         [ S H I F T I N G T H E T O P L I N E T O VA L U E - A D D E D F I E L D S ]
      We are making efforts to increase revenue from data (packet) communications services by increasing the appeal of
      contents, as well as operability and convenience of e-mail and web browsing. We are continuing to raise the ratio
      of total network revenue* due to packet communication revenues, which reached 24.7% in fiscal 2004.
      *Network revenues = Total operating revenue – Revenue from equipment sales




                                        PACKET COMMUNICATION REVENUES AND RATIO OF NETWORK REVENUE

                                   (Billions of yen)                                                                            (%)
                                   1,200                                                                                         30


                                   1,000                                                                                         25


                                     800                                                                                         20




                                                                                                                                                           DoCoMo Brand | Businesses and Companies
                                     600                                                                                         15


                                     400                                                                                         10


                                     200                                                                                          5


                                       0                                                                                          0
                                                       FY 2001            2002             2003              2004
                                                             Packet communication revenues (left)
                                                             Ratio of packet communication revenue to total network revenues (right)




      Improvements to services that only FOMA can provide, such as videophone and Deco-mail, 3D sound, and other
      improvements to handset functionality, as well as the provision of packet communication discount plans catered
      to customers’ needs are highly regarded, and migration is making progress with customers who often use both
      voice and data communications. As a result, the current MOU and ARPU values for FOMA subscribers have
      exceeded those of mova.

[2]               COMPARISON OF FOMA AND mova MOU                                 [3]                 COMPARISON OF FOMA AND mova ARPU

      (Minutes)                                                                         (Yen)
      250                                                                               10,000


      200                                                                                8,000


      150                                                                                6,000


      100                                                                                4,000


       50                                                                                2,000


        0                                                                                     0
                    FOMA MOU                 mova MOU                                                    FOMA ARPU                     mova ARPU
                                                    (FY 2004)                                                                                  (FY 2004)
40                               |               O P E R AT I N G R E S U L T S O V E RV I E W B Y B U S I N E S S S E G M E N T


                                           Mobile Phone Businesses

                                           (1) Fiscal 2004 Overview                                         tember 2004. Also, we started releasing the FOMA 901i
                                           1. Overall Conditions                                            series handsets, our high-end models, in December 2004
                                           The mobile phone business generated operating revenues           and the FOMA 700i series handsets, our standard models,
                                           of ¥4,741.1 billion (down 4.0% year-on-year) and operat-         in February 2005.
                                           ing income of ¥872 billion (down 23.4% year-on-year) in               Furthermore, we have been reinforcing both our
                                           fiscal 2004.                                                     indoor and outdoor coverage areas for FOMA services,
                                                In the area of revenues, operating revenues decreased       including all stations on the Tokyo Metro, Toei Subway,
                                           mainly due to the implementation of a reduction in rates         and various municipal subways in cities such as Osaka,
                                           aimed at enhancing our competitiveness, including an             Kobe, and Fukuoka. As of the end of March 2005, the
                                           expansion of the “Family Discount” plan and the intro-           number of our outdoor base stations and indoor systems
                                           duction of a flat-rate i-mode packet service.                    were 16,200 and 3,800, respectively.
                                                The aggregate average revenue per unit (ARPU) of                 As a result, our subscriber base for FOMA services
                                           cellular services (FOMA+mova) fell 8.7% year-on-year to          steadily increased to 11.5 million at the end of March 2005.
                                           ¥7,200, with packet ARPU (FOMA+mova) falling 5.1% to             Voice ARPU from FOMA service was ¥6,380 compared
                                           ¥1,870, and voice ARPU (FOMA+mova) falling 10.0% to              with ¥6,900 in fiscal 2003, packet ARPU was ¥3,270 com-
                                           ¥5,330.                                                          pared with ¥3,380 in fiscal 2003, and aggregate ARPU was
                                                In the area of costs, in addition to the increase in rev-   ¥9,650 compared with ¥10,280 in fiscal 2003.
                                           enue-linked variable expenses such as the cost of
 DoCoMo Brand | Businesses and Companies




                                           equipment sold reflecting the progress in migration of           3. Cellular (mova) Services
                                           subscribers from mova services to FOMA services, there           Regarding mova services, we released handsets for the
                                           was also an increase in depreciation and amortization, and       mova506i, mova 506iC, and mova253i series. In addition,
                                           retirement costs of fixed assets. This occurred due to the       we released handsets with unique product concepts and
                                           progression of facility renovation that accompanying net-        distinctive features such as the premini series, which fea-
                                           work function improvement, and the increase in capital           tures compact bodies, simple functions, and unique
                                           expenditures to improve coverage areas of FOMA services          designs, and the Music PORTER handset, which is equipped
                                           to meet increasing demand.                                       with a music player and FM radio tuner. Despite continu-
                                                However, as our customers supported the improve-            ous high demand for the newest mova series handsets, the
                                           ment in our overall service quality, including an                number of mova subscribers as of March 31, 2005
                                           understanding that our fees are not expensive, an                decreased to 37.32 million (down 13.8% year-on-year) due
                                           enhancement of our equipment lineup, and improved net-           to the continuous migration of subscribers from mova
                                           work quality, our cellular churn rate dropped sharply, our       services to FOMA services. Also, we stopped accepting
                                           market share of monthly net additions began to recover,          new subscribers to our CITYPHONE service (services
                                           and we made favorable progress in migrating existing             using 1.5 GHz digital networks) and Pre-Call service (pre-
                                           mova subscribers to our FOMA service, thereby achieving          paid services) at the end of September 2004 and March
                                           concrete results connected to the recovery of our future         2005, respectively.
                                           profitability.                                                        Voice ARPU from mova services was ¥5,160 compared
                                                                                                            with ¥5,890 in fiscal 2003, i-mode ARPU was ¥1,640 com-
                                           2. Cellular (FOMA) Services                                      pared with ¥1,940 in fiscal 2003, and overall ARPU was
                                           Regarding FOMA services, we lowered our tariffs. In May          ¥6,800 compared with ¥7,830 in fiscal 2003.
                                           2004, we reduced the monthly charges for “Packet Pack,” a
                                           discount service for per-packet rates, and in June 2004 we       4. i-mode Services
                                           introduced “pake-houdai,” setting limits on fees for i-mode      With respect to our i-mode service, we launched the “Osaifu-
                                           packet communication services that customers can use             Keitai: i-mode FeliCa” service in July 2004. By establishing
                                           without worrying about charges. In addition, we strength-        linkage with other business platforms such as electronic
                                           ened our handset lineup in order to respond to the               money, membership cards, and point cards, we have been
                                           diversified needs of our customers. We released the FOMA         working to create new usage opportunities for mobile
                                           F900iC handset which is equipped with wallet functions           phones. As of April 7, 2005, handset sales for “i-mode Feli-
                                           “Osaifu-Keitai: i-mode FeliCa” service capability in August      Ca” compatible models stood at approximately 3 million,
                                           2004, and the FOMA Raku Raku PHONE handset in Sep-               while the number of shops accepting payments using the
                                                                                                                                 | 41




“i-mode FeliCa” service increased to approximately 20,000         sluggish. With factors such as the expected introduction
as of April 1, 2005. In addition, we continued to imple-          of mobile number portability in fiscal 2006, each mobile
ment countermeasures to fight spam mail so that our               operator has been enriching its lineup of handsets and
i-mode subscribers can enjoy mobile Internet services             services and introducing discount plans. It is expected
more comfortably and without worry. The number of sub-            that the competitive environment among operators will
scribers to our i-mode services reached a total of 44.02          intensify further in the future.
million (up 7.2% year-on-year), with 11.35 million sub-                In fiscal 2005, we expect the effect of various dis-
scribers using FOMA and 32.67 million subscribers using           counts implemented during the last fiscal year to
mova. This accounts for approximately 90% of our cellular         strengthen our competitiveness. However, they will also
service subscribers.                                              result in an increase in revenue-linked variable expenses
     In terms of global development, COSMOTE Mobile               along with the development of migration to FOMA serv-
Telecommunications S.A., a Greek company, and Telstra             ices. We will nevertheless continue to strengthen our
Corporation Limited, an Australian company, recently              core business and make concentrated efforts to reduce
started providing i-mode services. In addition, Cellcom           costs and secure new sources of income.
Israel LTD., an Israeli company; O2 plc, a UK-based com-               With regard to reducing costs, as sales of FOMA hand-
pany; Mobile TeleSystems OJSC, a Russia-based company;            sets are increasing, we will make efforts to reduce sales
and Starhub Ltd., a Singaporean company with which we             commissions paid to distributors by lowering procurement
entered into i-mode license agreements, are preparing to          costs, reduce costs through the effective construction and




                                                                                                                                 DoCoMo Brand | Businesses and Companies
launch i-mode services in 2005. As a result, i-mode servic-       operation of networks, reduce general non-personnel
es were rolled out in nine foreign countries and regions,         expenses through an overall review of business processes,
and are expected to be rolled out in 11 foreign countries         and streamline underperforming businesses.
and regions as of March 31, 2005.                                      With regard to securing new sources of income, we
                                                                  aim to promote further the spread of mobile phones with
(2) Fiscal 2005 Forecast                                          wallet functions “Osaifu-Keitai” as well as increase its use
We expect our aggregate number of cellular (FOMA and              by making the service more convenient for customers,
mova) service subscribers to rise to 50.7 million by the          increase audiovisual data traffic growth by expanding the
end of fiscal 2005, an increase of 3.8% year-on-year. This        use of videophones, and increase our international rev-
expanded subscriber base is expected to include 24.1 mil-         enue by enriching our international roaming services.
lion FOMA subscribers, or 47.5% of the total base, due to              In particular, with respect to the launch of a new
the steady development of migration from mova services            credit service, which was announced on April 27, we
to FOMA services.                                                 have been making efforts to create a new brand and a
     As the penetration rate of mobile phones in the pop-         platform for credit payment services, and to create new
ulation increases further, overall market growth has been         credit markets that use mobile phones.



        Operating Revenue and Operating Income (Loss) by Segment
                                                                       (Billions of yen)
                              Fiscal year          2002       2003            2004
Mobile phone businesses Operating revenues        4,690.4    4,937.7         4,741.1
                        Operating income (loss)   1,087.2    1,138.9           872.0
PHS business            Operating revenues          85.0       75.7             63.1
                        Operating income (loss)     (28.3)     (35.5)          (85.9)
Quickcast business      Operating revenues            8.1        6.0              4.6
                        Operating income (loss)      (6.5)      (1.9)           (5.1)
Miscellaneous           Operating revenues          25.5       28.7             35.8
businesses
                        Operating income (loss)       4.3        1.4              3.2
42                               |


                                           PHS Business                                                                   PHS Market Share, by Operator


                                           We carried out efforts with a focus on promoting sales of the                         NTT DoCoMo
                                           @FreeD flat-rate data communications service. Although the num-                       WILLCOM (former DDI Pocket)
                                                                                                                 (%)             ASTEL
                                           ber of customers using the flat-rate data communications service      80
                                           increased, the subscriber base continued to decrease customers
                                           concentrating voice usage, and operating revenues in the PHS          60
                                           business fell 16.7% year-on-year to ¥63.1 billion in fiscal 2004,
                                           and operating loss amounted to ¥85.9 billion.
                                                                                                                 40
                                                 Demand for data-card-type PHS terminals for @FreeD is
                                           expected to decrease in the future as mobile phone services
                                                                                                                 20
                                           become faster and more multifunctional. For that reason, we
                                           stopped accepting new PHS subscribers as of the end of April
                                           2005 to concentrate DoCoMo’s management resources on                   0
                                                                                                                           ’01        ’02        ’03         ’04        ’05
                                           FOMA services. In conjunction with this, our PHS business                   (Annual data based on the cumulative number of subscribers)
                                                                                                                                                          * Years ended March 31
                                           recorded a loss on impairment of business assets of ¥60.4                            Source: Telecommunications Carriers Association
                                           billion in fiscal 2004.



                                           Quickcast Business                                                             Quickcast Services: Cumulative
                                                                                                                           Number of Subscribers and
 DoCoMo Brand | Businesses and Companies




                                                                                                                          Market Share of NTT DoCoMo
                                           In the Quickcast business, operating revenues amounted to ¥4.6
                                           billion while our operating loss amounted to ¥5.1 billion in fiscal                              No. of subscribers (left)
                                                                                                                 (Thousands)                Market share (right)              (%)
                                           2004. With the spread of mobile phones, the number of Quickcast       1,400                                                         80
                                           subscribers has been progressively decreasing, and for this reason,
                                                                                                                 1,200                                                         70
                                           we stopped accepting new subscribers at the end of June 2004 and
                                                                                                                 1,000                                                         60
                                           will stop providing the service at the end of the March 2007.
                                                                                                                  800                                                          50

                                                                                                                  600                                                          40
                                           Miscellaneous Businesses                                               400                                                          30
                                           (International Services, Wireless LAN Business)
                                                                                                                  200                                                          20

                                           Miscellaneous businesses generated operating revenues of                   0
                                                                                                                           ’01        ’02         ’03        ’04        ’05
                                                                                                                                                                                0

                                           ¥35.8 billion (up 24.8% year-on-year) and operating income                                                          (Annual data)
                                                                                                                                                    * Years ended March 31
                                           of ¥3.2 billion (up 126.2% year-on-year) in fiscal 2004.                          Source: Telecommunications Carriers Association
                                                 With regard to international services, we newly began
                                           packet communication, videophone, and SMS (short message
                                           service) international roaming services in December 2004, and
                                           we simultaneously launched FOMA N900iG, the first interna-
                                           tional roaming handset for FOMA, to be compatible with these
                                           services. The service area has been expanded to 122 countries
                                           and regions for voice and SMS roaming and 32 countries and
                                           regions (as of the end of March 2005) for packet roaming.
                                                 We began providing international roaming service for the
                                           Mzone public wireless LAN service in September 2004, and we
                                           currently provide roaming service on airplanes on major inter-
                                           national routes in the United States, Europe, and Asia. We have
                                           completed a domestic rollout including Haneda Airport, Cen-
                                           tral Japan International Airport, and 165 Tokyo Metro stations
                                           (all but three stations in the network), and we are also moving
                                           forward with expanding coverage for Toei subway stations.
                                S U B S I D I A R I E S A N D A F F I L I AT E S                                                              | 43
                                                     (As of March 31, 2005)



Consolidated Subsidiaries 88 companies

Company                                Capital       Voting Rights   Main Line(s) of Business
                                                     Ownership

NTT DoCoMo Hokkaido, Inc.          ¥15,630 Million    100.00%        Mobile Phone Business, PHS Business, Quickcast Business and Mis-
                                                                     cellaneous Business in Hokkaido region
NTT DoCoMo Tohoku, Inc.            ¥14,981 Million    100.00%        Mobile Phone Business, PHS Business, Quickcast Business and Mis-
                                                                     cellaneous Business in Tohoku region
NTT DoCoMo Tokai, Inc.             ¥20,340 Million    100.00%        Mobile Phone Business, PHS Business, Quickcast Business and Mis-
                                                                     cellaneous Business in Tokai region
NTT DoCoMo Hokuriku, Inc.           ¥3,406 Million    100.00%        Mobile Phone Business, PHS Business, Quickcast Business and Mis-
                                                                     cellaneous Business in Hokuriku region
NTT DoCoMo Kansai, Inc.            ¥24,458 Million    100.00%        Mobile Phone Business, PHS Business, Quickcast Business and Mis-
                                                                     cellaneous Business in Kansai region
NTT DoCoMo Chugoku, Inc.           ¥14,732 Million    100.00%        Mobile Phone Business, PHS Business, Quickcast Business and Mis-
                                                                     cellaneous Business in Chugoku region
NTT DoCoMo Shikoku, Inc.            ¥8,412 Million    100.00%        Mobile Phone Business, PHS Business, Quickcast Business and Mis-
                                                                     cellaneous Business in Shikoku region
NTT DoCoMo Kyushu, Inc.            ¥15,834 Million    100.00%        Mobile Phone Business, PHS Business, Quickcast Business and Mis-
                                                                     cellaneous Business in Kyushu region
DoCoMo Service Inc.                  ¥100 Million     100.00%        Billing services and after sales service activities

DoCoMo Engineering Inc.              ¥100 Million     100.00%        Designing, construction and maintenance of telecommunication




                                                                                                                                              DoCoMo Brand | Businesses and Companies
                                                                     facilities
DoCoMo Mobile Inc.                     ¥30 Million    100.00%        Maintenance of cellular phone handsets and logistics

DoCoMo Support Inc.                    ¥20 Million    100.00%        Operation of call centers and support for branch sales office

DoCoMo Systems, Inc.                 ¥652 Million     100.00%        Development and operation of internal information systems and
                                                                     planning, development and sales of system solutions
DoCoMo Sentsu, Inc.                  ¥100 Million     100.00%        Sales, installation and maintenance of maritime satellite mobile
                                                                     phones
DoCoMo Technology, Inc.              ¥100 Million       90.00%       Commissioned research and development on mobile communica-
                                                                     tion from NTT DoCoMo
DoCoMo Service Hokkaido Inc.           ¥20 Million    100.00%        Billing services and after sales service activities in Hokkaido region
                                                     (100.00%)
DoCoMo Service Tohoku Inc.             ¥30 Million    100.00%        Billing services and after sales service activities in Tohoku region
                                                     (100.00%)
DoCoMo Service Tokai Inc.              ¥30 Million    100.00%        Billing services and after sales service activities in Tokai region
                                                     (100.00%)
DoCoMo Service Hokuriku Inc.           ¥20 Million    100.00%        Billing services and after sales service activities in Hokuriku region
                                                     (100.00%)
DoCoMo Service Kansai, Inc.            ¥30 Million    100.00%        Billing services and after sales service activities in Kansai region
                                                     (100.00%)
DoCoMo Service Chugoku, Inc.           ¥30 Million    100.00%        Billing services and after sales service activities in Chugoku region
                                                     (100.00%)
DoCoMo Service Shikoku Inc.            ¥20 Million    100.00%        Billing services and after sales service activities in Shikoku region
                                                     (100.00%)
DoCoMo Service Kyushu Inc.             ¥30 Million    100.00%        Billing services and after sales service activities in Kyushu region
                                                     (100.00%)
DoCoMo Engineering Hokkaido Inc.       ¥20 Million    100.00%        Designing, construction and maintenance of telecommunication
                                                     (100.00%)       facilities in Hokkaido region
DoCoMo Engineering Tohoku Inc.         ¥30 Million    100.00%        Designing, construction and maintenance of telecommunication
                                                     (100.00%)       facilities in Tohoku region
DoCoMo Engineering Tokai Inc.          ¥30 Million    100.00%        Designing, construction and maintenance of telecommunication
                                                     (100.00%)       facilities in Tokai region
DoCoMo Engineering Hokuriku Inc.       ¥30 Million    100.00%        Designing, construction and maintenance of telecommunication
                                                     (100.00%)       facilities in Hokuriku region
44                               |




                                           Company                                  Capital        Voting Rights   Main Line(s) of Business
                                                                                                   Ownership

                                           DoCoMo Engineering Kansai, Inc.          ¥50 Million     100.00%        Designing, construction and maintenance of telecommunica-
                                                                                                   (100.00%)       tion facilities in Kansai region
                                           DoCoMo Engineering Chugoku, Inc.         ¥30 Million     100.00%        Designing, construction and maintenance of telecommunica-
                                                                                                   (100.00%)       tion facilities in Chugoku region
                                           DoCoMo Engineering Shikoku Inc.          ¥30 Million     100.00%        Designing, construction and maintenance of telecommunica-
                                                                                                   (100.00%)       tion facilities in Shikoku region
                                           DoCoMo Engineering Kyushu Inc.           ¥30 Million     100.00%        Designing, construction and maintenance of telecommunica-
                                                                                                   (100.00%)       tion facilities in Kyushu region
                                           DoCoMo Mobile Hokkaido Inc.              ¥20 Million     100.00%        Maintenance of cellular phone handsets and logistics in
                                                                                                   (100.00%)       Hokkaido region
                                           DoCoMo Mobile Tokai Inc.                 ¥30 Million     100.00%        Maintenance of cellular phone handsets and logistics in
                                                                                                   (100.00%)        Tokai region
                                           DoCoMo Mobilemedia Kansai, Inc.          ¥30 Million     100.00%        Maintenance of cellular phone handsets and logistics in
                                                                                                   (100.00%)        Kansai region
                                           DoCoMo Mobile Chugoku, Inc.              ¥30 Million     100.00%        Maintenance of cellular phone handsets and logistics in
                                                                                                   (100.00%)       Chugoku region
                                           DoCoMo i Kyushu Inc.                     ¥30 Million     100.00%        Development and maintenance of information systems and
                                                                                                   (100.00%)       sales of information system hardware in Kyushu region
                                           e Engineering Inc.                       ¥10 Million     100.00%        Support for maintenance of telecommunication facilities of
 DoCoMo Brand | Businesses and Companies




                                                                                                   (100.00%)       NTT DoCoMo
                                           e Engineering Tokai Inc.                 ¥10 Million     100.00%        Support for maintenance of telecommunication facilities in
                                                                                                   (100.00%)       Tokai region
                                           e Engineering Kansai, Inc.               ¥10 Million     100.00%        Support for maintenance of telecommunication facilities in
                                                                                                   (100.00%)       Kansai region
                                           e Engineering Kyushu Inc.                ¥10 Million     100.00%        Support for maintenance of telecommunication facilities in
                                                                                                   (100.00%)       Kyushu region
                                           Business Expert Inc.                     ¥10 Million     100.00%        Support for billing services of NTT DoCoMo
                                                                                                   (100.00%)
                                           Business Expert Tokai Inc.               ¥10 Million     100.00%        Support for billing services in Tokai region
                                                                                                   (100.00%)
                                           Business Expert Kansai, Inc.             ¥10 Million     100.00%        Support for billing services in Kansai region
                                                                                                   (100.00%)
                                           Business Expert Kyushu, Inc.             ¥10 Million     100.00%        Support for billing services in Kyushu region
                                                                                                   (100.00%)
                                           DoCoMo Beijing Communications       US$5,300 Thousand    100.00%  Research activities for core technologies of next generation
                                           Laboratories Co., Ltd.*                                           mobile communication systems in China
                                           DCM Investment, Inc.*              US$41,120 Thousand    100.00% Investment management of mobile communication venture
                                                                                                   (100.00%) funds in the United States and information gathering
                                           DoCoMo Communications                =
                                                                                C7,500 Thousand     100.00% Research activities for core technologies of next generation
                                           Laboratories Europe GmbH*                               (100.00%) mobile communication systems in Europe
                                           DoCoMo Communications               US$7,000 Thousand    100.00% Research activities for core technologies of next generation
                                           Laboratories USA, Inc.*                                 (100.00%) mobile communication systems in the United States
                                           DoCoMo Europe(France)S.A.S.*           =
                                                                                  C800 Thousand     100.00% Support for DoCoMo’s overseas deployment in France
                                                                                                   (100.00%)
                                           DoCoMo Europe Limited*                £9,888 Thousand    100.00% Support for DoCoMo’s overseas deployment in Europe

                                           DoCoMo i-mode Europe B.V.*           =
                                                                                C2,400 Thousand     100.00% Support for overseas deployment of i-mode in Europe
                                                                                                   (100.00%)
                                           inter-touch (BVI) Limited*         US$25,860 Thousand    100.00% Holding company for a corporate group providing high-speed
                                                                                                             internet connection services for hotels worldwide
                                           NTT DoCoMo USA, Inc.*              US$52,620 Thousand    100.00% Support for DoCoMo’s overseas deployment in the United States

                                           35 other companies
                                                                                                                                                                       | 45


Equity Method Subsidiaries 6 companies

 Company                                                Capital               Voting Rights   Main Line(s) of Business
                                                                              Ownership

 DoCoMo.com, Inc.                                   ¥2,500 Million             100.00%        Consulting service for information providers on mobile internet

 DoCoMo Machine Com, Inc.                             ¥100 Million             100.00%        On-line monitoring service for vending machines and location
                                                                                              information service
                                                                                              Note: Liquidation of the company was completed in June 2005.
 D2 Communications Inc.                               ¥980 Million              51.00%        Creating and posting advertisement on i-mode web site

 DoCoMo Tametan, Inc.                                 ¥175 Million              97.71%        Planning and operation of intranet-based web portal for corpo-
                                                                                              rate employees
 Double Square Inc.                                   ¥100 Million              98.00%        Planning, creation and operation of web content

 allucher Inc.                                          ¥45 Million             96.67%        Marketing and Consulting




Equity Method Affiliated Companies 9 companies




                                                                                                                                                                       DoCoMo Brand | Businesses and Companies
 Company                                                Capital               Voting Rights   Main Line(s) of Business
                                                                              Ownership

 Hutchison 3G HK Holdings Limited* HK$1,258 Thousand                           24.10%         Holding company of a cellular operator in Hong Kong
                                                                              (24.10%)
 Hutchison Telephone                            HK$1,258 Thousand              24.10%         Cellular operator in Hong Kong
 Company Limited*                                                             (24.10%)
 Gobi Fund, Inc.*                               US$7,500 Thousand              33.33%         Venture capital fund targeting venture companies mainly in
                                                                              (33.33%)        China that work in digital media sectors
 Mobile Innovation                                  THB84 Million              40.00%         Vehicle fleet management services in Thailand
 Company Limited*                                                             (40.00%)
 Digital Media Group                                US$98 Thousand                            Digital media business in China
                                                                                  —
 Company Limited*
 Nippon Data Com Co., ltd                               ¥70 Million            38.57%         Businesses related to information systems and outsourcing
                                                                              (14.29%)        Note: DoCoMo’s voting rights ownership in the company was increased to
                                                                                                    43.41% (indirect ownership: 16.08%) in June 2005.
 NIPPON TELECOMMUNICATIONS                            ¥495 Million             36.33%         Resale of leased circuits and high-speed data communications
 NETWORK CO.,LTD                                                              (19.72%)        network
 Mobile Internet Capital, Inc                         ¥100 Million             30.00%         Venture-capital company investing in the mobile Internet
                                                                                              business
 FeliCa Networks, Inc.                              ¥6,285 Million             38.00%         Mobile FeliCa IC chip development and production/sales
                                                                                              licensing; operation of mobile FeliCa service platform
Note: In the Voting Rights Ownership column, numbers in parenthesis indicate the indirect ownership ratio.
*As of December 31, 2004.
46                               |                                                C O R P O R AT E D ATA
                                                                                         (As of July 1, 2005)



                                           Company Name                                                 Stock Listings
                                             NTT DoCoMo, Inc.                                              Tokyo Stock Exchange, First Section (Code: 9437)

                                             The name DoCoMo is derived from the first letters             New York Stock Exchange (Symbol: DCM)
                                             of the phrase “Do Communications Over the Mobile
                                             Network.”                                                     London Stock Exchange (Symbol: NDCM)




                                           Address                                                      Independent Certified Public Accountants
                                             Head Office:                                                  KPMG AZSA & Co., an audit corporation
                                                                                                           incorporated under the Japanese Certified Public
                                             11-1, Nagata-cho 2-chome, Chiyoda-ku,                         Accountants Law, the Japan member firm of
                                                                                                           KPMG International, a Swiss Cooperative
                                             Tokyo 100-6150, Japan

                                             Phone: +81 3 5156 1111



                                             New York Head Office:
                                                                                                        Contact IR
                                                                                                           Phone: +81 3 5156 1111
                                             NTT DoCoMo USA, Inc.
                                                                                                           Fax: +81 3 5156 0271
                                             461 Fifth Avenue, 24th Fl. New York, NY 10017
 DoCoMo Brand | Businesses and Companies




                                                                                                           e-mail: ir@nttdocomo.co.jp
                                             Phone: +1 212 994 7222
                                                                                                           http://www.nttdocomo.co.jp/english/ir/



                                           Capital (consolidated)
                                             ¥949,680,000,000 (As of March 31, 2005)




                                           Date of Establishment
                                             August 1991




                                           Number of Employees (consolidated)                              NTT DoCoMo, Inc. provides information on its own Website:

                                             21,527 (As of March 31, 2005)                                 http://www.nttdocomo.com/
                    | 47




DoCoMo IN FIGURES
48             |       I . D o C o M o A N D I N D U S T RY D ATA O N M O B I L E P H O N E B U S I N E S S E S


                                                                                                (Millions)                                                                                       (%)
                     Cumulative Number of Subscribers and
                     Penetration Rate in Japan                                                  100                                                                                             100

                                                                                                  80                                                                                             80

                                                                                                  60                                                                                             60

                                                                                                  40                                                                                             40

                                                                                                  20                                                                                             20

                     Years ended March 31                                                          0                                                                                                 0
                                                                                                             2001           2002                2003             2004             2005
                          Population of Japan (Thousands) . . . . . . . . . . . . . . . . . . . . . . 127,040            127,330             127,560           127,650         127,686
                          Total subscribers in
                            Japan (Thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61,137      69,349              75,944            81,921          86,998
                          Penetration rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  48.1%       54.5%               59.5%             64.2%           68.1%
                                                                                                   *See Note 4 on page 52.
                                                                                                   Sources: Statistics Bureau, Ministry of Internal Affairs and Communications (Population of Japan)
                                                                                                            Telecommunications Carriers Association (Total mobile phone subscribers in Japan)

                                                    (Millions)                                                                         (Millions)
                     Cumulative
                     Number of                      50                                                                                 50
                     Subscribers,
                     by Operator                    40                                                                                 40
                     (Annual and
                      Quarterly Data)               30                                                                                 30

                                                    20                                                                                 20

                                                    10                                                                                 10

                     Years ended March 31             0                                                                                 0
                                                                                                                                                                   2005
                         (Thousands)                        2001       2002           2003             2004         2005                        1Q            2Q            3Q             4Q
 DoCoMo In Figures




                          NTT DoCoMo . . . . .             36,219.1   41,011.1     44,148.5        46,328.1       48,824.9                  46,833.5     47,362.5       47,914.2      48,824.9
                            FOMA . . . . . . . . .               —        89.4        330.0         3,045.1       11,500.6                   4,583.1      6,487.6        8,499.2      11,500.6
                            mova . . . . . . . . . .       36,219.1   40,921.7     43,818.6        43,283.0       37,324.3                  42,250.4     40,874.9       39,415.0      37,324.3
                          au . . . . . . . . . . . . . .   10,985.5   12,214.2     14,049.1        16,958.8       19,542.4                  17,591.1     18,188.8       18,759.0      19,542.4
                          TU-KA . . . . . . . . . . .       3,954.1    3,891.4      3,783.3         3,631.8        3,589.6                   3,606.4      3,587.7        3,599.6       3,589.6
                          Vodafone . . . . . . . . .        9,977.8   12,232.0     13,963.3        15,002.4       15,040.7                  15,108.8     15,173.7       15,211.0      15,040.7
                                                                                                                                                    *See Note 4 on page 52.
                                                                                                                                                    Source: Telecommunications Carriers Association


                                                    (%)                                                                               (%)
                     Market Share,
                     by Operator                    80                                                                                 80
                     (Annual and
                      Quarterly Data)
                                                    60                                                                                 60


                                                    40                                                                                 40


                                                    20                                                                                 20


                     Years ended March 31             0                                                                                 0

                                                            2001       2002           2003             2004         2005                                           2005
                                                                                                                                                1Q            2Q            3Q             4Q
                          NTT DoCoMo . . . . . 59.2%                   59.1%         58.1%             56.6%        56.1%                     56.3%         56.2%         56.1%          56.1%
                          au . . . . . . . . . . . . . . . 18.0%       17.6%         18.5%             20.7%        22.5%                     21.2%         21.6%         21.9%          22.5%
                          TU-KA . . . . . . . . . . . 6.5%              5.6%          5.0%              4.4%         4.1%                      4.3%          4.3%          4.2%           4.1%
                          Vodafone . . . . . . . . . 16.3%             17.6%         18.4%             18.3%        17.3%                     18.2%         18.0%         17.8%          17.3%
                                                                                                                                               *See Note 4 on page 52.
                                                                                                                                               Source: Telecommunications Carriers Association
                                                                                                                                               Note: Based on the cumulative number of subscribers
                                                                                                                                                                                  | 49


                                                                                               (%)
Churn Rate, by Operator
(Annual Data)                                                                                   4


                                                                                                3


                                                                                                2


                                                                                                1


Years ended March 31                                                                            0
                                                                                                        2001     2002           2003            2004           2004
     NTT DoCoMo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               1.37%    1.17%          1.23%          1.21%           1.01%
     au . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3.2%     2.6%           1.8%          1.49%           1.44%
     TU-KA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         3.3%     3.1%           2.4%           2.4%            2.0%
     Vodafone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           —      2.13%          1.94%          1.91%           1.89%
                                                                                                                                                   Source: Each company's data


                                                                                               (%)
Competition in the Mobile Internet Service Market
(Annual Data)                                                                                  80


                                                                                               60


                                                                                               40


                                                                                               20


Years ended March 31                                                                            0
                                                                                                        2001     2002           2003            2004           2005
     i-mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.8%         61.9%          60.5%           58.9%          58.6%




                                                                                                                                                                                  DoCoMo In Figures
     EZweb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.4%          18.6%          20.1%           22.5%          24.3%
     Vodafone live! (former J-sky) . . . . . . . . . . . . . . . . . . . . . . . . . 17.8%*                     19.5%*         19.5%*          18.6%          17.1%
                                                                                                                *Sales of handsets adopted to J-sky service
                                                                                                                Sources: Telecommunications Carrier Association (excluding 2001
                                                                                                                         data, which is from each operator respectively)
50             |                                              I I . D o C o M o ’ S O T H E R O P E R AT I O N D ATA


                                                                                                                                                  (Yen)
                     ARPU (FOMA+mova)
                                                                                                                                                  10,000
                     (Annual Data)

                                                                                                                                                   8,000


                                                                                                                                                   6,000


                                                                                                                                                   4,000


                                                                                                                                                   2,000

                     Years ended March 31                                                                                                                 0
                                                                                                                                                               2003     2004    2005
                          Aggregate ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     8,130    7,890   7,200
                            Voice ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6,380    5,920   5,330
                            Packet ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,750    1,970   1,870
                              i-mode ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,750    1,970   1,870



                                                                                                                                                  (Yen)
                     ARPU (FOMA) and ARPU (mova)
                                                                                                                                                  10,000
                     (Annual Data)

                                                                                                                                                   8,000


                                                                                                                                                   6,000


                                                                                                                                                   4,000


                                                                                                                                                   2,000

                     Years ended March 31                                                                                                                 0
                                                                                                                                                               2003     2004    2005
                          FOMA aggregate ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          7,740   10,280   9,650
 DoCoMo In Figures




                           Voice ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5,050    6,900   6,380
                           Packet ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2,690    3,380   3,270
                             i-mode ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,120    3,240   3,220
                          mova aggregate ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        8,140    7,830   6,800
                           Voice ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    6,390    5,890   5,160
                           i-mode ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,750    1,940   1,640


                                                                                                                         (Yen)
                     ARPU (FOMA+mova)
                     (Quarterly Data)
                                                                                                                          6,000



                                                                                                                          4,000



                                                                                                                          2,000



                     Year ended March 2005                                                                                       0
                                                                                                                                             1Q                 2Q       3Q      4Q
                          Aggregate ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        7,400                7,340   7,170    6,920
                            Voice ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5,450                5,440   5,350    5,090
                            Packet ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,950                1,900   1,820    1,830
                              i-mode ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         1,940                1,890   1,810    1,820
                                                                                                                                                                             | 51


                                                                                                                               (Minutes)
MOU (FOMA + mova)
(Annual Data)
                                                                                                                               150



                                                                                                                               100



                                                                                                                                50



Years ended March 31                                                                                                              0
                                                                                                                                           2003     2004     2005
     Total MOU (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      168      159      151
       Outbound (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       124      117      112
       Inbound (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       44       42       39




                                                                                                                               (Minutes)
MOU (FOMA ) and MOU (mova)
(Annual Data)                                                                                                                  250

                                                                                                                               200

                                                                                                                               150

                                                                                                                               100

                                                                                                                                50

Years ended March 31                                                                                                              0
                                                                                                                                           2003     2004     2005
     Total MOU for FOMA (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               109      219      229




                                                                                                                                                                             DoCoMo In Figures
       Outbound (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        85      168      176
       Inbound (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       24       51       53
     Total MOU for mova (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             168      158      138
       Outbound (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       124      116      101
       Inbound (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       44       42       37



                                                                                      (Millions)                                                                       (%)
Data Related to i-mode Services
(Number of Subscribers and i-mode Subscribers Ratio,                                  50                                                                              100
 Annual Data)
                                                                                      40                                                                               80

                                                                                      30                                                                               60

                                                                                      20                                                                               40

                                                                                      10                                                                               20

Years ended March 31                                                                    0                                                                               0
                                                                                                   2001              2002                  2003     2004     2005
     No. of total subscribers (thousands) . . . . . . . . . . . . . . . . . . . . 36,219                            41,011                 44,149   46,328   48,825
     No. of i-mode subscribers (thousands) . . . . . . . . . . . . . . . . . . 21,695                               32,156                 37,758   41,077   44,021
        i-appli users (thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,598                         12,621                 17,130   23,416   29,989
     i-mode subscribers ratio (%) . . . . . . . . . . . . . . . . . . . . . . . . . . 59.9%                          78.4%                  85.5%    88.7%   90.2 %
52             |


                     Data Related to i-mode Services
                     (i-Menu Sites and Independent Sites, Annual Data)                                    5,000                                                                                        100,000

                                                                                                          4,000                                                                                          80,000

                                                                                                          3,000                                                                                          60,000

                                                                                                          2,000                                                                                          40,000

                                                                                                          1,000                                                                                          20,000

                     Years ended March 31                                                                         0                                                                                           0
                                                                                                                      2001             2002              2003              2004              2005
                           i-Menu sites (FOMA) (left) . . . . . . . . . . . . . . . . . . . . . . . . . . .               —            1,233             2,857             3,930            4,780
                           i-Menu sites (mova) (left) . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,620           2,994             3,462             4,144            4,573
                           Independent sites* (right) . . . . . . . . . . . . . . . . . . . . . . . . . . . .         41,093          53,534            64,207            74,605           85,013
                                                                                                                                       *Data on independent sites are from OH!NEW? by Digital Street.


                                                                                                          (Yen)                                                                                              (%)
                     PHS Services
                     (Annual Data)                                                                        5,000                                                                                            100

                                                                                                          4,000                                                                                              80

                                                                                                          3,000                                                                                              60

                                                                                                          2,000                                                                                              40

                                                                                                          1,000                                                                                              20

                     Years ended March 31                                                                         0                                                                                           0
                                                                                                                      2001             2002              2003              2004              2005
                           ARPU (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4,190            3,790             3,500             3,430             3,360
                           MOU (minutes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        125              121               116               100                82
 DoCoMo In Figures




                           Data communication usage ratio (%) . . . . . . . . . . . . . . . . . . .                   58.0%            72.5%             77.6%             76.4%             74.7%
                           Churn rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3.85%            3.57%             3.44%             3.49%             3.23%




                     Note 1. ARPU and MOU                                                                                      Packet ARPU (FOMA): Packet ARPU (FOMA) Related Revenues (monthly charges,
                      (1)ARPU (Average monthly revenue per unit): Average monthly revenue per unit,                            packet transmission charges) / No. of active cellular phone subscribers (FOMA)
                         or ARPU, is used to measure average monthly operating revenues attributable to                        i-mode ARPU*2 (FOMA): i-mode ARPU (FOMA) Related Revenues (monthly
                         designated services on a per user basis. ARPU is calculated by dividing various                       charges, packet transmission charges) / No. of active cellular phone subscribers
                         revenue items included in operating revenues from our Wireless services, such                         (FOMA)
                         as monthly charges, voice transmission charges and packet transmission
                         charges, from designated services which are incurred consistently each month,                       (3)Aggregate ARPU (mova)=Voice ARPU (mova) + i-mode ARPU (mova)
                         by number of active subscribers to the relevant services. Accordingly, the calcu-
                         lation of ARPU excludes revenues that are not representative of monthly average                       Voice ARPU (mova): Voice ARPU (mova) Related Revenues (monthly charges,
                         usage such as activation fees. We believe that our ARPU figures provide useful                        voice transmission charges) / No. of active cellular phone subscribers (mova)
                         information regarding the average usage of our subscribers. The revenue items                         i-mode ARPU*2 (mova): i-mode ARPU (mova) Related Revenues (monthly charges,
                         included in the numerators of our ARPU figures are based on our U.S. GAAP                             packet transmission charges) / No. of active cellular phone subscribers (mova)
                         results of operations.
                      (2)MOU (Minutes of usage): Average communication time per one month per one user                       (4)ARPU (PHS): ARPU (PHS) Related Revenues (monthly charges, voice transmis-
                                                                                                                                sion charges) / No. of active PHS subscribers
                                     1
                     Note 2. ARPU* is calculated as follows:                                                             Note 3. Active Subscribers Caluculation Methods*1:
                      (1)Aggregate ARPU (FOMA+mova)=Voice ARPU (FOMA+mova) + Packet ARPU                                  No. of active subscribers used in ARPU/MOU/Churn Rate calculations are sum of
                                                          (FOMA+mova)                                                     No. of active subscribers*3 for each month.
                         Voice ARPU (FOMA+mova): Voice ARPU (FOMA+mova) Related Revenues                                 Note 4.
                         (monthly charges, voice transmission charges) / No. of active cellular phone                     To align the way we count cellular subscribers with the methods used by other cel-
                         subscribers (FOMA+mova)                                                                          lular phone carriers in Japan, we have amended the way we calculate mova
                         Packet ARPU (FOMA+mova): {Packet ARPU (FOMA) Related Revenues                                    subscribers to include DoPa Single Service (communication module service) sub-
                         (monthly charges, packet transmission charges) + i-mode ARPU (mova) Related                      scribers in the total number of mova subscribers. For the sake of clarity, we have
                         Revenues (monthly charges, packet transmission charges)} / No. of active cellu-                  also amended the number of mova subscribers for the preceding years based on the
                         lar phone subscribers (FOMA+mova)                                                                same approach.
                         i-mode ARPU*2 (FOMA+mova): i-mode ARPU (FOMA+mova) Related Rev-                                 *1 DoPa single service subscribers and the revenues thereof are not included in the
                         enues (monthly charges, packet transmission charges) / No. of active cellular                      ARPU and MOU calculations.
                         phone subscribers (FOMA+mova)                                                                   *2 The denominator used in calculating i-mode ARPU (FOMA + mova, FOMA, mova)
                                                                                                                            is the aggregate number of cellular subscribers to each service (FOMA + mova,
                      (2)Aggregate ARPU (FOMA)=Voice ARPU (FOMA) + Packet ARPU (FOMA)                                       FOMA, mova, respectively), regardless of whether i-mode service is activated or
                         Voice ARPU (FOMA): Voice ARPU (FOMA) Related Revenues (monthly charges,                            not.
                         voice transmission charges) / No. of active cellular phone subscribers (FOMA)                   *3 Active subscribers = (No. of subscribers at the end of previous month + No. of sub-
                                                                                                                            scribers at the end of current month) / 2
                                                                                      | 53




FINANCIAL SECTION




         CONTENTS
         54    Financial Summary

         56    Operating and Financial Review and Prospects

         56        Operating Results

         72        Liquidity and Capital Resources

         75        Research and Development, Patents and Licenses, etc

         76    Risk Factors

         82    Consolidated Balance Sheets

         84    Consolidated Statements of Income and
               Comprehensive Income

         85    Consolidated Statements of Shareholders’ Equity

         86    Consolidated Statements of Cash Flows

         87    Notes to Consolidated Financial Statements

         117   Report of Independent Registered Public Accounting Firm

         118   Reconciliations of the disclosed non-GAAP financial measures
               to the most directly comparable GAAP financial measures

               We prepare consolidated financial statements in accordance with U.S.
               generally accepted accounting principles (U.S. GAAP).
54             |                                              F I N A N C I A L S U M M A RY ( U . S . G A A P )
                                                                             NTT DoCoMo, INC. AND SUBSIDIARIES
                                                                                  YEARS ENDED MARCH 31


                                                                                                                                                                       Millions of
                                                                                                      Millions of yen (excluding per share data)                       U.S. dollars1
                                                                                                                                                                       (excluding per
                                                                                                                                                                       share data)

                                                                                     2001           2002               2003                2004             2005          2005
                     Operating Results
                     Operating revenues ....................................... ¥ 4,178,056    ¥ 4,659,254        ¥ 4,809,088         ¥ 5,048,065      ¥ 4,844,610     $ 45,184
                      Wireless services ........................................  3,620,271      4,153,459          4,350,861           4,487,912        4,296,537       40,072
                      Equipment sales.........................................      557,785        505,795            458,227             560,153          548,073        5,112

                     Operating income .........................................      778,620       1,000,887         1,056,719            1,102,918         784,166         7,314

                     Other (income) expense ...............................           20,489         44,496              13,751                1,795       (504,055)      (4,701)

                     Income before income taxes, equity in
                       net losses of affiliates, minority interests
                       in earnings of consolidated subsidiaries and
                       cumulative effect of accounting change.....                   758,131        956,391          1,042,968            1,101,123        1,288,221      12,015

                     Net income (loss).......................................... ¥   401,755   ¥ (116,191) ¥            212,491       ¥    650,007     ¥    747,564    $ 6,972

                     Per Share Data2&3 (Yen and U.S. dollars)
                     Basic and diluted earnings (loss) per share ... ¥                 8,350   ¥     (2,315) ¥            4,254       ¥      13,099    ¥     15,771    $ 147.09
                     Shareholders’ equity per share ......................            66,134         65,601              69,274              76,234          84,455      787.68
                     Dividends declared and paid per share 4 ........                    200            200                 200               1,000           2,000       18.65




                     1. Translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers by using the noon buying rate in New York
                        City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2005, which was
                        ¥107.22 to U.S.$1.00.
                     2. Per share data have been adjusted to reflect the stock split (five-for-one) that took effect on May 15, 2002.
                     3. In the calculation of per share data, treasury stocks are not included in the number of shares outstanding during or at the end of the year.
 Financial Section




                     4. The dividends declared and paid per share are presented in the year they were paid.
                                                                                                                                                                            | 55


                                                                                             Millions of yen (unless otherwise specified)                   Millions of
                                                                                                                                                            U.S. dollars1

                                                                               2001         2002               2003                2004          2005         2005
Financial Position
Total assets.............................................................. ¥ 6,016,505   ¥ 6,067,225 ¥ 6,058,007               ¥ 6,262,266    ¥ 6,136,521   $ 57,233
Total debt 5 .............................................................. 1,443,168      1,429,332   1,348,368                 1,091,596        948,523      8,847
Total shareholders’ equity....................................... 3,318,587                3,291,883   3,475,514                 3,704,695      3,907,932     36,448

Cash Flows
Net cash provided by operating activities .............. ¥ 857,846 ¥ 1,341,088 ¥ 1,584,610 ¥ 1,710,243 ¥ 1,181,585                                          $ 11,020
Net cash used in investing activities ...................... (2,744,215) (1,125,093)        (871,430) (847,309)  (578,329)                                    (5,394)
Free cash flows 6...................................................... (1,886,369) 215,995  713,180   862,934    603,256                                      5,626
Adjusted free cash flows
  (excluding irregular factors and changes
  in investments for cash management purpose) 7 .......                    134,771  233,327  468,915   862,934  1,003,583                                       9,360

Other Financial Data
EBITDA8 ................................................................. ¥ 1,425,335    ¥ 1,680,596 ¥ 1,836,264               ¥ 1,858,920    ¥ 1,625,661   $ 15,162
Capital expenditures 9 ............................................. 1,012,795             1,032,256     853,956                   805,482        861,517      8,035
Research and development expenses .....................                        94,126         99,454     126,229                   124,514        101,945        951

Financial Ratios10
Operating income margin ......................................                  18.6%          21.5%              22.0%               21.8%        16.2%
EBITDA margin8 .....................................................            34.1%          36.1%              38.2%               36.8%        33.6%
ROE ........................................................................    15.2%          (3.5)%              6.3%               18.1%        19.6%
ROCE11 ...................................................................      20.6%          21.1%              22.1%               22.9%        16.2%
Equity ratio.............................................................       55.2%          54.3%              57.4%               59.2%        63.7%
Debt ratio12 .............................................................      30.3%          30.3%              28.0%               22.8%        19.5%
 5. Total debt = Short-term borrowings + Current portion of long-term debt + Long-term debt
 6. Free cash flows = Net cash provided by (used in) operating activities + Net cash provided by (used in) investing activities.
 7. Irregular factors represent the effects of uncollected revenues due to bank holidays at the end of periods. For the year ended March 31, 2001, this also
    included the effect of foreign investments totaling ¥1,795.8 billion. Changes in investments for cash management purpose were derived from purchases,
    redemption at maturity and sales of financial instruments held for cash management purpose with original maturities of longer than three months. For the




                                                                                                                                                                            Financial Section
    reconciliations of these Non-GAAP financial measures, see page 118.
 8. EBITDA = Operating income + Depreciation and amortization expenses + Loss on sale or disposal of property, plant and equipment + Impairment loss
    EBITDA margin = EBITDA / Total Operating revenues. For the reconciliations of these Non-GAAP financial measures, see page 118.
 9. Capital expenditures are calculated on an accrual basis for the purchases of property, plant and equipment, and intangible and other assets.
10. ROE and ROCE ratios are calculated using the simple average of the applicable year-end balance sheet figures.
11. ROCE (Return on capital employed) = Operating income / (Shareholders’ equity + Total debt)
12. Debt ratio = Total debt / (Shareholders’ equity + Total debt)
56             |                O P E R AT I N G A N D F I N A N C I A L R E V I E W A N D P R O S P E C T S


                     Operating Results                                                      Operating revenues &
                                                                                             Operating income
                                                                                       (Billions of yen)                               (%)
                     You should read the following discussion of our financial
                                                                                       6,000                                           30
                     condition and results of operations together with our con-
                                                                                                              5,048
                     solidated financial statements and information included in        5,000      4,809                4,845           25
                     this annual report. Fiscal 2004 herein refers to the fiscal                                    21.8
                                                                                       4,000           22.0                            20
                     year ended March 31, 2005, and other fiscal years are
                     referred to in a corresponding manner.                                                                     16.2
                                                                                       3,000                                           15
                         This discussion and analysis contains forward-looking
                     statements that involve risks, uncertainties and assumptions.     2,000                                           10
                     Our actual results may differ materially from those antici-                       1,057     1,103
                                                                                       1,000                                784         5
                     pated in these forward-looking statements as a result of cer-
                     tain factors, including, but not limited to, those set forth
                                                                                            0                                           0
                     under “Risk Factors” and elsewhere in this annual report.                   FY 02         03          04
                                                                                                   Operating revenues
                                                                                                   Operating income
                                                                                                   Operating income margin



                     Overview                                                          earlier expectations. At the same time, the number of our
                                                                                       2G cellular (mova) subscribers decreased to 37.32 million,
                     Our Business                                                      down 13.8% from the prior year. This trend demonstrates
                     We are the largest provider of cellular services in Japan with    that we have been making progress in migrating subscribers
                     approximately 48.82 million subscribers as of March 31,           to FOMA. We presently expect FOMA subscribers to repre-
                     2005, which represented approximately 56.1% of all cellular       sent almost half of our total number of cellular subscribers
                     subscribers in Japan. Of these subscribers, 44.02 million         by March 31, 2006.
                     were also subscribers to our i-mode packet communications             The number of i-mode subscribers also increased, reach-
                     service. We also provide Personal Handyphone System, or           ing 44.02 million as of March 31, 2005, amounting to over
                     PHS, and Quickcast (paging) services throughout Japan with        90% of our total cellular subscribers. At the same time, we
                     subscribers of approximately 1.31 million and 0.31 million,       are steadily selling more cellular phones equipped with
                     respectively, as of March 31, 2005. We ceased accepting new       external interface technologies such as infrared data trans-
                     subscribers for our PHS services as of April 30, 2005. We         mission capability, two-dimensional bar code (QR code)
 Financial Section




                     ceased accepting new subscribers for Quickcast services as        readers or contactless IC card capability.
                     of June 30, 2004 and announced plans to terminate the ser-
                     vices as of March 31, 2007.                                       Operating revenues totaled ¥4,844.6 billion, down 4.0%
                                                                                       from fiscal 2003.
                     Our Results in Fiscal 2004                                           • Cellular (FOMA+mova) services revenues decreased to
                     We earn revenues and generate operating cash flows primar-             ¥4,132.3 billion, down 4.6% from the prior year.
                     ily through fees for wireless voice and data communications            Despite a positive impact on revenues from subscriber
                     services and sales of wireless communications equipment.               growth as a result of acquisition of new subscribers
                     Our operating revenues decreased from ¥5,048.1 billion in              and lowered average monthly churn rate (“churn
                     fiscal 2003 to ¥4,844.6 billion in fiscal 2004. Operating              rate”) driven by expansion of our handset lineup, cel-
                     income decreased from ¥1,102.9 billion in fiscal 2003 to               lular (FOMA+mova) services revenues decreased due
                     ¥784.2 billion in fiscal 2004. Net income increased from               to a decline in average revenue per unit (ARPU) result-
                     ¥650.0 billion in fiscal 2003 to ¥747.6 billion in fiscal 2004,        ing mainly from rate reductions, such as the expansion
                     due to a gain on the sale of AT&T Wireless Services, Inc.              of our “Family Discount” plan, aimed at enhancing our
                     (“AT&T Wireless”) shares. For fiscal 2004, our operating               competitiveness and prospects for further growth.
                     margin was 16.2% and our net income per share was                    • Voice revenues from FOMA services increased to ¥514.7
                     ¥15,771.01. Our balance sheet had total debt of ¥948.5 bil-            billion, up 399.5% from the prior year, and packet com-
                     lion as of March 31, 2005, representing approximately 0.80x            munications revenues from FOMA services increased to
                     net cash provided by operating activities for fiscal 2004.             ¥260.7 billion, up 422.0% from the prior year, owing to
                          As of March 31, 2005, the number of 3G cellular                   a significant increase in the number of FOMA services
                     (FOMA) subscribers reached 11.50 million, exceeding our                subscribers, due in large part to the steady migration of
                                                                                                                                                                                      | 57


        subscribers from mova to FOMA services. This migra-                                                   tion of a flat-rate i-mode service and improvement in
        tion was driven by the release of new handsets such as                                                network quality, such as the expansion of both our out-
        the “FOMA 901i” series, our top-end models, and the                                                   door and indoor coverage areas.
        “FOMA 700i” series, our standard models, the introduc-

Breakdown of operating revenues
                                                                                                                                        Billions of yen

                                                                                                                                 Fiscal 2003       Fiscal 2004        Increase
                                                                                                                                                                     (Decrease)

 Wireless services ...........................................................................................................   ¥ 4,487.9         ¥ 4,296.5          (4.3%)
   Cellular (FOMA+mova) services revenues ...............................................................                          4,329.8           4,132.3          (4.6%)
   — Voice revenues* ....................................................................................................          3,259.5           3,071.7          (5.8%)
        Voice revenues from FOMA services .................................................................                          103.1             514.7         399.5%
   — Packet communications revenues ........................................................................                       1,070.2           1,060.6          (0.9%)
        Packet communications revenues from FOMA services ...................................                                         49.9             260.7         422.0%
   PHS services revenues ...............................................................................................              70.4              60.3         (14.3%)
   Quickcast services revenues ......................................................................................                  5.8               4.4         (23.2%)
   Other revenues ..........................................................................................................          82.0              99.5          21.4%
 Equipment sales ...........................................................................................................         560.2             548.1          (2.2%)
 Total operating revenues ..............................................................................................         ¥ 5,048.1         ¥ 4,844.6          (4.0%)
Note: Voice revenues include data communications revenues from data communications using the circuit switching system.


Operating expenses were ¥4,060.4 billion, up 2.9% from fis-
cal 2003.
    • Because the replacement of base station equipment                                                    Breakdown of                                Breakdown of
      accelerated as a result of the introduction of new ser-                                        Operating Revenues (FY2004)                 Operating Expenses (FY2004)
      vices such as flat-rate i-mode service, disposal of prop-
      erty, plant and equipment increased, which lead to the
      increase of cost of services to ¥740.4 billion, up 3.9%
      from fiscal 2003.
    • Despite a decrease in the number of handsets sold, cost




                                                                                                                                                                                      Financial Section
      of equipment sold increased to ¥1,122.4 billion, up
      2.6% from the prior year, due to an increase in sales of
      FOMA handsets, the per unit cost of which is higher
      than that of mova handsets.
    • Depreciation and amortization expenses increased to                                               Wireless services        (88.7%)           Cost of services         (18.2%)
      ¥735.4 billion, up 2.0% from the prior year, primarily                                              Cellular voice revenues                  Cost of equipment sold   (27.7%)
                                                                                                                                 (63.4%)           Depreciation and         (18.1%)
      due to an increase in capital expenditures to expand                                                  Voice revenues (FOMA)                  amortization
      the FOMA coverage area and to meet increasing                                                                              (10.6%)           Impairment loss           (1.5%)
                                                                                                          Cellular packet communications           Selling, general and     (34.5%)
      demand for FOMA services.                                                                           revenues               (21.9%)           administrative
    • We ceased accepting new subscribers for our PHS ser-                                                  Packet communications
                                                                                                            revenues (FOMA)       (5.4%)
      vices as of April 30, 2005. Considering the outlook for                                             PHS services            (1.2%)
      our PHS business, we recognized an impairment loss                                                  Quickcast services      (0.1%)
                                                                                                          Other revenues          (2.1%)
      on PHS assets of ¥60.4 billion.                                                                   Equipment sales          (11.3%)
    • Selling, general and administrative expenses decreased
      to ¥1,401.8 billion, down 1.1% from the prior year, pri-
      marily owing to our efforts to reduce costs.
    • Aggregate personnel expenses included in cost of ser-
      vices and selling, general and administrative expenses
      for the fiscal years 2003 and 2004 were ¥248.4 billion
      and ¥251.4 billion, respectively.
58             |


                     Breakdown of operating expenses
                                                                                                                                                             Billions of yen

                                                                                                                                                      Fiscal 2003       Fiscal 2004    Increase
                                                                                                                                                                                      (Decrease)

                     Cost of services .............................................................................................................   ¥   712.6         ¥   740.4       3.9%
                     Cost of equipment sold ................................................................................................            1,094.3           1,122.4       2.6%
                     Depreciation and amortization .....................................................................................                  721.0             735.4       2.0%
                     Impairment loss ............................................................................................................            —               60.4          —
                     Selling, general and administrative ..............................................................................                 1,417.2           1,401.8      (1.1%)
                     Total operating expenses ..............................................................................................          ¥ 3,945.1         ¥ 4,060.4       2.9%

                     Industry and Operating Trends                                                                        impact our results of operations.
                     The mobile communications market in Japan continued to                                                   Considering the business environment, in fiscal 2004,
                     grow in fiscal 2004, adding 4.42 million cellular and PHS                                            we carried out rate cuts for the purpose of enhancing our
                     subscribers to the total of over 91.47 million subscribers by                                        competitiveness and prospects for further growth. For
                     the end of the period, with the subscriber penetration rate                                          example, we expanded our “Family Discount” plan by
                     in the Japanese population reaching 71.6%. In fiscal 2004,                                           increasing the discount rates and enabling the unused
                     the growth rate of the number of cellular subscribers in                                             allowances (free minutes and/or packets) that have been
                     Japan was 6.2%, compared to 13.4% in fiscal 2001, 9.5% in                                            carried over for two months under a billing arrangement
                     fiscal 2002 and 7.9% in fiscal 2003. As a result of the high                                         called “Nikagetsu Kurikoshi” (two-month carry over) to be
                     penetration rate, the subscriber growth rate in the Japanese                                         automatically used to cover the airtime and/or packet fees
                     mobile communications market has been slowing and this                                               of the other subscribers in the “Family Discount” group;
                     trend is expected to continue. With fewer new subscribers                                            reduced the monthly charges for “Packet Pack,” a discount
                     to add, the competition among mobile carriers in Japan is                                            service for per-packet rates; and introduced a flat-rate i-
                     intensifying, leading to competition to meet a variety of                                            mode service. In addition, we expanded our handset lineup
                     customer demands. Mobile carriers in Japan are competing                                             and improved after-sales service. As a result, we saw a
                     to offer handsets with one or more additional features, such                                         decrease in our churn rate to approximately 1% and a net
                     as a TV tuner, an FM radio tuner, a music player, a video-                                           increase in the number of subscribers, however, the reduc-
                     phone, a two-dimensional bar code reader or a contactless                                            tion in tariffs had a negative impact on our operating rev-
                     IC card capability, as well as handsets capable of using new                                         enue. Furthermore, the cost of equipment sold and sales
                     services offered on the 3G network. The carriers are also                                            commissions paid to agent resellers increased as a result of
 Financial Section




                     competing on price and are offering discounted tariff plans,                                         the shift in our main product lineup from mova to FOMA,
                     such as flat-rate tariff plans for packet access. Also, the car-                                     for which the purchase cost per handset and commissions
                     riers are competing to bring in subscribers to their 3G ser-                                         paid to agent resellers are higher than for mova, and our
                     vices. We expect the intense competition to continue, but                                            operating income declined. Basically, our cellular services
                     at the same time, we see opportunities for developing new                                            revenues, which represent a significant portion of our rev-
                     revenue and cash flow from new service developments                                                  enues, are a function of the number of our subscribers times
                     enabled by the sophistication of handsets and by high-speed                                          ARPU. In the past, growth in the number of our sub-
                     data communications through 3G networks combined with                                                scribers more than offset declines in our ARPU caused by
                     flat-rate and lowered tariff plans.                                                                  factors such as rate reductions, resulting in the net growth
                          Recent regulatory changes have also increased competi-                                          of our revenues. As subscriber growth slowed down, the
                     tion and put pressure on carriers in Japan to lower tariffs for                                      growth of subscribers did not cover declines in ARPU in fis-
                     mobile communications. In fiscal 2005, the introduction of                                           cal 2004 and we anticipate that this trend will continue.
                     new regulations allowing fixed line operators and interme-                                               In fiscal 2005, we expect our operating revenues to
                     diate operators, instead of mobile operators, to set and col-                                        decline and operating income to increase only slightly, as a
                     lect fees for calls from fixed lines to cellular phones,                                             result of the following factors:
                     transitional arrangements for which had a negative effect on                                             • the influence of the rate cuts made in fiscal 2004 will
                     our revenues from such calls in fiscal 2004, will also nega-                                               continue in fiscal 2005;
                     tively affect our revenues from such calls. The Ministry of                                              • cost of equipment sold will increase, as our sub-
                     Internal Affairs and Communications of Japan is planning                                                   scribers continue to migrate from mova services to
                     to introduce mobile number portability by fiscal 2006. The                                                 FOMA services; and
                     introduction of mobile number portability could induce the                                               • more time is needed to secure new sources of rev-
                     switching of mobile carriers among many subscribers and                                                    enues, including new applications of audio-visual
                                                                                                                                                                               | 59


      functionality and services linked with brick-and-mor-      Factors Affecting Results of Operations
      tar businesses using the external interfaces of cellular
      phones —i.e., the convergence of mobile multimedia         Revenues
      services with various types of commerce activities.        Our two principal sources of revenues are our wireless ser-
    Under these circumstances, we seek to further reinforce      vices and equipment sales. Our wireless services include
our core cellular phone business, reduce costs and secure new    mobile phone services, PHS services, Quickcast (paging)
sources of revenues, in order to achieve sustainable growth.     services and other miscellaneous services. Mobile phone
    We seek to reinforce our core business, promoting a          services currently include 3G cellular (FOMA) services and
“Customer-First” approach, and maintaining and reinforc-         2G cellular (mova) services and accounted for approxi-
ing our competitiveness by:                                      mately 96.4%, 96.5% and 96.2% of wireless services rev-
    • improving consultation, support and after-sales ser-       enues for fiscal years 2002, 2003 and 2004, respectively.
      vices offered to customers;                                Revenues from PHS services represented 1.8%, 1.6% and
    • reducing and diversifying our tariff plans for customer    1.4% of wireless services revenues for fiscal years 2002,
      convenience;                                               2003 and 2004, respectively. Revenues from Quickcast ser-
    • releasing handsets focusing on design and pricing; and     vices have steadily declined since fiscal 1996, contributing
    • expanding network coverage efficiently, e.g., introduc-    only 0.2%, 0.1% and 0.1% to wireless services revenues for
      ing new and more economical networking equipment.          fiscal years 2002, 2003 and 2004, respectively.

We seek to reduce costs by:                                      Wireless Services
   • saving commissions by releasing less expensive mod-         We earn our wireless services revenues principally from
     els and efficiently using commissions targeting spe-        fixed monthly plan charges, usage charges for outgoing
     cific market segments;                                      calls, revenues from incoming calls including interconnec-
   • reducing network costs, mainly by migrating to IP           tion charges and charges for optional value-added services
     network and completing the integration of operation         and features. Cellular (FOMA+mova) services revenues
     centers;                                                    include voice revenues and packet communications rev-
   • cutting costs through an extensive review of business       enues. Voice revenues come from a combination of set
     processes; and                                              monthly fees for service and additional fees depending on
   • streamlining loss-making businesses, such as PHS ser-       the number of minutes of connection time. Our packet
     vices for which we stopped accepting new subscribers        communications services revenues, which are currently
     and Quickcast services which we have decided to ter-        dominated by i-mode revenues, accounted for a greater por-
     minate in March 2007.                                       tion of our wireless services revenues in fiscal 2004, repre-




                                                                                                                                                                               Financial Section
                                                                 senting 24.7% of wireless services revenues, than in fiscal
We seek to secure new sources of revenues by:                    2003, when they represented 23.8% of such revenues.
   • increasing non-traffic revenues by evolving our cellu-      Because FOMA’s advanced packet transmission technology
     lar services into “life-style infrastructure,” e.g., pro-
     moting mobile multi-media services linked with
     brick-and-mortar businesses using the external inter-
     faces of cellular phones and, especially, developing the        Subscribers by service                                           FOMA+mova ARPU
     wallet functions of cellular phones, including the
                                                                 (Thousands of subscribers)                                   (yen)
     introduction of a new credit card service;
                                                                 60,000                                                       10,000
   • increasing usage by providing additional functions,
     such as PDF file viewer for cellular handsets and full      50,000                            457
                                                                                                                   306                      8,130
                                                                                                                                                       7,890
                                                                                     604                           1,314       8,000            1,750
     browsers installed in FOMA handsets;                                            1,688
                                                                                                   1,592           48,825                       (1,750)
                                                                                                                                                           1,970 7,200
                                                                                                   46,328          (44,021)                                (1,970)   1,870
                                                                 40,000              44,149
   • increasing audio-visual traffic by creating opportuni-                          (37,758)
                                                                                                   (41,077)
                                                                                                                                                6,380                (1,870)
                                                                                                                               6,000                       5,920
     ties to use videophone services; and                                                                                                                            5,330
                                                                 30,000
   • strengthening our global operations by promoting the
                                                                                                                               4,000
     use of international calling and international roaming      20,000
     services, and rolling out i-mode service in overseas
                                                                                                                               2,000
     markets.                                                    10,000


                                                                       0                                                              0
                                                                             FY 02            03              04                          FY 02        03         04
                                                                             Mobile phone                                                 Voice ARPU
                                                                              i-mode                                                      Packet ARPU
                                                                             PHS                                                           i-mode
                                                                             Quickcast
60             |


                     enables our subscribers to send more packets per minute,         scribers who terminated contracts in order to upgrade or
                     the monthly charge for i-mode services and the per-packet        change handsets but remained our subscribers and therefore
                     charges for data transmission of FOMA services are lower         had less adverse impact on our financial results than churn
                     than those of mova services. FOMA services also have a           attributable to the termination of a subscriber’s relationship
                     flat-rate i-mode service. Owing largely to the difference in     with us. We also believe that due to various factors, such as
                     the charges, our subscribers shifted from mova services to       the availability of i-mode, the introduction of competitive
                     FOMA services, which resulted FOMA packet communica-             tariff plans, customer confidence in our network and ser-
                     tions revenues to account for a greater portion of packet        vices and the introduction of new services, our churn rate
                     communications revenues for fiscal 2004, representing            has been lower than other operators. In fiscal 2004, our
                     24.6% of packet communications revenues, compared to             churn rate became still lower, mainly due to the expansion
                     4.7% of such revenues for fiscal 2003.                           of our “Family Discount” plan, the introduction of flat-rate
                          Our wireless services revenues vary depending on the        i-mode service, the reduction of monthly charges for
                     number of subscribers we have and the average amount             “Packet Pack” service plans, the implementation of various
                     each subscriber uses our services. Our cellular services         measures to retain our subscribers, such as point loyalty
                     subscribers increased from 44.15 million at March 31, 2003       programs, the strengthening of our FOMA series handset
                     to 46.33 million at March 31, 2004 (up 4.9% year-on-year);       lineup and the expanded FOMA coverage area, both
                     and increased to 48.82 million at March 31, 2005 (up 5.4%        indoors and outdoors. This has a positive impact on our
                     year-on-year). These numbers include the numbers of              revenues because it increases our number of net additional
                     FOMA services subscribers, which reached 11.50 million at        subscribers, however, this simultaneously has a negative
                     March 31, 2005, from 3.05 million at March 31, 2004 and          impact on our revenues in view of a decrease in ARPU. No
                     0.33 million at March 31, 2003. As a result of the migration     assurance can be given that our churn rate will continue to
                     to FOMA services, the number of mova subscribers has             decline or remain low.
                     been in decline since fiscal 2003, decreasing to 37.32 mil-           The average minutes of use per month per cellular
                     lion at March 31, 2005, down 13.8% from March 31, 2004.          (FOMA+mova) subscriber, or MOU, decreased year-on-year
                     We expect this migration of subscribers from mova services       to 151 minutes per month for fiscal 2004 from 159 minutes
                     to FOMA services to continue. We also expect the growth          for fiscal 2003 and 167 minutes for fiscal 2002. The
                     of the cellular subscribers in the Japanese market to slow-      decrease was primarily due to wider penetration into lower
                     down, due to the saturation of the Japanese cellular services    usage subscriber segments and a large number of sub-
                     market. The total number of i-mode subscribers increased         scribers using i-mode instead of voice calls.
                     by 7.2% to 44.02 million at March 31, 2005, and by 8.8% to            We use average monthly revenue per unit, or ARPU, to
                     41.08 million at March 31, 2004, from 37.76 million at           measure average monthly operating revenues attributable to
 Financial Section




                     March 31, 2003. Our total number of PHS subscribers              designated services on a per user basis. ARPU is calculated
                     decreased to 1.31 million at March 31, 2005, from 1.59 mil-      by dividing various revenue items included in operating
                     lion at March 31, 2004, and 1.69 million at March 31, 2003.      revenues from our wireless services, such as monthly
                     Our total number of Quickcast subscribers continued to           charges, voice transmission charges and packet transmis-
                     decline to 0.31 million subscribers at March 31, 2005, from      sion charges, from designated services by number of active
                     0.46 million at March 31, 2004, and 0.60 million at March        subscribers to the relevant services. Accordingly, the calcu-
                     31, 2003.                                                        lation of ARPU excludes revenues that are not representa-
                          Subscriber churn rates, or contract termination rates,      tive of monthly average usage such as activation fees. We
                     have an impact on our number of subscribers and in partic-       believe that our ARPU figures calculated in this way provide
                     ular affect our number of net additional subscribers for a       useful information regarding the monthly average usage of
                     given period. Efforts to reduce our churn rates through dis-     our subscribers. The revenue items included in the numera-
                     count plans and other customer incentive programs can            tors of our ARPU figures are based on our U.S. GAAP
                     increase our revenues by increasing our number of net addi-      results of operations.
                     tional subscribers, but they can also decrease our revenues           Voice ARPU (FOMA+mova) has fallen over the past few
                     by decreasing the amount of revenues we are able to collect      years, due primarily to cellular rate reductions, an increase
                     from each subscriber, on average. In order to keep our           in subscribers using discounted plans, wider penetration
                     churn rates low, we have been focusing on subscriber reten-      into lower usage subscriber segments, and a large number
                     tion by implementing certain measures including offering         of subscribers shifting to use i-mode instead of voice calls.
                     discounts for long-term subscribers as well as incentives        Until fiscal 2003, increases in the number of cellular sub-
                     provided for handset replacement. As a result, our churn         scribers had offset declines in aggregate ARPU (FOMA+
                     rate for cellular subscribers was 1.23%, 1.21% and 1.01%         mova), and declines in PHS and Quickcast services rev-
                     for fiscal 2002, fiscal 2003 and fiscal 2004, respectively. We   enues. However, in fiscal 2004, voice ARPU decreased fur-
                     believe that a portion of our churn is attributable to sub-      ther and packet ARPU decreased for the first time, mainly
                                                                                                                                 | 61


due to rate cuts for the purpose of enhancing our competi-       tribution costs, advertising and promotional expenses and
tiveness and prospects for further growth, such as the           customer service costs. Sales agent commission costs
expansion of our “Family Discount” plan and introduction         account for approximately 40% of selling, general and
of flat-rate i-mode services, and the migration of subscribers   administrative expenses. Our operating expenses also
from mova services to FOMA services, for which per packet        include depreciation and amortization charges relating to
charges are lower than those of mova. Voice ARPU                 capital expenditures, including the cost of constructing our
(FOMA+mova) in fiscal 2004 decreased by 10.0% to ¥5,330          network. In fiscal 2004, an impairment loss on long-lived
from ¥5,920 in fiscal 2003, and from ¥6,380 in fiscal 2002.      assets related to our PHS business was included in operat-
Packet ARPU (FOMA+mova) in fiscal 2004 decreased by              ing expenses.
5.1% to ¥1,870 from ¥1,970 in fiscal 2003 compared with
¥1,750 in fiscal 2002. As a result, aggregate ARPU               Cost of Services
(FOMA+mova) in fiscal 2004 decreased by 8.7% to ¥7,200           In order to accommodate the substantial increase in cellular
from ¥7,890 in fiscal 2003, and from ¥8,130 in fiscal 2002.      traffic volume over the last several years, we have been
Accordingly, wireless services revenues in fiscal 2004           expanding our 3G cellular telecommunication system uti-
decreased from fiscal 2003. On the other hand, we expect         lizing Wideband Code Division Multiple Access, or W-
that the rate reductions and flat-rate tariff plans will con-    CDMA, (FOMA) network, as well as maintaining our 2G
tribute to migrating subscribers to and acquiring new sub-       (mova) networks. Recently, our mova service subscribers,
scribers for our FOMA services, which in turn will promote       who presently outnumber our FOMA service subscribers by
the development of new sources of revenues, such as con-         a wide margin, have been steadily migrating to our FOMA
tent businesses and videophone services, which we expect         services. Although the coverage area of our 3G (FOMA)
to have a positive effect on revenues from FOMA services in      network is almost nationwide in Japan, the further expan-
the future.                                                      sion of both indoor and outdoor FOMA service coverage,
                                                                 the continuation of network capacity expansion and
Equipment Sales                                                  enhancement in heavy traffic areas, maintenance of our
Revenue from equipment sales, primarily the sale of hand-        existing networks, the capacity build-up to accommodate
sets and other telecommunications equipment, accounted           migration to FOMA services and the increase in data-traffic
for 11.3% of total operating revenues for fiscal 2004, and       have required and will continue to require significant
11.1% and 9.5% for fiscal 2003 and fiscal 2002, respectively.    expenses and capital expenditures. We also expect that cer-
Revenues from equipment sales do not contribute signifi-         tain costs will be continuously required to administer the
cantly to operating income as such revenues are offset by        different networks together. See “Capital Expenditures” in
the costs of equipment sold and expenses relating to sales of    “Liquidity and Capital Resources”.




                                                                                                                                 Financial Section
telecommunications equipment, particularly in the case of            For the use of our spectrum, we pay a usage fee in
handsets.     We adopted Emerging Issues Task Force              accordance with the Radio Law, based on a number of fac-
(“EITF”) 01-09, “Accounting for Consideration Given by a         tors, including the number of base stations and handsets.
Vendor to a Customer (Including a Reseller of the Vendor’s       In fiscal 2004, we paid total usage fees to the government of
Products),” and therefore account for a portion of the sales     approximately ¥30.4 billion, compared to approximately
commission that we pay to agent resellers as a reduction in      ¥25.0 billion for fiscal 2002 and approximately ¥27.1 bil-
equipment sales revenues. Under EITF 01-09, the percent-         lion for fiscal 2003. The total usage fees are increasing
age of reduction in revenues related to replacement sales is     mainly due to an increase in the number of base stations
greater than that for new sales. We experienced a decrease       and handsets. The usage fees for our 3G spectrum alloca-
in equipment sales revenues in fiscal 2004, which mostly         tion are calculated in accordance with a formula, which is
reflected the fact that we experienced high replacement          similar to the formula that is used for our current fees for
demand for handsets equipped with cameras in fiscal 2003.        2G spectrum allocation as determined in accordance with
Similarly, our equipment sales revenues increased from fis-      the Radio Law.
cal 2002 to fiscal 2003 primarily due to the increase in
demand for replacement handsets equipped with cameras            Cost of Equipment Sold
and an increase in sales of FOMA handsets.                       We purchase handsets from various manufacturers for
                                                                 resale to new subscribers and as replacement handsets for
Expenses                                                         sale to existing subscribers who wish to upgrade their
Our principal operating expenses are costs of services,          equipment. The average period between handset replace-
which consist primarily of network operation costs and           ments has shortened and is approximately 2.5 years. We
interconnection charges, the costs of handsets and other         believe that subscribers purchase new handsets in order to
equipment sold, and selling, general and administrative          take advantage of continuing improvements in handset
expenses, which include sales agent commission costs, dis-       functions such as the performance of cameras and battery
62             |


                     life per charge, and to take advantage of new services such      and when selling a replacement handset to an existing sub-
                     as bar code reader, built-in contactless IC card and the play-   scriber and activating the handset were approximately
                     back of video and song ringtone. Additionally, particularly      ¥30,000, ¥31,000 and ¥34,000 per subscriber for fiscal
                     successful models of handsets also generated increased           2002, 2003 and 2004, respectively. The increase in the
                     handset sales. In fiscal 2002, cost of equipment sold            average commission per subscriber from fiscal 2003 to fiscal
                     increased slightly primarily due to costs associated with the    2004 was mainly due to the increase in the percentage of
                     disposal of unsold early-model FOMA handsets. During fis-        FOMA handsets among the total handsets sold in fiscal
                     cal 2003, new series of FOMA and mova handsets recorded          2004, for which the average commission per subscriber was
                     successful sales. During fiscal 2004, despite the decrease in    approximately ¥8,000 higher than that of mova handsets.
                     the aggregate number of handsets sold, cost of equipment         The average commissions paid for FOMA subscriber acqui-
                     sold and sales commissions paid to agent resellers increased     sition or FOMA handset sales and paid for mova subscriber
                     as our main product lineup shifted from mova to FOMA,            acquisition or mova handset sales were virtually unchanged
                     for which the purchase cost per handset and commissions          from fiscal 2003 to fiscal 2004. We adopted EITF 01-09
                     paid to agent resellers are higher than those of mova. We        and therefore the portion of the commissions paid to agent
                     expect continuous growth in the number of FOMA sub-              resellers for equipment, including handsets, is recognized as
                     scribers, which will increase our costs of equipment sold        a reduction of equipment sales revenues.
                     and have an adverse effect on our earnings in the near-to-
                     mid-term. We expect the situation to continue for the short      Operating Income
                     term. The purchase cost per FOMA handset may decline as          Our ability to continue to generate profits will be substan-
                     the volume of procurement increases.                             tially affected by a number of factors affecting all cellular
                                                                                      operators, including, among others, our ability to maintain
                     Impairment loss                                                  current level of aggregate ARPU, our ability to attract and
                     In fiscal 2004, because we estimated that future net cash        retain subscribers, the rate of growth of subscribers, the
                     flows from our PHS business would be negative considering        level of subscriber usage, the level and structure of tariffs,
                     our revised outlook for this business, we wrote-down the         competition, the rate of churn of subscribers, spectrum
                     entire carrying value of long-lived assets related to our PHS    availability and allocation, fees for interconnection among
                     business, including fixed assets and rights to use telecom-      telecommunications operators, network capital expenditure
                     munication facilities of wireline carriers. As a result, we      requirements and research and development expenditures.
                     recorded a non-cash impairment loss for long-lived assets of
                     ¥60,399 million in operating expenses. In fiscal 2002 and        Others
                     2003, we did not recognize any impairment losses for long-       We include our pro rata portion of the net income or net
 Financial Section




                     lived assets.                                                    losses of the companies we accounted for by the equity
                                                                                      method. Investor level goodwill associated with our invest-
                     Selling, General and Administrative Expenses                     ments in affiliates is not amortized. Instead, we review the
                     The primary expenses included in our selling, general and        entire carrying value of investments in affiliates, including
                     administrative expenses are expenses related to acquiring        investor level goodwill for recoverability. An impairment
                     new subscribers, the most significant of which are commis-       charge is recognized if the value of an investment declines
                     sions paid to sales agents. The main components of the           below its carrying amount and the decline is considered
                     commissions that we pay to agents who sign up new sub-           other than temporary, as described below. As of March 31,
                     scribers are a closing commission for each new subscriber        2005, we had approximately ¥35.3 billion of investor level
                     and volume incentives that vary depending on the number          goodwill remaining from our overseas investee affiliates.
                     of new subscribers per agent per month. In addition, we              On February 17, 2004, AT&T Wireless, which was one of
                     pay agents a commission in the form of handset sales incen-      our equity-method affiliates, entered into a merger agreement
                     tives depending on the type of handset a subscriber pur-         with Cingular Wireless LLC (“Cingular”), a mobile carrier in
                     chases. Commissions differ from region to region due to          the US, and certain of its affiliates. On October 26, 2004, the
                     such factors as the competitive and economic environments        merger between AT&T Wireless and Cingular became effec-
                     in the various regions. Average commissions we paid when         tive, and we transferred all of our AT&T Wireless shares to
                     acquiring a new subscriber who also purchased a handset          Cingular. As a result of this transaction, we recorded a gain
                                                                                                                                                                              | 63


of ¥501,781 million on the sale of our interest in an affiliate,                              losses of our equity method affiliates, we also regularly
which was included in “other (income) expense” on the con-                                    review and test the value of our equity method investments.
solidated statements of income and comprehensive income in                                    As a result and to the extent there is impairment, we have
fiscal 2004. See also “Liquidity and Capital Resources,” and                                  had and may in future periods have write-downs related to
footnote 6 to our consolidated financial statements.                                          other than temporary declines in value of these investments.
    On May 27, 2004, we agreed to sell our entire share-                                      As a result of such reviews and tests, we recognized impair-
holding in Hutchison 3G UK Holdings Limited (“H3G                                             ment losses equal to ¥319,564 million, net of deferred taxes
UK”), which was one of our equity-method affiliates, to                                       of ¥225,535 million, in fiscal 2002, and ¥8,612 million in
Hutchison Whampoa Limited (“HWL”) in a Sale and                                               fiscal 2004, with respect to our interests in some of our affili-
Purchase Agreement signed between HWL and us. Under                                           ates. We believe the estimated fair values of our investments
the terms of the agreement, we were to receive payment in                                     in affiliates at March 31, 2005 equaled or exceeded the
three installments, the final installment of which was                                        related carrying values as a result of these impairments.
expected to be made in December 2006. On May 9, 2005,
we received a notice from HWL that HWL intended to exer-
cise its right to accelerate completion of the payment. In                                    Results of Operations
accordance with the agreement, we completed the sale of
H3G UK shares to HWL on June 23, 2005. See also                                               The following tables set forth selected income statement
“Liquidity and Capital Resources,” and footnote 6 to our                                      data in yen amounts and expressed as a percentage of total
consolidated financial statements.                                                            operating revenues for the periods indicated:
    In addition to recording our portion of the income and
                                                                                                                                                  Fiscal

                                                                                                                             2002                 2003            2004
                                                                                                                                             (in millions)

Operating revenues:
  Wireless services ........................................................................................................ ¥ 4,350,861     ¥ 4,487,912     ¥ 4,296,537
  Equipment sales .........................................................................................................       458,227        560,153         548,073
                                                                                                                                4,809,088      5,048,065       4,844,610
Operating expenses:
  Cost of services ..........................................................................................................     707,253          712,571         740,423
  Cost of equipment sold ..............................................................................................           950,699        1,094,332       1,122,443
  Depreciation and amortization...................................................................................                749,197          720,997         735,423
  Impairment loss .........................................................................................................




                                                                                                                                                                              Financial Section
                                                                                                                                       —                —           60,399
  Selling, general and administrative ............................................................................              1,345,220        1,417,247       1,401,756
                                                                                                                                3,752,369        3,945,147       4,060,444
Operating income .........................................................................................................      1,056,719        1,102,918         784,166
Other (income) expense (1) ...........................................................................................             13,751            1,795        (504,055)
Income before income taxes, equity in net losses of affiliates,
  minority interests in earnings of consolidated subsidiaries and
  cumulative effect of accounting change....................................................................                    1,042,968        1,101,123       1,288,221
Income taxes .................................................................................................................    454,487          429,116         527,711
Income before equity in net losses of affiliates, minority interests
  in earnings of consolidated subsidiaries and cumulative effect
  of accounting change.................................................................................................           588,481         672,007         760,510
Equity in net losses of affiliates (2) .................................................................................         (324,241)        (21,960)        (12,886)
Minority interests in earnings of consolidated subsidiaries ..........................................                            (16,033)            (40)            (60)
Income before cumulative effect of accounting change ..............................................                               248,207         650,007         747,564
Cumulative effect of accounting change (3) ....................................................................                   (35,716)             —               —
Net income.................................................................................................................... ¥ 212,491     ¥    650,007    ¥    747,564
64             |


                                                                                                                                                                       Fiscal

                                                                                                                                                       2002            2003                   2004
                      Operating revenues:
                       Wireless services .......................................................................................................        90.5%          88.9%                   88.7%
                       Equipment sales .........................................................................................................         9.5           11.1                    11.3
                                                                                                                                                       100.0          100.0                   100.0
                      Operating expenses:
                       Cost of services ..........................................................................................................      14.7            14.1                   15.3
                       Cost of equipment sold ..............................................................................................            19.8            21.7                   23.2
                       Depreciation and amortization...................................................................................                 15.5            14.3                   15.2
                       Impairment loss .........................................................................................................          —               —                     1.2
                       Selling, general and administrative ............................................................................                 28.0            28.1                   28.9
                                                                                                                                                        78.0            78.2                   83.8
                      Operating income .........................................................................................................        22.0            21.8                   16.2
                      Other (income) expense (1) ...........................................................................................             0.3             0.0                  (10.4)
                     Income before income taxes, equity in net losses of affiliates,
                        minority interests in earnings of consolidated subsidiaries and
                        cumulative effect of accounting change....................................................................                      21.7            21.8                   26.6
                      Income taxes .................................................................................................................     9.5             8.5                   10.9
                      Income before equity in net losses of affiliates, minority interests
                        in earnings of consolidated subsidiaries and cumulative effect
                        of accounting change.................................................................................................           12.2            13.3                   15.7
                      Equity in net losses of affiliates (2)..................................................................................          (6.7)           (0.4)                  (0.3)
                      Minority interests in earnings of consolidated subsidiaries ..........................................                            (0.3)           (0.0)                  (0.0)
                      Income before cumulative effect of accounting change ..............................................                                5.2            12.9                   15.4
                      Cumulative effect of accounting change (3) ....................................................................                   (0.8)             —                      —
                      Net income....................................................................................................................     4.4            12.9                   15.4
                     (1) Includes a gain on sale of AT&T Wireless shares of ¥501,781 million in fiscal 2004.
                     (2) Includes write-downs in investment in affiliates of ¥319,564 million, net of deferred taxes of ¥225,535 million, in fiscal 2002 and ¥8,612 million in fiscal 2004.
                     (3) This relates to the adoption of EITF 01-09 and the timing for recognizing commissions payable to agents.



                     Comparison of Fiscal 2004 with Fiscal 2003                                                            Equipment sales revenues decreased by 2.2% from fiscal
                     Operating revenues decreased by ¥203,455 million (down                                                2003, primarily due to a decrease in handset sales compared
                     4.0% year-on-year) to ¥4,844,610 million in fiscal 2004 from                                          to fiscal 2003, which saw strong demand for replacement
                     ¥5,048,065 million in fiscal 2003. Wireless services accounted                                        handsets equipped with cameras.
 Financial Section




                     for 88.7% of revenue in fiscal 2004 compared to 88.9% in fiscal                                           Operating expenses increased by ¥115,297 million (up
                     2003. The decrease in wireless services revenues was due pri-                                         2.9% year-on-year) to ¥4,060,444 million in fiscal 2004 from
                     marily to a decrease in cellular (FOMA+mova) services rev-                                            ¥3,945,147 million in fiscal 2003. This increase was largely
                     enues by ¥197,503 million, to ¥4,132,253 million in fiscal                                            due to an impairment loss on PHS assets of ¥60,399 million
                     2004. The decrease in cellular (FOMA+mova) services rev-                                              and an increase in cost of equipment sold by ¥28,111 mil-
                     enues was caused by the fact that voice revenues decreased                                            lion compared to fiscal 2003. Cost of services increased
                     to ¥3,071,669 million in fiscal 2004 from ¥3,259,518 mil-                                             from fiscal 2003 by ¥27,852 million, mainly due to an
                     lion in fiscal 2003 and packet communications revenues                                                increase in disposal of property, plant and equipment, as a
                     decreased to ¥1,060,584 million in fiscal 2004 from                                                   result of upgrading our networks. Depreciation and amorti-
                     ¥1,070,238 million in fiscal 2003. This reflects a decrease                                           zation expenses increased from fiscal 2003 by ¥14,426 mil-
                     in ARPU, mainly due to our rate reduction for the purpose                                             lion, primarily due to an increase in capital expenditure to
                     of enhancing our competitiveness and prospects for further                                            improve coverage areas of FOMA services and to meet
                     growth. Voice revenues from FOMA services increased to                                                increasing demand. Selling, general and administrative
                     ¥514,702 million in fiscal 2004 from ¥103,052 million in                                              expenses decreased from fiscal 2003 by ¥15,491 million.
                     fiscal 2003 and packet communications revenues from                                                       A percentage of operating expenses to operating rev-
                     FOMA services increased to ¥260,671 million in fiscal 2004                                            enues increased to 83.8% in fiscal 2004 from 78.2% in fiscal
                     from ¥49,937 million in fiscal 2003. This shows a drastic                                             2003. This was because our operating expenses increased,
                     migration of subscribers from mova services to FOMA ser-                                              mainly owing to an impairment loss on PHS related long-
                     vices. PHS services revenues, representing 1.4% of wireless                                           lived assets and an increase in cost of equipment sold, while
                     services revenues, decreased by 14.3% from fiscal 2003                                                our operating revenues decreased, mainly due to a decrease
                     while Quickcast services revenues, representing 0.1% of                                               in cellular (FOMA+mova) services revenues.
                     wireless services revenues, declined significantly, reflecting                                            As a result of the foregoing, our operating income for fiscal
                     decreases in the subscriber base and usage for pagers.                                                2004 was ¥784,166 million, representing a 28.9% decrease.
                                                                                                                                                           | 65


    Other (income) expense which include such items as                                    Comparison of Fiscal 2003 with Fiscal 2002
interest expense, interest income, gains and losses on mar-                               Operating revenues increased by 5.0% to ¥5,048,065 mil-
ketable securities and foreign exchange gains and losses,                                 lion in fiscal 2003 from ¥4,809,088 million in fiscal 2002.
changed to ¥504,055 million income in fiscal 2004 from                                    Wireless services accounted for 88.9% of revenue in fiscal
¥1,795 million expense in fiscal 2003, primarily due to a                                 2003 compared to 90.5% in the prior year. The increase in
gain of ¥501,781 million on sale of AT&T Wireless shares.                                 wireless services revenues was due primarily to a 3.4%
    Income before income taxes, equity in net losses of affil-                            growth in mobile phone services revenues, including i-
iates, minority interests in earnings of consolidated sub-                                mode and other packet communication services, to
sidiaries and cumulative effect of accounting change was                                  ¥4,337,035 million in fiscal 2003. Although our cellular
¥1,288,221 million and ¥1,101,123 million for fiscal 2004                                 (mova) services revenues decreased to ¥3,156,467 million
and fiscal 2003, respectively. Income taxes were ¥527,711                                 in fiscal 2003 from ¥3,286,372 million in fiscal 2002, the
million in fiscal 2004 and ¥429,116 million in fiscal 2003,                               growth in our cellular (FOMA) services revenues which
representing effective tax rates of approximately 41.0% for                               increased to ¥152,986 million in fiscal 2003 from ¥13,613
fiscal 2004 and 39.0% for fiscal 2003. We are subject to a                                million in fiscal 2002, and the growth in i-mode services
number of different taxes in Japan, including corporate                                   that resulted in packet communications services revenues
income tax, enterprise tax and inhabitant income taxes,                                   increasing to ¥1,020,650 million in fiscal 2003 from
which, in the aggregate, amounted to a statutory tax rate of                              ¥886,337 million in fiscal 2002, lead to the increase in
approximately 40.9% for fiscal 2004 and 42.0% for fiscal                                  mobile phone services revenues. This shows that our con-
2003. For the three years starting fiscal 2003, the Japanese                              tinuous efforts to migrate the subscriber base from mova to
government has introduced special tax treatments, which                                   FOMA, and to expand other than voice usage through data
enables us to deduct from our taxable income a part of our                                communications services more than offset the decrease of
investments in certain IT related assets or investments for                               revenues from voice traffic over cellular (mova) services.
research and development. This lead to the difference                                     Until fiscal 2003, cellular (FOMA+mova) services revenues
between our effective tax rate and our statutory tax rate for                             had been broken down into “cellular (mova) services rev-
us in fiscal 2003 and fiscal 2004.                                                        enues,” “cellular (FOMA) services revenues” and “packet
    Equity in net losses of affiliates, net of taxes, decreased                           communications services revenues”. PHS services revenues,
to ¥12,886 million in fiscal 2004 from ¥21,960 million in                                 representing 1.6% of wireless services, decreased by 11.3%
fiscal 2003. We recorded impairment charges of ¥8,612                                     from prior fiscal year while Quickcast services revenues,
million, related to our evaluation of Hutchison Telephone                                 representing 0.1% of wireless services, declined signifi-
Company Limited (“HTCL”) for fiscal 2004.                                                 cantly, reflecting decreases in the subscriber base and usage
    As a result of the foregoing, we recorded net income of                               for pagers. The 22.2% increase in equipment sales revenues




                                                                                                                                                           Financial Section
¥747,564 million in fiscal 2004 compared to net income of                                 compared to the prior period was primarily due to brisk
¥650,007 million in fiscal 2003.                                                          sales of both new mova handsets and new series of FOMA
                                                                                          handsets introduced in the fourth quarter.
                                                                                              Operating expenses increased by 5.1% to ¥3,945,147
                                                                                          million in fiscal 2003 from ¥3,752,369 million in fiscal
      Operating Revenues                             Operating Expenses                   2002. This increase was largely due to a 15.1% increase in
                                                                                          cost of equipment sold, while depreciation and amortization
(Billions of yen)                             (Billions of yen)
                                                                                          decreased 3.8%. The increase in the handset sales lead to
6,000                                         5,000
                                                                                          the increase in cost of equipment sold. The decrease in
                        5,048
5,000         4,809                4,845                             3,945
                                                                             4,060        depreciation and amortization expense was primarily
                  458        560       548    4,000          3,752
                             4,488                               1,345
                                                                         1,417   1,402    because for the prior fiscal year we upgraded our platform
                    4,351             4,297
4,000                                                                                     facilities for i-mode services and shortened depreciation
                                              3,000
                                                                                  60      periods of the retired facilities, while for fiscal 2003, we
3,000                                                                    721      735
                                                                  749                     have decreased capital expenditures as a result of our efforts
                                              2,000
2,000                                                             951
                                                                         1,094    1,122   to make capital expenditures more efficient and less costly.
                                                                                          Cost of services slightly increased from the previous fiscal
                                              1,000
1,000                                                                                     year by 0.8%. Selling, general and administrative expenses
                                                                  707    713      740
                                                                                          increased from the previous fiscal year by 5.4% primarily
     0                                             0
            FY 02           03       04                   FY 02         03       04       because the aggregate commissions paid to agent resellers
            Equipment sales                               Selling, general and            increased as a result of the increase in handset sales. A per-
            Wireless services                             administrative
                                                                                          centage of operating expenses to operating revenues
                                                          Impairment loss
                                                          Depreciation and                increased to 78.2% in fiscal 2003 from 78.0% in fiscal 2002.
                                                          amortization                    This was primarily because the increase in operating
                                                          Cost of equipment sold
                                                          Cost of services
66             |


                     expenses, including selling, general and administrative           Segment Information
                     expenses was larger than the increase in cellular (FOMA)
                     revenues and in packet communications services revenues.          General
                         As a result of the foregoing, our operating income for        We have four reportable segments: mobile phone busi-
                     fiscal 2003 was ¥1,102,918 million, representing a 4.4%           nesses, PHS business, Quickcast business and miscellaneous
                     increase.                                                         businesses.
                         Other (income) expense which include such items as                Our chief operating decision maker monitors and evalu-
                     interest expense, interest income, gains and losses on mar-       ates the performance of our segments based on the informa-
                     ketable securities and foreign exchange gains and losses          tion that follows, as derived from our management reports.
                     decreased by 86.9% to ¥1,795 million in fiscal 2003 from              Our mobile phone businesses segment includes:
                     ¥13,751 million in fiscal 2002, primarily due to a decrease           • FOMA services;
                     in interest expense caused by a decrease in interest bearing          • mova services;
                     liabilities aiming to strengthen our financial position, and          • packet communications services;
                     the fact that we recognized an evaluation gain of approxi-            • satellite mobile communications services; and
                     mately ¥2,665 million on a share-exchange right related to our        • equipment sales related to these services.
                     investment in KG Telecommunications Co., Ltd. (“KGT”), a
                     former affiliate.                                                    Operating Revenues
                         Income before income taxes, equity in net losses of affil-       by Segment (FY 2004)
                     iates, minority interests in earnings of consolidated sub-
                     sidiaries and cumulative effect of accounting change was
                     ¥1,101,123 million and ¥1,042,968 million for fiscal 2003
                     and fiscal 2002, respectively. Income taxes were ¥429,116                                             Mobile phone businesses (97.9%)
                                                                                                                           PHS business             (1.3%)
                     million in fiscal 2003 and ¥454,487 million fiscal 2002, rep-                                         Quickcast business       (0.1%)
                                                                                         Total 4,844,610 millions of yen
                     resenting effective tax rates of approximately 39.0% for fis-                                         Miscellaneous businesses (0.7%)
                     cal 2003 and 43.6% for fiscal 2002. We are subject to a
                     number of different taxes in Japan, including corporate
                     income tax, enterprise tax and inhabitant income taxes,
                     which, in the aggregate, amounted to a statutory tax rate of
                     approximately 42.0% for both fiscal 2003 and 2002. In fis-        Our Personal Handyphone System, or PHS, business seg-
                     cal 2003, the Japanese government introduced special tax          ment includes PHS service and related equipment sales.
                     treatments, which enabled us to deduct from our taxable           Our Quickcast business segment includes Quickcast service
 Financial Section




                     income part of our investments in certain IT related assets       and related equipment sales. Our miscellaneous businesses
                     or investments for research and development. This lead to         segment includes international dialing and roaming service,
                     the difference between our effective tax rate and our statu-      public wireless LAN service and other miscellaneous ser-
                     tory tax rate.                                                    vices, which in the aggregate are not significant. We ceased
                         Equity in net losses of affiliates, net of taxes, decreased   accepting new subscribers for Quickcast services at the end
                     to ¥21,960 million in fiscal 2003 from ¥324,241 million in        of June 2004 and decided to terminate the services on
                     fiscal 2002, mainly because there were no write-downs of          March 31, 2007. We ceased accepting new subscribers for
                     investments in affiliates in fiscal 2003, and there were write-   our PHS services at the end of April 2005.
                     downs of investments in affiliates of ¥319,564 million, net
                     of deferred taxes of ¥225,535 million in fiscal 2002.             Mobile phone businesses segment
                         As a result of the foregoing, we recorded net income of       In fiscal 2004, operating revenues from our mobile phone
                     ¥650,007 million in fiscal 2003 compared to net income of         businesses segment decreased 4.0% to ¥4,741,096 million
                     ¥212,491 million in fiscal 2002.                                  from ¥4,937,666 million in fiscal 2003. Cellular (FOMA+
                                                                                       mova) services revenues, which are revenues from voice
                                                                                       and packet communications of mobile phone services
                                                                                       decreased 4.6% from ¥4,329,756 million in fiscal 2003 to
                                                                                       ¥4,132,253 million in fiscal 2004, because of rate reduc-
                                                                                       tions, increase in subscribers using discounted plans,
                                                                                       increased subscribers using i-mode instead of voice calls,
                                                                                       introduction of flat-rate i-mode service and the migration of
                                                                                       our subscriber base from mova to FOMA, whose per packet
                                                                                       charges are lower than that of mova. Equipment sales rev-
                                                                                       enue declined as the number of handsets sold decreased for
                                                                                                                                            | 67


fiscal 2004 compared to fiscal 2003, in the latter of which               business segment increased by 33.9% to ¥148,976 million
strong sales were recorded due to high demand for handsets                in fiscal 2004 from ¥111,224 million in fiscal 2003. The
equipped with cameras. Revenues from our mobile phone                     operating loss increased by 141.8% to ¥85,881 million in
businesses segment represented 97.9% of total wireless ser-               fiscal 2004 from ¥35,522 million in prior fiscal year. The
vices revenues in fiscal 2004, up slightly from 97.8% in fis-             number of PHS subscribers using voice communication ser-
cal 2003. Although the number of handsets sold decreased,                 vices has been decreasing as the tariffs of mobile phone ser-
because demand shifted to higher priced FOMA handsets,                    vices declined. We also expect the number of subscribers
the cost of equipment sold and commissions paid to agent                  using data-card-type PHS will decrease in the future as a
resellers increased, and operating expenses in our mobile                 result of the progress in data communications speed and
phone businesses segment increased 1.9% to ¥3,869,130                     handset functions of mobile phone services. As a result, we
million in fiscal 2004 from ¥3,798,785 million in fiscal                  decided to cease accepting new subscribers for our PHS ser-
2003. As a result, operating income from our mobile phone                 vices on April 30, 2005. We will consider terminating the
businesses segment decreased 23.4% to ¥871,966 million in                 service monitoring the usage of current subscribers.
fiscal 2004 from ¥1,138,881 million in fiscal 2003.                       Considering the revised outlook for our PHS business, we
    We expect that FOMA services will continue to be an                   estimated its future cash flows to be negative, and therefore
important component of the mobile phone businesses seg-                   we were required to write-down the entire carrying value of
ment in the years to come. The migration of our subscriber                the PHS related long-lived assets. Consequently, we recog-
base to FOMA services continued to show steady progress                   nized an impairment loss on the PHS assets of ¥60,399 mil-
and the number of subscribers for FOMA grew more than                     lion, which is included in the operating expenses of the
expected, reaching 11.50 million at March 31, 2005. We                    segment for fiscal 2004. The operating loss was ¥25,482
believe that we owe the increase in FOMA subscribers to                   million excluding the impairment loss, which are 28.3%
the introduction of flat-rate i-mode service, the popularity              less than the operating loss of fiscal 2003. We anticipate an
of high-end FOMA 900i and 901i series and standard                        improvement in the operating income/loss for the segment
FOMA 700i series handsets and the expanded coverage area                  from fiscal 2005 as a result of a decrease in depreciation
both indoors and outdoors. As a result, voice revenues                    costs caused by the write down of the assets.
from FOMA services increased from ¥103,052 million in fis-
cal 2003 to ¥514,702 million in fiscal 2004, and the data                 Quickcast business segment
communications revenues from FOMA services increased                      We ceased accepting new subscribers for Quickcast services
from ¥49,937 million in fiscal 2003 to ¥260,671 million in                at the end of June 2004 and the number of Quickcast sub-
fiscal 2004.                                                              scribers is on the continuous decline. Operating revenues
                                                                          in our Quickcast business segment decreased by 23.5% to




                                                                                                                                            Financial Section
PHS business segment                                                      ¥4,574 million in fiscal 2004 from ¥5,981 million in fiscal
Operating revenues in the PHS business segment decreased                  2003, operating expenses increased by 23.6% to ¥9,682 mil-
by 16.7% to ¥63,095 million in fiscal 2004 from ¥75,702                   lion in fiscal 2004 from ¥7,832 million in fiscal 2003 and
million in fiscal 2003, primarily due to a decrease in the                operating loss increased from ¥1,851 million in fiscal 2003
number of PHS subscribers. Operating expenses in the PHS                  by 176.0% to a loss of ¥5,108 million. We had been exam-




  Mobile Phone Businesses                       PHS Business                     Quickcast Business           Miscellaneous Businesses
    (Operating Income)                        (Operating Loss)                    (Operating Loss)              (Operating Income)
(Billions of yen)                    (Billions of yen)                    (Billions of yen)                 (Billions of yen)
1,200                                    0                                  0                               10
              1,087.2    1,138.9                                                              -1.9
                                                                                                     -5.1
1,000                                                                                  -6.5
                             872.0    -20                                 -10                                8

  800                                             -28.3
                                      -40                 -35.5           -20                                6
  600                                                                                                                   4.3
                                      -60                                 -30                                4
                                                                                                                                      3.2
  400

                                      -80                                 -40                                2                  1.4
  200
                                                                  -85.9

     0                               -100                                 -50                                0
            FY 02       03     04               FY 02       03      04             FY 02      03     04             FY 02       03    04
68             |


                     ining the option of terminating Quickcast services, moni-        expect that adoption of SFAS No. 153 will have a material
                     toring the subscriber usage. We recognized it would be dif-      impact on its result of operations and financial position.
                     ficult to improve the profitability of our Quickcast business,       In May 2005, the FASB issued SFAS No. 154, “Accounting
                     considering the ongoing shift of Quickcast subscribers to        Changes and Error Corrections -a replacement of APB
                     cellular phone services, following the spread of i-mode ser-     Opinion No.20 and FASB statement No.3.” SFAS No. 154
                     vice, and the continuous decline in the number of                replaces APB Opinion No. 20 (“APB No. 20”), “Accounting
                     Quickcast subscribers. We therefore decided to terminate         Changes,” and SFAS No. 3, “Reporting Accounting Changes
                     the services as of March 31, 2007.                               in Interim Financial Statements,” and changes the require-
                                                                                      ments for the accounting for and reporting of a change in
                     Miscellaneous businesses segment                                 accounting principle. APB No. 20 previously required that
                     Operating revenues from our miscellaneous businesses             most voluntary changes in accounting principle be recognized
                     increased by 24.8% to ¥35,845 million in fiscal 2004 from        by including in net income of the period of the change the
                     ¥28,716 million in fiscal 2003. The increase was mainly          cumulative effect of changing to the new accounting princi-
                     due to an increase in international dialing and roaming ser-     ple. SFAS No. 154 requires retrospective application to prior
                     vices revenues. Operating expenses from our miscellaneous        periods’ financial statements of changes in accounting princi-
                     businesses increased by 19.6% to ¥32,656 million in fiscal       ple. SFAS No. 154 is effective for accounting changes and cor-
                     2004 from ¥27,306 million in fiscal 2003, because of an          rections of errors made in fiscal years beginning after
                     increase in the costs and expenses related to expansion of       December 15, 2005. The impact of SFAS No. 154 will depend
                     our international roaming services. As a result, operating       on the change, if any, in a future period.
                     income from our miscellaneous businesses increased by                In March 2005, FASB issued FASB Interpretation (“FIN”)
                     126.2% to ¥3,189 million in fiscal 2004 from ¥1,410 million      No. 47 “Accounting for Conditional Asset Retirement
                     in fiscal 2003.                                                  Obligations -an interpretation of FASB Statement No. 143.”
                                                                                      FIN No. 47 provides guidance relating to the identification
                                                                                      of and financial reporting for legal obligations to perform an
                     Recent Accounting Pronouncements                                 asset retirement activity. FIN No. 47 requires recognition
                                                                                      of a liability for the fair value of a conditional asset retire-
                     In November 2004, Financial Accounting Standards Board           ment obligation when incurred if the liability’s fair value
                     (“FASB”) issued SFAS No. 151, “Inventory Costs -an               can be reasonably estimated. FIN No. 47 is effective for
                     amendment of Accounting Research Bulletin (“ARB”) No.            fiscal years ending after December 15, 2005. DoCoMo is in
                     43, Chapter 4.” SFAS No. 151 amends the guidance in ARB          the process of determining the impact, if any, that adoption
                     No. 43, Chapter 4, “Inventory Pricing,” to clarify the           of FIN No. 47 will have on its result of operations and
 Financial Section




                     accounting for abnormal amounts of idle facility expense,        financial position.
                     freight, handling costs, and wasted material (spoilage).
                     ARB No. 43, Chapter 4 previously stated that such costs
                     might be so abnormal as to require treatment as current          Critical Accounting Policies
                     period charges. SFAS No. 151 requires that those items be
                     recognized as current-period charges regardless of whether       The preparation of our consolidated financial statements
                     they meet the criterion of “so abnormal.” In addition, SFAS      requires our management to make estimates about expected
                     No. 151 requires that allocation of fixed production over-       future cash flows and other matters that affect the amounts
                     head to the costs of conversion be based on the normal           reported in our financial statements in accordance with
                     capacity of the production facilities. SFAS No. 151 is effec-    accounting policies established by our management. Note 2
                     tive for inventory costs incurred during fiscal years begin-     of the notes to our consolidated financial statements
                     ning after June 15, 2005. DoCoMo does not expect that            includes a summary of the significant accounting policies
                     adoption of SFAS No. 151 will have a material impact on its      used in the preparation of our consolidated financial state-
                     result of operations and financial position.                     ments. Certain accounting policies are particularly sensi-
                         In December 2004, FASB issued SFAS No. 153,                  tive because of their significance to our reported results and
                     “Exchanges of Nonmonetary Assets -an amendment of APB            because of the possibility that future events may differ sig-
                     Opinion No. 29.” The amendment eliminates the exception          nificantly from the conditions and assumptions underlying
                     for non-monetary exchanges of similar productive assets          the estimates used and judgments relating thereto made by
                     and replaces it with a general exception for exchanges of        our management in preparing our financial statements.
                     non-monetary assets that do not have commercial sub-             Our senior managements have discussed the selection and
                     stance. The provisions in SFAS No. 153 are effective for         development of the accounting estimates and the following
                     non-monetary asset exchanges occurring during fiscal peri-       disclosure regarding the critical accounting policies with
                     ods beginning after June 15, 2005. DoCoMo does not               our independent public accountants as well as our corpo-
                                                                                                                                    | 69


rate auditors. The corporate auditors attend meetings of                 • significant underperformance of expected or historical
the Board of Directors and certain executive meetings to                   cash flows;
express their opinion and are under a statutory duty to                  • significant or continuing decline in subscribers;
oversee the administration of our affairs by our Directors               • changes in the manner of use of an asset; and
and to examine our financial statements. Our critical                    • other negative industry or economic trends.
accounting policies are as follows.                                      When we determine that the carrying amount of spe-
                                                                    cific assets may not be recoverable based on the existence or
Useful lives of property, plant and equipment, internal             occurrence of one or more of the above or other factors, we
use software and other intangible assets                            estimate the future cash inflows and outflows expected to
The values of our property, plant and equipment, such as            be generated by the assets over their expected useful lives.
the base stations, antennas, switching centers and transmis-        We estimate the sum of expected undiscounted future net
sion lines used by our cellular, PHS and Quickcast busi-            cash flows based upon historical trends adjusted to reflect
nesses, our internal use software and our other intangible          our best estimate of future market and operating condi-
assets are recorded in our financial statements at acquisition      tions. If the sum of the expected undiscounted future net
or development cost, and are depreciated or amortized over          cash flows is less than the carrying value of the assets, we
their estimated useful lives. We estimate the useful lives of       record an impairment loss based on the fair values of the
property, plant and equipment, internal use software and            assets. Such fair values may be based on established mar-
other intangible assets in order to determine the amount of         kets, independent appraisals and valuations or discounted
depreciation and amortization expense to be recorded in             cash flows. If actual market and operating conditions under
each fiscal year. Our total depreciation and amortization           which assets are used are less favorable or subscriber num-
expenses in fiscal 2002, 2003 and 2004 were ¥749,197 mil-           bers are less than those projected by management, resulting
lion, ¥720,997 million and ¥735,423 million, respectively.          in reduced cash flows, additional impairment charges for
We determine the useful lives of our assets at the time the         assets not previously written-off may be required.
assets are acquired and base our determinations on                       No write-down of our long-lived assets was recorded in
expected use, experience with similar assets, established           fiscal 2002 and 2003. In fiscal 2004, because our forecast of
laws and regulations as well as taking into account antici-         net cash flows from our PHS business turned out to be neg-
pated technological or other changes. The estimated useful          ative, we recognized an impairment loss on PHS related
lives of our wireless telecommunications equipment are              long-lived assets, writing down all the assets totaling
generally set at six to 15 years. The estimated useful life of      ¥60,399 million. Because of the declining trend in sub-
our internal use software is set at five years. If technologi-      scribers and cash flows, we continue to monitor our
cal or other changes were to occur more rapidly or in a dif-        Quickcast business, however, the carrying value of long-




                                                                                                                                    Financial Section
ferent form than anticipated or new laws or regulations are         lived assets of the Quickcast business is not significant.
enacted or the intended use changes, the useful lives
assigned to these assets may need to be shortened, resulting        Impairment of investments in affiliates
in recognition of increased depreciation and amortization           We have made investments in certain entities, which are
expense or losses in future periods.                                accounted for on the equity method, the total carrying
                                                                    value for which was ¥48,040 million as of March 31, 2005.
Impairment of long-lived assets                                     Equity method accounting requires that we assess if a
We perform an impairment review for our long-lived assets           decline in value of any such investment has occurred and, if
to be held and used, including fixed assets, such as our            so, whether such decline is other than temporary. We per-
property, plant and equipment, and certain identifiable             form a review for impairment whenever events or changes
intangibles, such as software for telecommunications net-           in circumstances indicate that the carrying amount of an
work, internal-use software, and rights to use telecommuni-         investment may not be recoverable. Factors that we con-
cations facilities of wireline carriers, whenever events or         sider important which could trigger an impairment review
changes in circumstances indicate that the carrying amount          include, but are not limited to, the following:
of the assets may not be recoverable. This analysis is sepa-            • significant or continuing declines in the market values
rate from our analysis of the useful lives of our assets, but it          of telecommunications industry companies;
is affected by some similar factors. Factors that we consider           • current period operating cash flow losses of the
important which could trigger an impairment review                        investee;
include, but are not limited to, the following trends or con-           • significant underperformance of historical cash flows
ditions related to the business that utilizes a particular asset:         of the investee;
     • significant decline in the market value of an asset;             • significant impairment losses or write-downs recorded
     • current period operating cash flow loss;                           by the investee;
     • introduction of competing technologies and services;             • significant changes in the quoted market price of pub-
70             |


                            lic investee affiliates;                                                                       wards and temporary differences between the tax basis of an
                          • negative results of competitors of investee affiliates;                                        asset or liability and the amount reported in the balance
                            and                                                                                            sheet. In determining the amount of the deferred tax assets
                          • other negative industry or economic trends.                                                    or liabilities, we have to estimate the tax rates expected to
                          In performing our evaluations, we utilize various infor-                                         be in effect during the carryforward periods or when the
                     mation including discounted cash flow valuations, indepen-                                            temporary differences reverse. We recognize a valuation
                     dent valuations and, if available, quoted market values.                                              allowance against certain deferred tax assets when it is
                     Determination of recoverable amounts sometimes require                                                determined that it is more likely than not some or all of
                     estimates involving, among other things, demographics                                                 future tax benefits will not be realized. In determining the
                     such as population, penetration rates and churn rates, tech-                                          valuation allowance, we estimate expected future taxable
                     nology changes, capital expenditures, market growth and                                               income and the timing for claiming and realizing tax deduc-
                     share, ARPU, discount factors and terminal values.                                                    tions, and assess available tax planning strategies. If future
                          As a result of such evaluations, we determined that                                              taxable income is lower than expected or tax planning
                     there were other than temporary declines in values, below                                             strategies are not available as anticipated, the valuation
                     their respective carrying values, of several of our investee                                          allowance may need to be additionally recorded in the
                     affiliates in fiscal 2002 and 2004. We recorded impairment                                            future in the period such determination is made.
                     charges aggregating ¥319,564 million, net of deferred
                     income taxes of ¥225,535 million, in fiscal 2002. The gross                                           Assumptions for actuarially determined pension liabilities
                     impairment charges were ¥284,078 million for AT&T                                                     We sponsor a non-contributory defined benefit pension
                     Wireless, ¥117,898 million for KPN Mobile N.V.(“KPNM”),                                               plan which covers almost all of our employees. Calculation
                     ¥9,619 million for KGT, ¥123,245 million for H3G UK and                                               of the amount of pension cost and liabilities for retirement
                     ¥10,259 million for DoCoMo AOL, Inc. We recorded                                                      allowances requires us to make various judgments and
                     impairment charge of ¥8,612 million for our investment in                                             assumptions including the discount rate, expected long-
                     HTCL, in fiscal 2004. These write-downs to fair value                                                 term rate of return on plan assets, long-term rate of salary
                     establish a new cost basis in the carrying amount of these                                            increases and expected remaining service lives of our plan
                     investments. The impairment charges are included in                                                   participants. We believe the most significant of these
                     equity in losses of affiliates in our consolidated statements                                         assumptions in the calculations are the discount rates and
                     of income and comprehensive income. In fiscal 2003, we                                                the expected long-term rate of return on plan assets. We
                     determined that there was no other than temporary declines                                            determine an appropriate discount rate based on current
                     in the values of our investee affiliates. While we believe the                                        market interest rates on high-quality, fixed-rate debt securi-
                     remaining carrying values of our affiliate investments are                                            ties for maturity periods that match the remaining service
 Financial Section




                     realizable, changes in circumstances including the length of                                          lives of our plan participants. In determining the expected
                     time the value of an investment is below its carrying                                                 long-term rate of return on plan assets, we consider the cur-
                     amount and changes in the estimated realizable values                                                 rent and projected asset allocations, as well as expected
                     could require additional impairment charges to be recog-                                              long-term investment returns and risks for each category of
                     nized in the future.                                                                                  the plan assets based on analysis of historical results. The
                                                                                                                           rates are reviewed annually, and if an event occurs that
                     Deferred tax assets                                                                                   would have significant influence on the rates or the invest-
                     We record deferred tax assets and liabilities using enacted                                           ment environment changes dramatically, we review the
                     tax rates for the estimated future tax effects of carryfor-                                           assumptions, as necessary.

                     The discount rates used in determination of the projected benefit obligations at March 31, 2004 and 2005, and expected
                     long-term rates of return on plan assets for the fiscal 2003 and 2004 are as follows:
                                                                                                                                                                                       Fiscal

                                                                                                                                                                                2003            2004
                     Discount rate ..........................................................................................................................................   2.0%            2.0%
                     Expected long-term rate of return on plan assets ..................................................................................                        2.5             2.5
                                                                                                                                                                           | 71


The actual returns for fiscal 2003 and 2004 were approxi-                                   of 10% of the greater of the projected benefit obligation or
mately 14% and 3%, respectively.                                                            the fair value of plan assets are amortized over the expected
    The amount of projected benefit obligations of our non-                                 average remaining service life of employees, in accordance
contributory defined benefit pension plan as of the end of                                  with U.S. GAAP.
the fiscal 2003 and 2004 was ¥172.5 billion and ¥179.4 bil-                                     The following table shows the sensitivity of our non-
lion, respectively. The amount is subject to change due to                                  contributory defined benefit pension plan as of March 31,
differences in actual experience or changes in assumptions,                                 2005 to the change in the discount rate or the expected
and the effect of such differences can be substantial. In                                   long-term rate of return on plan assets, while holding other
conjunction with the differences between estimates and the                                  assumptions constant.
actual benefit obligations, unrecognized net losses in excess
                                                                                                                                 Billions of yen
                                                                                                                               Change in pension   Accumulated other
Change in Assumptions                                                                                    Change in projected      cost, before       comprehensive
                                                                                                          benefit obligation   applicable income     income, net of
                                                                                                                                     taxes       applicable income taxes

0.5% increase/decrease in discount rate ..............................................................     (10.0) / 11.0         (0.2) / (0.0)         6.0 / (6.0)
0.5% increase/decrease in expected long-term rate of return on plan assets......                                      —          (0.3) / (0.3                  —)


We also participate in a contributory defined benefit welfare                               cost of services are affected by the level of activation fees
pension plan sponsored by NTT group. The amount of our                                      and related direct costs and the estimated length of the cus-
total projected benefit obligations for both of the non-con-                                tomer relationship period over which such fees and costs
tributory defined benefit pension plans and the contribu-                                   are amortized. Factors that affect our estimate of the cus-
tory defined benefit welfare pension plan as of the end of                                  tomer relationship period over which such fees and costs
fiscal 2003 and 2004 was ¥289.2 billion and ¥307.1 billion,                                 are amortized include subscriber churn rates and newly
respectively.                                                                               introduced or anticipated competing products, services and
                                                                                            technologies. The current amortization periods are based
Revenue recognition                                                                         on an analysis of historical trends and our experience. In
We defer upfront activation fees and recognize them as rev-                                 fiscal 2002, 2003 and 2004, we amortized deferred activa-
enues over the expected term of the customer relationship.                                  tion fees of ¥3,945 million, ¥3,982 million and ¥1,491 mil-
Related direct costs, to the extent of the activation fee                                   lion, respectively, as well as corresponding amounts of
amount, are also being deferred and amortized over the                                      related deferred costs. As of March 31, 2005, remaining




                                                                                                                                                                           Financial Section
same periods. While this policy does not have any material                                  unamortized deferred activation fees were ¥122,755 million.
impact on net income, the reported amounts of revenue and
72             |


                     Liquidity and Capital Resources                                 nology and servers for Internet-related services.
                                                                                         Our capital expenditures in fiscal 2004 increased from
                     Cash Requirements                                               fiscal 2003. In fiscal 2004, we expanded the coverage areas
                                                                                     of 3G (FOMA) services, reinforced 3G (FOMA) networks to
                     Our cash requirements for fiscal 2005, include money            meet the increase in demand, constructed network architec-
                     needed to make payments related to interest bearing liabili-    ture to meet an increase in traffic derived from the introduc-
                     ties and other contractual obligations, to expand our 3G        tion of the flat-rate i-mode service and constructed back-up
                     (FOMA) infrastructure around Japan and to invest in other       system to upgrade the reliability of our i-mode service. On
                     facilities. We believe that available cash reserves and         the other hand, we reduced the acquisition costs of equip-
                     expected cash from operations will provide sufficient finan-    ment and improved the design and construction process to
                     cial resources to meet our currently anticipated capital and    reduce the packet-communication-related network cost.
                     other expenditure requirements and to satisfy our debt ser-         Total capital expenditures on an accrual basis were
                     vice requirements. We also expect to obtain external            ¥853,956 million for fiscal 2002, ¥805,482 million for fiscal
                     financing, if necessary, for other opportunities, such as new   2003 and ¥861,517 million for fiscal 2004. In fiscal 2004,
                     business activities, acquisitions, joint ventures or other      61.4% of capital expenditures were used for construction of
                     investments, through borrowing or the issuance of debt or       our 3G (FOMA) network, 18.6% for general capital expendi-
                     equity securities. However, if we have underestimated our       tures, 8.7% for construction of transmission lines, 6.7% for
                     capital or other expenditure requirements or overestimated      construction of the 2G network and 4.0% for i-mode related
                     future cash flows, additional debt, equity or other financing   expenditures. By comparison, in fiscal 2003, 48.6% of capi-
                     may be required. There can be no assurance that such            tal expenditures were used for construction of our 3G net-
                     financing will be available on commercially acceptable          work, 23.9% for general capital expenditures, 10.5% for
                     terms or in a timely manner.                                    construction of the 2G network, 8.9% for construction of
                                                                                     transmission lines and 6.6% for i-mode related expenditures.
                     Capital Expenditures                                                In fiscal 2005, we expect total capital expenditures to be
                     The wireless telecommunications industry is highly capital      approximately ¥848.0 billion, of which approximately
                     intensive and significant capital expenditures are required     63.2% will be for our 3G (FOMA) network, 17.3% for gen-
                     for the construction of wireless telecommunications net-        eral capital expenditures, 9.5% for construction of transmis-
                     works. Our capital requirements for our networks are            sion lines, 5.6% for the 2G network and 4.2% for i-mode
                     determined by the timing and requirements of systems,           related expenditures, which we expect to finance with inter-
                     such as the 3G system, the nature and the area of coverage      nal cash flows. These capital investments will take place in
                     desired, the number of subscribers served in an area, and       Japan. Our 3G population coverage was approximately
 Financial Section




                     the expected traffic. Network construction costs depend on      99.9% of Japan as of the end of March 2005, and according
                     the number of cells in the service area, the number of radio    to our current 3G construction schedule, we plan to contin-
                     channels in the cell and the switching equipment required.      uously improve quality both indoors and outdoors to build
                     Capital expenditures are also required for information tech-    a network tailored to customers’ usage. We have been
                                                                                     improving both our outdoor and indoor coverage areas, to
                                                                                     meet more customer needs, such as the expansion of the
                           Capital Expenditures                                      coverage areas to all subway stations in Tokyo Metro, Tokyo
                                                                                     metropolitan subway, and municipal subways in Osaka,
                     (Billions of yen)
                                                                                     Kobe, and Fukuoka as of March 31, 2005.
                     1,000
                                                                                         We currently expect that capital expenditures for each
                                    854.0           861.5
                                            805.5                                    of the next few fiscal years will either be at approximately
                       800
                                                                                     the same or at a lower level compared to those of fiscal
                                                                                     2004 primarily because increased capital expenditures relat-
                       600
                                                                                     ing to expanding, maintaining and upgrading our 3G
                                                                                     (FOMA) system will be largely offset by decreasing capital
                       400
                                                                                     expenditures related to our current 2G network.
                                                                                         Our level of capital expenditures may vary significantly
                       200
                                                                                     from expected levels for a number of reasons. Capital
                                                                                     expenditures for expansion and enhancement of our exist-
                          0
                                 FY 02        03     04                              ing cellular network may be influenced by the growth in
                                 3G(FOMA)                                            subscribers and traffic, which is difficult to predict with cer-
                                 2G(mova)
                                                                                     tainty, the ability to identify and procure suitably located
                                 i mode etc
                                 Network                                             base station sites on commercially reasonable terms, com-
                                 Common                                              petitive environments in particular regions and other fac-
                                 Others
                                                                                     tors. The nature, scale and timing of capital expenditures to
                                                                                                                                                                                          | 73


reinforce our 3G network may be materially different from                                                corporate bonds in the aggregate amount of ¥50 billion in
current plans due to demand for the services, delays in the                                              January 2003 and five-year domestic straight corporate
construction of the network or in the introduction of ser-                                               bonds in the aggregate amount of ¥100 billion in April
vices and changes in the variable costs of components for                                                2002, for the purpose of refinancing existing long-term
the network. We expect that these capital expenditures will                                              debt. In fiscal 2002, we made payments for the settlement
be affected by market demand for our mobile multimedia                                                   of long-term debt of ¥212,934 million.
services, including i-mode, and other data transmission ser-                                                 Of our long-term debt at March 31, 2005, ¥191,828 mil-
vices, and by our schedule for ongoing expansion of the                                                  lion, including current portion, was unsecured indebtedness
existing networks to meet demand.                                                                        to banks, insurance companies and others at fixed interest
                                                                                                         rates of 0.8% - 4.9% and with maturities currently from fiscal
Long-term Debt and other Contractual Obligations                                                         2005 through fiscal 2012. As of March 31, 2005, we also had
As of March 31, 2005, we had ¥948,523 million in long-                                                   ¥756,695 million in unsecured bonds due from fiscal 2005 to
term debt, including current maturities, primarily in loans                                              fiscal 2011 with coupon rates of 0.3%-3.5%. We have been
from banks and other financial institutions and corporate                                                seeking to level out our repayment requirements.
bonds, compared to ¥1,091,596 million of long-term debt                                                      As of March 31, 2005, publicly offered corporate bonds
as of March 31, 2004. We did no long-term financing in                                                   of DoCoMo are rated by rating agencies as shown in the
either fiscal 2003 or 2004, during which time we repaid                                                  table below. Credit ratings reflect rating agencies’ current
¥245,411 million and ¥146,709 million of long-term debt,                                                 opinions about our financial capacity to meet payment oblig-
respectively. In fiscal 2002, we issued five-year euro-dollar                                            ations of our debts in accordance with their terms. Also, the
bonds in the aggregate amount of $100 million (¥11.8 bil-                                                rating is not a market rating or recommendation to buy, hold
lion at issuance) in March 2003, four-year domestic straight                                             or sell our shares or any financial obligations of DoCoMo.

                                                                                                                                                     Senior long-term     Outlook
                                                                                                                                                        debt rating


 Moody’s .........................................................................................................................................        Aa1             Stable
 Standard & Poor’s .........................................................................................................................              AA-             Stable
 Japan Credit Rating Agency Ltd....................................................................................................                       AAA             Stable


None of our debt obligations has ever had a clause in which                                                   The following table summarizes our long-term debt,
a downgrade of our credit rating could lead to a change in a                                              lease obligations and other contractual obligations (includ-




                                                                                                                                                                                          Financial Section
payment term of such an obligation so as to accelerate its                                                ing current portion) over the next several years.
maturity.

Long Term Debt, Lease Obligations and other Contractual Obligations
                                                                                                                               Payments Due by Period
Category of Obligations                                                                   Total             Less than 1 year             1-3 years            4-5 years   After 5 years
                                                                                                                                    (millions of yen)

 Long-Term Debt
   Unsecured Bonds ..................................................                ¥   756,695               ¥ 137,000                ¥ 238,139            ¥ 49,200     ¥ 332,356
   Unsecured Loans ..................................................                    191,828                  13,304                   85,524               55,000       38,000
 Capital Leases ...........................................................                8,215                   3,693                    3,747                  725           50
 Operating Leases.......................................................                  25,794                   1,506                    2,931                2,848       18,509
 Other Contractual Obligations .................................                         139,543                 139,543                       —                    —            —
 Total .........................................................................     ¥ 1,122,075               ¥ 295,046                ¥ 330,341            ¥ 107,773    ¥ 388,915
*The amount of other long-term liabilities is not shown in the above table since some liabilities are immaterial or the timing of payments is uncertain.


Our other contractual obligations as of March 31, 2005,                                                  for our 3G networks and for other purposes. See “Capital
principally consisted of commitments to purchase property                                                Expenditures” above. Also, we consider potential opportu-
and equipment for our cellular network, and commitments                                                  nities to enter new areas of business, make acquisitions or
to purchase inventories, mainly handsets. As of March 31,                                                enter into joint ventures, equity investments or other
2005, we had committed ¥44,266 million for property and                                                  arrangements primarily in wireless communications busi-
equipment, ¥37,626 million for inventories and ¥57,651                                                   nesses from time to time. Currently, we have no contingent
million for the other purchase commitments.                                                              liabilities related to litigation or guarantees that could have
    In addition to our existing commitments, we expect to                                                a material adverse effect on our financial position.
make significant capital expenditures on an ongoing basis
74             |


                     Sources of Cash                                                                      age area. We will also require funds for repayment of our
                     As described above, we will continue to require significant                          debt. Our primary source of funds to finance our capital
                     amount of capital expenditures to further develop our oper-                          expenditures and other capital requirements has been cash
                     ations, including the expansion of our FOMA service cover-                           flow from operating activities and financing activities.

                     The following table sets forth certain information about our cash flows during fiscal 2002, fiscal 2003 and fiscal 2004:
                                                                                                                                                          Fiscal

                                                                                                                                     2002                 2003              2004
                                                                                                                                                     (millions of yen)

                      Net cash provided by operating activities .................................................................... ¥ 1,584,610      ¥ 1,710,243        ¥ 1,181,585
                      Net cash used in investing activities ............................................................................ (871,430)       (847,309)          (578,329)
                      Net cash used in financing activities............................................................................  (333,277)       (705,856)          (672,039)
                      Net increase (decrease) in cash and cash equivalents..................................................              379,903         157,079            (68,078)
                      Cash and cash equivalents at beginning of year ..........................................................           301,048         680,951            838,030
                      Cash and cash equivalents at end of year..................................................................... ¥ 680,951         ¥ 838,030          ¥ 769,952


                                   Cash Flows                                                                 In fiscal 2003, net cash used in investing activities was
                                                                                                          ¥847,309 million, a decrease of 2.8%, compared to
                     (Billions of yen)
                                                                                                          ¥871,430 million in the prior fiscal year. Although we used
                      2,000
                                            1,710                                                         ¥38,242 million as a shareholder loan against H3G UK, net
                                   1,585

                                                     1,182                                                cash used in investing activities decreased primarily due to
                      1,000                                                                               a decrease in capital expenditures for the acquisition of
                                                                                                          property, plant and equipment.
                                                                                                              In fiscal 2004, net cash used in investing activities was
                           0
                                                                                                          ¥578,329 million, a decrease of 31.7%, compared to ¥847,309
                                                       -578
                                                                                                          million in fiscal 2003. Despite an increase in payment for
                     -1,000          -871     -847                                                        purchase of property, plant and equipment and intangibles
                                                                                                          and other assets from ¥802,929 million in the prior fiscal year
                                                                                                          to ¥911,081 million, net cash used in investing activities
                     -2,000
                                 FY 02        03       04                                                 decreased mainly due to a sale of AT&T Wireless shares that
 Financial Section




                                  Net cash provided                                                       amounted to ¥699,514 million, and a collection of sharehold-
                                  by operating activities
                                                                                                          ers loan to Hutchison 3G UK Holdings Limited based on the
                                  Net cash used
                                  in investing activities                                                 sale and purchase agreement with Hutchison Whampoa
                                                                                                          Limited that amounted to ¥39,847 million. Changes in
                                                                                                          investments with original maturities of more than three
                                                                                                          months for cash management purpose, which were made to
                     For fiscal 2003, our net cash provided by operating activi-                          manage a part of our cash efficiently, increased net cash used
                     ties was ¥1,710,243 million, an increase of 7.9% over                                in investing activities by ¥400,327 million. We expect to con-
                     ¥1,584,610 million for fiscal 2002. The increase was pri-                            tinue to make significant capital expenditures in our networks
                     marily due to a slight increase in operating income exclud-                          and for other purposes and expect to fund such expenditures
                     ing depreciation and amortization, and a decrease in income                          primarily from net cash provided by operating activities.
                     tax payments and increase in tax refunds, owing to realiza-                              Net cash used in financing activities was ¥705,856 mil-
                     tion of deferred tax assets from the impairment of invest-                           lion in fiscal 2003, an increase of 111.8%, compared to
                     ment in KPNM.                                                                        ¥333,277 million in fiscal 2002. We paid dividend of
                         For fiscal 2004, our net cash provided by operating                              ¥49,813 million and repurchased our own shares totaling
                     activities was ¥1,181,585 million, a decrease of 30.9% com-                          ¥394,903 million to increase our capital efficiency, and
                     pared to ¥1,710,243 million in fiscal 2003. Net cash pro-                            reduced interest bearing liabilities totaling ¥255,411 million
                     vided by operating activities decreased primarily because of                         to strengthen our financial position.
                     a decrease in operating income; an increase in the payment                               Net cash used in financing activities was ¥672,039 mil-
                     of income taxes, which was ¥259,883 million in the prior                             lion in fiscal 2004, a decrease of 4.8%, compared to ¥705,856
                     fiscal year, to ¥541,684 million; and a decrease in collection                       million in fiscal 2003. We used less cash to repay our long-
                     of tax refunds receivable, which was ¥107,200 million in                             term debt, while we paid dividend of ¥95,334 million and
                     the prior fiscal year.                                                               repurchased our own shares totaling ¥425,247 million.
                                                                                                                                 | 75


    Cash and cash equivalents at March 31, 2004, amounted        exchange forward contracts outstanding at March 31, 2004
to ¥838,030 million, representing an increase of ¥157,079        or March 31, 2005. We do not hold or issue derivatives for
million from ¥680,951 million at March 31, 2003.                 trading purposes. We enter into derivative transactions
    Cash and cash equivalents at March 31, 2005, amounted        only with major financial institutions. We maintain and
to ¥769,952 million, representing a decrease of ¥68,078          comply with internal regulations that specifies the type of
million from ¥838,030 million at March 31, 2004. The             derivative transactions we can enter into and the procedures
aggregate amount of investments made to manage a part of         to approve and monitor such transactions. Our participa-
our cash efficiently, which were composed of certificates of     tion in such transactions has not had, and our management
deposits and marketable securities with original maturities      believes that it will not have, a material adverse effect on
of longer than three months, was ¥400,575 million at             our financial position or results of operations.
March 31, 2005.                                                      The total contract amount of interest rate swap con-
    As for our sources of cash for fiscal 2005, we expect our    tracts outstanding at March 31, 2004 and March 31, 2005 to
cash flow from operating activities to increase from fiscal      which we were a party was ¥51,500 million and ¥121,000
2004, because of a decrease in income tax payments com-          million, respectively. The total contract amount of a cur-
pared to fiscal 2004 due to realization of deferred tax assets   rency swap contract at March 31, 2005 was ¥10,485 mil-
from the impairment of our investment in AT&T Wireless.          lion.
On the other hand, although we received £120 million
(approximately ¥24 billion) from HWL in June 2005 as pay-        Other Hedging Activities
ment for the sale of our H3G UK shares, we expect our cash       We are also subject to foreign exchange rate risk with
flow from investing activities to decrease from fiscal 2004,     respect to our foreign investments because those invest-
because we expect to use more cash for an increase in capital    ments are denominated in foreign currencies. On March 5,
expenditures and an investment in a credit card business,        2003, we issued $100 million in unsecured corporate bonds
while the cash inflow is expected to decrease compared to fis-   in order to hedge a portion of our net investment in AT&T
cal 2004, which included the cash flow of ¥699,514 million       Wireless. In fiscal 2004, we used foreign exchange forward
from the sale of our AT&T Wireless shares in fiscal 2004.        contracts to hedge a portion of our net investment in AT&T
                                                                 Wireless. While these financial instruments were effective
                                                                 as hedges against fluctuations in net investment in AT&T
Hedging Activities                                               Wireless derived from fluctuations of currency exchange
                                                                 rates, the hedged item no longer exists as we sold all of our
Derivative Transactions                                          AT&T Wireless shares during fiscal 2004. Accordingly,
We enter into certain interest rate swap contracts to man-       these hedging instruments for the net investments in a for-




                                                                                                                                 Financial Section
age exposure to fluctuations in interest rates on our debt.      eign operation are reclassified into earnings in fiscal 2004,
We employ derivative instruments such as foreign currency        and we recorded gains totaled to ¥6,468 million as a part of
forward transactions or currency swap transactions to            gain on sale of affiliate shares, which is included in other
hedge risks related to foreign currency denominated trans-       (income) expense, in the consolidated statements of income
actions which exceed a certain amount. We had no foreign         and comprehensive income in fiscal 2004.


Research and Development, Patents and Licenses, etc.

Our research and development activities embrace three key         Research and development
efforts: development of new products and services such as                 Expenses
                                                                 (Billions of yen)
handsets and applications for 3G systems, research and
                                                                 140
development related to fourth-generation systems and                          126    125
upgrading the functions of 2G systems. Research and              120
                                                                                           102
development expenses are charged to income as incurred.          100
We spent ¥126,229 million, ¥124,514 million and ¥101,945
million as research and development in fiscal 2002, 2003          80

and 2004, respectively.                                           60

                                                                  40

                                                                  20

                                                                    0
                                                                           FY 02     03    04
76             |                                                       R I S K FA C T O R S


                     Risks Relating to Our Business and the Japanese                  in the areas of rates and services. Furthermore, as a result
                     Wireless Telecommunications Industry                             of severe competition for acquisition of subscribers, we may
                                                                                      need to incur higher costs than we expected, such as com-
                     Increasing competition from other service providers and          missions paid to sales agents and other expenses.
                     other technologies may limit our acquisition of new sub-             In this severely competitive environment, in order to
                     scribers and retention of existing subscribers, may sup-         provide various advanced services and increase user conve-
                     press ARPU and may increase our costs and expenses.              nience, we have made various rate revisions, such as the
                          We are experiencing increasing competition from other       expansion of “family discounts” from April 1, 2004 and the
                     service providers. For example, other cellular service           introduction of Pake-Hodai, meaning “as much as you
                     providers have also introduced new products and new ser-         want”, a flat-rate packet communication service for 3G sub-
                     vices, including 3G handsets, global-positioning system          scribers. However, we cannot be certain whether these mea-
                     compatible handsets and global roaming services. Also,           sures will enable us to acquire new and maintain existing
                     there are other cellular service providers that provide com-     subscribers. Furthermore, if the trend of subscribers using
                     munication services based on technologies different from         “family discounts” and switching to flat-rate services
                     W-CDMA, which we have adopted for our 3G FOMA ser-               increases more than we expect, our ARPU may decrease
                     vice, that currently provide faster data transmission speeds     more than we expect, which may have a material adverse
                     than our 3G services. Also, there are providers that now         affect on our financial condition and results of operation.
                     offer or may in the future offer services, such as combined
                     billing and aggregated point programs in conjunction with        If the new services and forms of usage which we propose
                     fixed line communications, which may be more convenient          and introduce are not successful, our growth may be con-
                     for customers. Furthermore, other companies may enter            strained.
                     the cellular service industry, in which case more severe             We view the expansion of AV traffic such as TV phone
                     competition may arise.                                           via 3G handsets, the development and penetration of new
                          On the other hand, there may be increased competition       services useful in everyday life and business through i-mode
                     due to the introduction of other new services and technolo-      FeliCa and other services and technologies and increased
                     gies, especially low priced and flat-rate services, fixed line   revenue through the expansion of data communications as
                     or mobile IP phones, high-speed fixed line broadband             important to our future growth. However, a number of
                     Internet service and digital broadcasting and wireless LAN       uncertainties may arise to prevent the development of these
 Financial Section




                     or an integration of these services.                             services and constrain our growth. In particular, we cannot
                          In addition to competition from other service providers     be certain that:
                     and technologies, there are other factors increasing competi-        • we will be able to find the partners or content
                     tion among mobile communications providers in Japan,                   providers needed to provide the new services and
                     such as saturation in the Japanese cellular market, changes            forms of usage we are introducing and persuade a suf-
                     in the regulatory environment and increased rate competi-              ficient number of shops to use i-mode FeliCa readers;
                     tion. Recently, there have been changes in the regulatory            • we will be able to provide planned new services and
                     environment such as the granting of rate setting rights to             forms of usage as scheduled and keep costs needed for
                     intermediate communication providers (including fixed line             the penetration and expansion of such services within
                     service providers) for calls from fixed line to mobile phones,         budget;
                     and with the amendment of the Telecommunications                     • the services we offer and plan to offer will be attractive
                     Business Law, rate setting by individual contract, as opposed          to current and potential subscribers and there will be
                     to fixed form contracts, in the corporate market. As a result,         sufficient demand for such services;
                     rate competition may increase.                                       • manufacturers and content providers will create and
                          Under such circumstances, the number of new sub-                  offer products, including handsets for our 3G system
                     scribers we acquire may continue to decline in the future              and handsets and contents for our 3G i-mode service
                     and may not reach the number we expect. Also, in addition              at an appropriate price and on a timely basis;
                     to difficulty in acquiring new subscribers, we may not be            • our current or future data communication services
                     able to maintain existing subscribers at expected levels, due          including i-mode and other services will be attractive
                     to increased competition among cellular service providers              to existing and potential subscribers and achieve con-
                                                                                                                                    | 77


      tinued or new growth;                                           the designation of mobile phone communications as a
    • demand in the market for mobile handset functional-             universal service which would require us to provide
      ity will be as we expect and as a result, our handset           service in all regions in Japan and other changes to the
      procurement costs will be reduced; and                          current universal service fund system.
    • we will be able to commence services with improved            It is difficult to predict with certainty if any of the above
      data communication speed enabled by HSDPA (High           changes will be proposed to the relevant laws and regula-
      Speed Downlink Packet Access, a high speed packet         tions and, if they are made, the extent to which our busi-
      communication technology utilizing W-CDMA) tech-          ness will be affected. However, the implementation of one
      nology as we plan.                                        or more of the changes described above, or other changes to
    If the development of our new services or forms of          laws and regulations, could materially affect our financial
usage is limited, it may have a material affect on our finan-   condition and results of operations.
cial condition and results of operations.
                                                                The introduction of mobile number portability in Japan
The introduction or change of various laws or regulations       may increase our expenses, and may lead to a decrease in
or the application of such laws or regulations to us could      the number of our subscribers if our subscribers choose
have an adverse effect on our financial condition and           to switch to other cellular service providers.
results of operations.                                               According to a report by a working group under the
    The Japanese telecommunications industry has been           Ministry of Internal Affairs and Communications (formerly
undergoing regulatory reform in many areas including rate       known as Ministry of Public Management, Home Affairs,
regulation. Because we operate on radio spectrum allocated      Posts and Telecommunications, or MPHPT,), or MIC, issued
by the government, the mobile telecommunications indus-         in April 2004, many overseas countries have already intro-
try in which we operate is particularly affected by the regu-   duced number portability for mobile phones with the pur-
latory environment. Various governmental bodies have            pose of improving convenience for users and promoting
been recommending or considering changes that could             competition among mobile telecommunications providers.
affect the mobile telecommunications industry, and there        In those countries, as subscribers to mobile telephones can
may be continued reforms including the introduction or          switch operators without changing their phone numbers,
revision of laws or regulations that could have an adverse      they can switch operators more easily. The report and
effect on us. These include:                                    guidelines indicated by MIC in May 2004 suggested that




                                                                                                                                    Financial Section
    • revision of the spectrum allocation system such as        number portability for mobile phones be introduced in
      reallocation of spectrum and introduction of an auc-      Japan by around fiscal 2006.
      tion system;                                                   It is very difficult to predict at present what effect the
    • measures to open up Internet platforms and segment        introduction of number portability for mobile phones
      platform functions such as authentication and pay-        would have on our number of subscribers and revenue and
      ment collection to other operators;                       expense, as it will depend on the services and rates set by
    • rules that could require us to open our i-mode service    each cellular service provider before and after the introduc-
      to all content providers and Internet service providers   tion. It will be an opportunity to acquire new subscribers
      or that could prevent us from setting or collecting i-    due to increased fluidity of subscribers, while on the other
      mode content fees or putting i-mode service on cellu-     hand, it may lead to a decrease in our subscribers if some of
      lar phone handsets as an initial setting;                 our subscribers decide to switch to another operator. We
    • measures to enhance competition that would restrict       may not be able to recover the costs we estimated for the
      our business operations in the mobile telecommunica-      introduction of number portability for mobile telephones,
      tions industry;                                           we may experience increased costs in relation to the acqui-
    • regulation to prohibit or restrict certain content or     sition and maintenance of subscribers and our ARPU may
      transactions, or mobile Internet services such as i-      decrease with further rate competition, which could materi-
      mode; and                                                 ally affect our financial condition and results of operations.
    • measures which would introduce new costs such as
78             |


                     Limitations on the amount of frequency spectrum and              guidelines known as IMT-2000. We may be able to offer
                     facilities available to us may make it difficult for us to       our services, such as global roaming, on a worldwide basis
                     maintain and improve the quality of our services and the         if enough other mobile operators adopt handsets and net-
                     level of our customer satisfaction.                              work facilities based on W-CDMA standard technology
                         One of the principal limitations on a cellular communi-      which are compatible with ours. We expect that the com-
                     cation network’s capacity is the available radio frequency       panies we have invested in overseas, our overseas strategic
                     spectrum it can use. We have limited spectrum and facili-        partners and many other mobile operators will adopt this
                     ties available to us to provide our services. As a result, in    technology.
                     certain parts of metropolitan Tokyo and Osaka, such as               Also, we have technology alliances with overseas opera-
                     areas near major train stations, our cellular communication      tors in relation to i-mode service and we are aggressively
                     network operates at or near the maximum capacity of its          promoting the spread and expansion of i-mode service by
                     available spectrum during peak periods, which may cause          overseas operators.
                     reduced service quality. In addition, the quality of the ser-        However, if a sufficient number or other mobile opera-
                     vices we provide may also decrease due to the limited pro-       tors do not adopt W-CDMA technology or there is a delay
                     cessing capacity of our base stations and switching facilities   in the introduction of W-CDMA technology, we may not be
                     during peak usage periods, if our subscriber base dramati-       able to offer global roaming services as expected and we
                     cally increases or the volume of content such as images and      may not be able to offer our subscribers the convenience of
                     music provided through our i-mode service is significantly       overseas service.
                     expanded. Also, in relation to our 3G service and packet             If, in addition to insufficient expansion of W-CDMA
                     communication flat fee service for 3G i-mode, an increase        technology abroad, the number of i-mode subscribers
                     in the number of subscribers and traffic volume by such          among our strategic partners and usage of i-mode service
                     subscribers may go substantially beyond our projections,         overseas does not advanced sufficiently, we may not realize
                     we may not be able to process such traffic with our existing     the benefits of economies of scale we currently expect in
                     facilities and our quality of service may decline.               terms of timely production of handsets and contents
                         Furthermore, with an increasing number of subscribers        designed for our services at appropriate prices and purchas-
                     and traffic volume, our quality of service may decline if we     ing power for network facilities. Also, we cannot be sure
                     cannot get the necessary allocation of spectrum from the         that handset manufacturers or manufacturers of network
                     government for the smooth operation of our business.             equipment will be able to appropriately and promptly adjust
 Financial Section




                         We may not be able to avoid reduced quality of services      their handsets and network equipment if we need to change
                     despite our continued efforts to improve the efficiency of our   the handsets or network we currently use due to a change
                     use of spectrum through technology and to acquire new            in W-CDMA technology as a result of activities conducted
                     spectrum. If we are not able to successfully address such        by standard-setting organizations.
                     problems in a timely manner, we may experience constraints           If W-CDMA technology and i-mode services do not
                     on the growth of our mobile communications services or           develop as we expect, and we are not able to improve the
                     lose subscribers to our competitors, which may materially        quality of our overseas services or enjoy the benefits of
                     affect our financial condition and results of operations.        global economies of scale, that may have an adverse effect
                                                                                      on our financial condition and results of operations.
                     We cannot guarantee overseas operators will introduce
                     the W-CDMA technology and mobile multimedia services             We cannot guarantee that our domestic and international
                     we currently use in our 3G system, which would                   investments, alliances and collaborations and invest-
                     adversely affect our ability to offer our international ser-     ments in new businesses will produce sufficient opportu-
                     vices to our subscribers.                                        nities or returns.
                         For our 3G system, we currently use Wideband Code                One of the major components of our strategy is to
                     Division Multiple Access, or W-CDMA, technology. W-              increase our corporate value through domestic and overseas
                     CDMA technology is one of the global standards for cellular      investments, alliances and collaborations. We have entered
                     telecommunications technology approved by the International      into alliances and collaborations with other companies and
                     Telecommunications Union, or ITU, as part of its efforts to      organizations overseas which we believe could help us
                     standardize 3G cellular technology through the issuance of       achieve this objective. We are also promoting this strategy
                                                                                                                                  | 79


by investing, entering into alliances with and collaborating      or another operator may adversely affect the results of our
with domestic companies and investing in new business             PHS business, with adverse effects on our financial condi-
areas. However, there can be no assurance that we will be         tion and results of operations.
able to maintain or enhance the value or performance of
our past or future investments, or that we will receive the       As electronic payment capabilities and many other new
returns or benefits we expect from these investments,             features are built into our cellular handsets, and the ser-
alliances and collaborations. Our investments in new busi-        vices of third parties are provided through our cellular
ness areas outside of the mobile telecommunication busi-          handsets, problems may arise in the event that handsets
ness may be accompanied by challenges beyond our                  malfunction, contain defects, are lost or fail to complete
expectations, as we have little experience in such new areas      services provided by other operators.
of business.                                                          Various functions are mounted on the mobile handsets
     In recent years, telecommunications companies, mobile        we provide, and if we cannot appropriately deal with tech-
operators, and the companies in which we have invested            nological problems that may arise with respect to current or
have experienced a variety of negative developments,              future handsets or the malfunction or loss of handsets, our
including severe competition, increased debt burdens, sig-        credibility may decline and our corporate image may be
nificant volatility in share prices and financial difficulties.   damaged, leading to an increase in contract cancellations or
To the extent that these investments are accounted for by         an increase in expenses for indemnity payments to sub-
the equity method and to the extent that the investee com-        scribers and our financial condition or results of operations
panies have net losses, our financial results will be             may be affected. New issues may arise which are different
adversely affected by our pro rata portion of these losses. If    from those related to mobile communications services
there is a loss in the value of our investment in any investee    which we have been providing, especially with i-mode
company and such loss in value is other than a temporary          handsets with FeliCa capabilities that can be used for elec-
decline, we may be required to adjust the book value and          tronic payment transactions. Events that may lead to a
recognize an impairment loss for such investment. Also, a         decrease in our credibility and corporate image include the
business combination or other similar transaction involving       following:
any of our investee companies could require us to realize             • Breakdown, defect and malfunction of our handsets;
impairment loss for any decline in the value of investment            • Loss of information, e-money or points due to a
in such investee company. In either event, our financial                breakdown of handsets or other factors;




                                                                                                                                  Financial Section
condition or results of operations could be materially                • Illegal use of information, e-money and points by
adversely affected.                                                     third parties due to a loss or theft of handsets;
                                                                      • Illegal access to and use of user records and balances
Our PHS business, which is expected to operate a loss                   accumulated on handsets by third-parties; and
until the termination of services, may incur greater losses           • Inadequate and inappropriate management of e-
than we project.                                                        money or points by companies with which we make
    As our PHS business continued to lose subscribers and               alliances or collaborate.
experienced increasing operating losses, we ceased accept-
ing new PHS subscribers at the end of April 2005 in order         Social issues that may arise from misuse or misunder-
to concentrate our management resources on our “FOMA”             standing of our products and services may adversely
services. We will consider termination of PHS services            affect our credibility or corporate image.
while monitoring usage by subscribers. Also, taking into              We may face an increase in cancellations of existing
account the trends in our PHS business, we recognized an          subscriptions and difficulty in acquiring new subscribers,
impairment loss of ¥60.4 billion related to the business for      due to decreased credibility of our products and services
the year ended March 31, 2005.                                    and damaged corporate image caused by inappropriate use
    We expect continued operating losses from the PHS             of our products and services by unscrupulous subscribers.
business. However, PHS service related losses may be                  Unsolicited bulk e-mail, for instance, is a problem for
greater than we expect as we are offering incentives for          our i-mode service. Despite our extensive efforts to address
existing PHS subscribers to transfer to our “FOMA” service        this issue to protect our subscribers from incurring any eco-
and the trend of contracts transferring to “FOMA” service         nomic disadvantage caused by unsolicited bulk e-mails,
80             |


                     including providing i-mode subscribers with up to 400            Inappropriate handling of subscriber information by our
                     packets per month of free packet-data communication and          employees or subcontractors would damage our credibil-
                     pursuing actions against companies which distribute large        ity and corporate image.
                     amounts of such unsolicited bulk e-mails, the problem has            In April 2005, the Law Concerning the Protection of
                     not yet been rooted out. Also, recently, a different kind of     Personal Information (the “Personal Information Protection
                     unsolicited bulk e-mail using “short-mail” and “SMS” ser-        Law”) came into force and protection of personal informa-
                     vices we provide in addition to i-mode, is becoming an           tion became an important issue at companies which handle
                     issue. If our subscribers receive a large amount of unso-        personal information. We hold information on our millions
                     licited e-mails, it may cause a decrease in customer satisfac-   of subscribers, and to appropriately and promptly address
                     tion and damage our corporate image, leading to a                the Personal Information Protection Law, we have set up an
                     reduction in the number of our i-mode subscribers.               “information security department” to put in place compre-
                          Recently, there has been an increase in the use of mobile   hensive security management across the company, such as
                     phones in crimes such as “it’s me” fraud, in which callers       thorough management of subscriber information, employee
                     request an emergency bank remittance pretending to be a          education, supervision of subcontractors and by strengthen-
                     relative. To combat these misuses of our services, we have       ing technological security.
                     introduced various measures such as more strict identifica-          However, in the event an information leak occurs
                     tion confirmation at points of purchase and ended new con-       despite these security measures, our credibility may be sig-
                     tracts for pre-paid mobile phones as of the end of March         nificantly damaged and we may experience an increase in
                     2005 because pre-paid mobile phones are easier to use in         cancellation of subscriber contracts, an increase in indem-
                     crimes. However, in the event criminal usage increases,          nity cost and slower increase in additional subscribers and
                     mobile phones may be regarded as a problem and lead to an        our financial condition and results of operations may be
                     increase in cancellation of contracts.                           adversely affected.
                          In addition, as our handsets and services become more
                     sophisticated, new issues may arise when subscribers are         Earthquakes, power shortages, malfunction of facilities,
                     charged fees for packet communication at levels higher than      software bugs and viruses or cyberattacks may cause sys-
                     they are aware of as a result of using handsets without fully    tem failures in our cellular network, handsets or other
                     recognizing over use of packet communication in terms of         networks required for the provision of service, disrupting
                     frequency and volume. Also, inappropriate use of our             our ability to offer our services to our subscribers.
 Financial Section




                     mobile handsets with built-in camera has become a social             We have built a nationwide network including base sta-
                     issue such as taking photos of an article from a magazine in     tions, antennas, switching centers and transmission lines
                     a bookstore or taking pictures at art galleries and museums      and provide mobile communication service using this net-
                     where picture taking is prohibited. Furthermore, there are       work. In order to operate our network systems in a safe
                     issues concerning manners for phone usage in public places       and stable manner, we have various measures in place, such
                     such as in trains and an increase in car accidents caused by     as duplicate systems. However, despite these measures, our
                     the use of mobile phones while driving. These issues may         system could fail for various reasons including hardware
                     similarly damage our corporate image.                            problems, network damage caused by earthquakes, power
                          To date, we believe we have properly addressed these        shortages, typhoons, floods, terrorism and similar phenom-
                     social issues surrounding mobile phones. However, it is          enon and events. These system failures can require an
                     uncertain whether we will be able to continue addressing         extended time for repair and as a result, it may lead to
                     those issues appropriately in the future as well and when we     decreased revenue and increased repair costs and our finan-
                     fail to do so, we may experience an increase in cancellation     cial condition and results of operations may be adversely
                     of existing subscriber contracts or fail to acquire new sub-     affected.
                     scribers as expected and it may affect our financial condi-          There have been instances in which millions of comput-
                     tion and results of operations.                                  ers worldwide were infected by viruses though the Internet.
                                                                                      Similar incidents could occur on our mobile communica-
                                                                                      tions network. If such a virus entered our network or
                                                                                      handsets, our system could fail and our mobile phones
                                                                                      become unusable. In such an instance, the credibility of
                                                                                                                                    | 81


our network and customer satisfaction could decrease sig-         we are actively attempting to confirm the safety of wireless
nificantly. Although we have enhanced our security system         telecommunications, but there can be no assurance that fur-
to block unauthorized access and remote downloading in            ther research and studies will not demonstrate a relation
order to provide for unexpected events, such precautions          between electric wave emissions and health problems.
may not make our system fully prepared for every event.               Furthermore, although the electric wave emissions of
    In the event we are unable to properly respond to any         our cellular handsets and base stations comply with the
such events, our credibility may be reduced, and we may           electromagnetic safety guidelines of Japan, including guide-
experience a decrease in revenues as well as significant repair   lines regarding the specific absorption rate of electric waves,
cost expenses which may affect our financial condition and        and the International Commission on Non-Ionizing
results of operations. Additionally, our network could be         Radiation Protection, the guidelines of which are regarded
affected by software bugs or human errors which are not the       as an international safety standard, the Electromagnetic
result of malfeasance, but also result in a system failure.       Compatibility Conference of Japan has confirmed that some
                                                                  electronic medical devices are affected by the electromag-
Concerns about adverse effect on health by wireless               netic interference from cellular phones as well as other
telecommunications may increase.                                  portable radio transmitters. As a result, Japan has adopted a
    Media and other reports have suggested that electric          policy to restrict the use of cellular services inside medical
wave emissions from wireless handsets and other wireless          facilities. We are working to ensure that our subscribers are
equipment may adversely affect the health of mobile phone         aware of these restrictions when using cellular phones.
users and others, including by causing cancer and vision          There is a possibility that further regulations or restrictions
loss and interfering with various electronic medical devices,     could limit our ability to expand our market or our sub-
including hearing aids and pacemakers, and also may pre-          scriber base or otherwise adversely affect us.
sent increased health risks for users who are children.
While these reports have not been conclusive, and although        Our parent, NTT, could exercise influence that may not
the findings in such reports are disputed, the actual or per-     be in the interests of our other shareholders.
ceived risk of wireless telecommunications devices to the             As of March 31, 2005, NTT owns 62.99% of our out-
health of users could adversely affect us through increased       standing voting shares. While being subject to the condi-
cancellation by existing subscribers, reduced subscriber          tions for fair competition established by the Ministry of
growth, reduced usage per subscriber, reduced financing           Posts and Telecommunications, or MPT, in April 1992, NTT




                                                                                                                                    Financial Section
available to us or litigation, and may also potentially           retains the right to control our management as a majority
adversely affect our corporate image, financial condition         shareholder, including the right to appoint our directors.
and results of operations. The perceived risk of wireless         Currently, although we conduct our day-to-day operations
devices may have been elevated by certain wireless carriers       independently of NTT and its other subsidiaries, certain
and handset manufactures affixing labels to their handsets        important matters are discussed with, or reported to, NTT.
showing levels of electric wave emissions or warnings about       As such, NTT could take actions that are in its best interests,
possible health risks. Research and studies are ongoing and       which may not be in the interests of our other shareholders.
82             |                                                C O N S O L I D AT E D B A L A N C E S H E E T S
                                                                               NTT DoCoMo, INC. AND SUBSIDIARIES
                                                                                    MARCH 31, 2004 AND 2005



                                                                                                                                                                          Thousands of
                                                                                                                                          Millions of yen                 U.S. dollars

                                                                                                                                    2004                2005                 2005
                      ASSETS
                      Current assets:
                        Cash and cash equivalents ....................................................................................... ¥ 838,030 ¥ 769,952 $ 7,181,048
                        Short-term investments ...........................................................................................                     —      250,017    2,331,813
                        Accounts receivable
                          Third parties .........................................................................................................         606,731     598,840    5,585,152
                          Related parties ......................................................................................................           32,368      31,916      297,668
                            Sub-total ............................................................................................................        639,099     630,756    5,882,820
                          Less: Allowance for doubtful accounts ................................................................                          (22,968)    (18,359)    (171,227)
                            Total accounts receivable, net ...........................................................................                    616,131     612,397    5,711,593
                        Inventories ...............................................................................................................       127,269     156,426    1,458,926
                        Deferred tax assets ...................................................................................................            92,662     145,395    1,356,044
                        Tax refunds receivable .............................................................................................                   —       92,869      866,154
                        Prepaid expenses and other current assets
                          Third parties .........................................................................................................          93,764      97,045      905,101
                          Related parties ......................................................................................................           17,461      17,593      164,083
                            Total current assets ...........................................................................................            1,785,317   2,141,694   19,974,762
                      Property, plant and equipment:
                        Wireless telecommunications equipment ...............................................................                           4,109,818   4,392,477   40,966,956
                        Buildings and structures ..........................................................................................               619,501     696,002    6,491,345
                        Tools, furniture and fixtures ....................................................................................                580,099     589,302    5,496,195
                        Land .........................................................................................................................    188,717     196,062    1,828,595
                        Construction in progress .........................................................................................                169,562     103,648      966,685
                            Sub-total ............................................................................................................      5,667,697   5,977,491   55,749,776
                        Accumulated depreciation .......................................................................................               (2,965,192) (3,295,062) (30,731,785)
                            Total property, plant and equipment, net ..........................................................                         2,702,505   2,682,429   25,017,991
                      Non-current investments and other assets:
 Financial Section




                        Investments in affiliates ...........................................................................................             324,155      48,040      448,051
                        Marketable securities and other investments ..........................................................                             62,191     243,062    2,266,947
                        Intangible assets, net ...............................................................................................            506,777     535,795    4,997,155
                        Goodwill ..................................................................................................................       133,354     140,097    1,306,631
                        Other assets .............................................................................................................        195,406     164,323    1,532,578
                        Deferred tax assets ...................................................................................................           552,561     181,081    1,688,873
                            Total non-current investments and other assets ................................................                             1,774,444   1,312,398   12,240,235
                        Total assets .............................................................................................................. ¥ 6,262,266 ¥ 6,136,521 $ 57,232,988
                     See accompanying notes to consolidated financial statements.
                                                                                                                                                                        | 83


                                                                                                                                                         Thousands of
                                                                                                                               Millions of yen           U.S. dollars

                                                                                                                         2004                2005           2005
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
  Current portion of long-term debt .......................................................................... ¥ 136,642                ¥    150,304    $ 1,401,828
  Accounts payable, trade
    Third parties .........................................................................................................   555,693        614,208      5,728,483
    Related parties ......................................................................................................    111,145         91,880        856,930
  Accrued payroll .......................................................................................................      43,142         41,851        390,328
  Accrued interest .......................................................................................................      1,975          1,510         14,083
  Accrued taxes on income ........................................................................................            318,011         57,443        535,749
  Other current liabilities
    Third parties .........................................................................................................   121,118         134,354     1,253,069
    Related parties ......................................................................................................      3,912           2,547        23,755
      Total current liabilities ......................................................................................      1,291,638       1,094,097    10,204,225
Long-term liabilities:
  Long-term debt .......................................................................................................      954,954        798,219      7,444,684
  Employee benefits ...................................................................................................       133,954        138,674      1,293,359
  Other long-term liabilities
    Third parties .........................................................................................................   173,886         194,593     1,814,895
    Related parties ......................................................................................................      3,078           2,885        26,907
      Total long-term liabilities ..................................................................................        1,265,872       1,134,371    10,579,845
      Total liabilities ................................................................................................... 2,557,510       2,228,468    20,784,070
Minority interests in consolidated subsidiaries .......................................................                            61             121         1,128

Commitments and contingencies
Shareholders’ equity:
  Common stock, without a stated value –
    Authorized –191,500,000 and 190,020,000
      shares at March 31, 2004 and 2005, respectively
    Issued –50,180,000 and 48,700,000 shares at March 31,
      2004 and 2005, respectively




                                                                                                                                                                        Financial Section
    Outstanding –48,596,364 and 46,272,208 shares at
      March 31, 2004 and 2005, respectively ............................................................                   949,680            949,680     8,857,303
  Additional paid-in capital ........................................................................................    1,311,013          1,311,013    12,227,318
  Retained earnings .................................................................................................... 1,759,548          2,100,407    19,589,694
  Accumulated other comprehensive income ............................................................                       81,355             57,609       537,297
  Treasury stock, 1,583,636 and 2,427,792 shares at March 31, 2004 and 2005,
    at cost, respectively ..............................................................................................  (396,901)        (510,777)      (4,763,822)
      Total shareholders’ equity .................................................................................       3,704,695        3,907,932       36,447,790
Total liabilities and shareholders’ equity .................................................................. ¥ 6,262,266               ¥ 6,136,521     $ 57,232,988
84             |                                  C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E A N D
                                                                 COMPREHENSIVE INCOME
                                                                                NTT DoCoMo, INC. AND SUBSIDIARIES
                                                                             YEARS ENDED MARCH 31, 2003, 2004 AND 2005

                                                                                                                                                Millions of yen                      Thousands of
                                                                                                                                                                                     U.S. dollars

                                                                                                                                  2003              2004                2005              2005

                      Operating revenues:
                        Wireless services
                          Third parties................................................................................. ¥ 4,326,205            ¥ 4,450,030       ¥ 4,259,354       $ 39,725,368
                          Related parties..............................................................................        24,656                37,882            37,183            346,792
                        Equipment sales
                          Third parties.................................................................................      441,417                541,387             529,891         4,942,091
                          Related parties..............................................................................        16,810                 18,766              18,182           169,577
                                                                                                                            4,809,088              5,048,065           4,844,610        45,183,828
                      Operating expenses:
                        Cost of services (exclusive of items shown separately below)
                          Third parties.................................................................................      480,688                478,706            463,899          4,326,609
                          Related parties..............................................................................       226,565                233,865            276,524          2,579,034
                        Cost of equipment sold
                          (exclusive of items shown separately below) ..............................                          950,699              1,094,332           1,122,443        10,468,597
                        Depreciation and amortization........................................................                 749,197                720,997             735,423         6,859,010
                        Impairment loss ..............................................................................             —                      —               60,399           563,318
                        Selling, general and administrative
                          Third parties.................................................................................    1,105,731              1,141,190           1,189,166        11,090,897
                          Related parties..............................................................................       239,489                276,057             212,590         1,982,746
                                                                                                                            3,752,369              3,945,147           4,060,444        37,870,211
                      Operating income .............................................................................        1,056,719              1,102,918             784,166         7,313,617
                      Other (income) expense:
                        Interest expense ..............................................................................        16,870                 13,216               9,858            91,942
                        Interest income................................................................................          (100)                (1,917)             (1,957)          (18,252)
                        Gain on sale of affiliate shares ........................................................                  —                      —             (501,781)       (4,679,920)
                        Other, net .......................................................................................     (3,019)                (9,504)            (10,175)          (94,898)
                                                                                                                               13,751                  1,795            (504,055)       (4,701,128)
                      Income before income taxes, equity in net losses of affiliates,
                        minority interests in earnings of consolidated subsidiaries
                        and cumulative effect of accounting change ................................                         1,042,968              1,101,123           1,288,221        12,014,745
                      Income taxes:
                        Current............................................................................................   285,606                446,182            192,124          1,791,867
                        Deferred...........................................................................................   168,881                (17,066)           335,587          3,129,892
                                                                                                                              454,487                429,116            527,711          4,921,759
                      Income before equity in net losses of affiliates, minority interests
                        in earnings of consolidated subsidiaries and
 Financial Section




                        cumulative effect of accounting change.........................................                       588,481                672,007            760,510          7,092,986

                      Equity in net losses of affiliates (including write-downs of
                        investments in affiliates in 2003 and 2005) ....................................                         (324,241)           (21,960)           (12,886)          (120,182)
                      Minority interests in earnings of consolidated subsidiaries ...............                                 (16,033)               (40)               (60)              (560)
                      Income before cumulative effect of accounting change ...................                                    248,207            650,007            747,564          6,972,244

                      Cumulative effect of accounting change ............................................                         (35,716)                —                  —               —
                      Net Income.........................................................................................   ¥     212,491 ¥          650,007      ¥     747,564     $ 6,972,244
                      Other comprehensive income (loss):
                        Unrealized holding gains (losses) on
                          available-for-sale securities .........................................................                    (668)            12,678               8,761           81,711
                          Less: Reclassification adjustment for net gains
                            (losses) included in net income ...............................................                              (59)            (440)              459              4,281
                        Net revaluation of financial instruments .......................................                                 257              (13)             (213)            (1,987)
                          Less: Reclassification adjustment for net gains
                            (losses) included in net income................................................                             —                  —                (154)          (1,436)
                        Foreign currency translation adjustment .......................................                            (39,315)            (9,862)             4,188           39,059
                          Less: Reclassification adjustment for net gains
                            (losses) included in net income................................................                            —                  —             (36,858)       (343,760)
                        Minimum pension liability adjustment ..........................................                           (19,910)            16,055                 71             662
                      Comprehensive income .....................................................................            ¥     152,796 ¥          668,425      ¥     723,818     $ 6,750,774
                      Per share data:
                        Weighted average common shares outstanding –
                          Basic and Diluted (shares) ...........................................................                49,952,907       49,622,595           47,401,154        47,401,154
                        Basic and diluted earnings per share before cumulative effect
                          of accounting change (Yen and U.S. dollars) ...............................                       ¥     4,968.82      ¥ 13,099.01       ¥ 15,771.01       $      147.09
                        Basic and diluted cumulative effect per share of
                          accounting change (Yen and U.S. dollars) ...................................                             (714.99)                 —                  —                 —
                        Basic and diluted earnings per share
                          (Yen and U.S. dollars) ..................................................................         ¥     4,253.83      ¥ 13,099.01       ¥ 15,771.01       $      147.09
                     See accompanying notes to consolidated financial statements.
           C O N S O L I D AT E D S TAT E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y                                                                     | 85
                                                      NTT DoCoMo, INC. AND SUBSIDIARIES
                                                   YEARS ENDED MARCH 31, 2003, 2004 AND 2005



                                                   Number of Shares                                      Millions of yen

                                                 Issued                              Additional                  Accumulated          Treasury    Total
                                                 Common        Treasury   Common     paid-in        Retained     other                stock,      Shareholders’
                                                 Stock         Stock      Stock      capital        earnings     comprehensive        at cost     Equity
                                                                                                                 income


 Balance at March 31, 2002 .............. 50,180,000          —           ¥ 949,680 ¥ 1,262,672 ¥     956,899     ¥ 122,632       ¥          — ¥ 3,291,883
 Purchase of treasury stock for
   acquisition of minority interests..                   870,034                                                                      (234,470)     (234,470)
 Share exchanges ..............................         (860,440)                       43,456                                         231,885       275,341
 Cash dividends declared and
   paid (¥200 per share) ..................                                                           (10,036)                                       (10,036)
 Net income......................................                                                     212,491                                        212,491
 Unrealized holding losses on
   available-for-sale securities ..........                                                                            (727)                             (727)
 Net revaluation of
   financial instruments ...................                                                                               257                            257
 Foreign currency
   translation adjustment.................                                                                          (39,315)                          (39,315)
 Minimum pension
   liability adjustment ......................                                                                     (19,910)                         (19,910)
 Balance at March 31, 2003 .............. 50,180,000       9,594          ¥ 949,680 ¥ 1,306,128 ¥ 1,159,354       ¥ 62,937        ¥     (2,585) ¥ 3,475,514
 Purchase of treasury stock ..............             1,576,222                                                                      (394,903)    (394,903)
 Share exchanges ..............................           (2,180)                           (14)                                           587          573
 Increase in additional
   paid-in capital of an affiliate ........                                              4,899                                                          4,899
 Cash dividends declared
   and paid (¥1,000 per share) ........                                                               (49,813)                                       (49,813)
 Net income......................................                                                     650,007                                        650,007
 Unrealized holding gains on
   available-for-sale securities ..........                                                                          12,238                            12,238
 Net revaluation of financial
   instruments..................................                                                                           (13)                           (13)
 Foreign currency
   translation adjustment.................                                                                           (9,862)                           (9,862)
 Minimum pension
   liability adjustment ......................                                                                      16,055                         16,055
 Balance at March 31, 2004 .............. 50,180,000 1,583,636            ¥ 949,680 ¥ 1,311,013 ¥ 1,759,548       ¥ 81,355        ¥ (396,901) ¥ 3,704,695




                                                                                                                                                                  Financial Section
 Purchase of treasury stock .............              2,324,156                                                                    (425,247)    (425,247)
 Retirement of treasury stock ........... (1,480,000) (1,480,000)                                    (311,371)                       311,371           —
 Cash dividends declared
   and paid (¥2,000 per share) ........                                                               (95,334)                                       (95,334)
 Net income......................................                                                     747,564                                        747,564
 Unrealized holding gains on
   available-for-sale securities ..........                                                                           9,220                             9,220
 Net revaluation of
   financial instruments ...................                                                                           (367)                             (367)
 Foreign currency
   translation adjustment.................                                                                          (32,670)                          (32,670)
 Minimum pension
   liability adjustment ......................                                                                          71                             71
 Balance at March 31, 2005 .......... 48,700,000 2,427,792                ¥ 949,680 ¥ 1,311,013 ¥ 2,100,407       ¥ 57,609        ¥ (510,777) ¥ 3,907,932

                                                                                                     Thousands of U.S. dollars

                                                                                     Additional                  Accumulated          Treasury    Total
                                                                          Common     paid-in        Retained     other                stock,      Shareholders’
                                                                          Stock      capital        earnings     comprehensive        at cost     Equity
                                                                                                                 income

 Balance at March 31, 2004 ................................................... $ 8,857,303 $ 12,227,318 $ 16,410,632 $ 758,767 $ (3,701,744) $ 34,552,276
 Purchase of treasury stock ...................................................                                                 (3,966,116) (3,966,116)
 Retirement of treasury stock ................................................                            (2,904,038)             2,904,038            —
 Cash dividends declared and paid (¥2,000 per share) .........                                              (889,144)                            (889,144)
 Net income ...........................................................................                    6,972,244                            6,972,244
 Unrealized holding gains on available-for-sale securities ....                                                         85,992                     85,992
 Net revaluation of financial instruments..............................                                                 (3,423)                    (3,423)
 Foreign currency translation adjustment.............................                                                 (304,701)                  (304,701)
 Minimum pension liability adjustment................................                                                      662                        662
 Balance at March 31, 2005 ................................................. $ 8,857,303 $12,227,318 $ 19,589,694 $ 537,297 $(4,763,822) $ 36,447,790
See accompanying notes to consolidated financial statements.
86             |                                C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S
                                                                             NTT DoCoMo, INC. AND SUBSIDIARIES
                                                                          YEARS ENDED MARCH 31, 2003, 2004 AND 2005



                                                                                                                                          Millions of yen                    Thousands of
                                                                                                                                                                             U.S. dollars

                                                                                                                          2003                 2004              2005              2005
                      Cash flows from operating activities:
                      Net income ......................................................................................... ¥ 212,491      ¥    650,007      ¥    747,564     $ 6,972,244
                      Adjustments to reconcile net income to net cash provided
                        by operating activities –
                        Depreciation and amortization........................................................                  749,197         720,997           735,423          6,859,010
                        Impairment loss ..............................................................................              —               —             60,399            563,318
                        Deferred taxes .................................................................................       (57,569)        (12,539)          334,095          3,115,976
                        Loss on sale or disposal of property, plant and equipment .............                                 30,348          35,005            45,673            425,975
                        Gain on sale of affiliate shares.........................................................                   —               —           (501,781)        (4,679,920)
                        Equity in net losses of affiliates(including write-downs of
                          ¥545,099 million, nil and ¥8,612 million in investments
                          in affiliates in 2003, 2004 and 2005, respectively) ......................                           550,691          17,433            14,378           134,098
                        Minority interests in earnings of consolidated subsidiaries............                                 16,033              40                60               560
                        Cumulative effect of accounting change .........................................                        35,716              —                 —                 —
                        Changes in current assets and liabilities:
                          Decrease (increase) in accounts receivable, trade........................                            229,061              (90)            8,731            81,431
                          (Decrease) increase in allowance for doubtful accounts .............                                  (1,744)           1,458            (4,641)          (43,285)
                          Decrease (increase) in inventories ...............................................                    28,685          (59,954)          (29,157)         (271,936)
                          (Increase) decrease in tax refunds receivable ..............................                        (106,308)         106,308           (92,869)         (866,154)
                          Increase in accounts payable, trade .............................................                     27,820           19,577            89,464           834,397
                          (Decrease) increase in accrued taxes on income .........................                            (161,565)         186,166          (260,585)       (2,430,377)
                          Increase in other current liabilities ..............................................                  10,131           28,866            12,531           116,872
                          Increase (decrease) in liability for employee benefits..................                              43,972          (15,746)            4,720            44,022
                          Other, net .....................................................................................     (22,349)          32,715            17,580           163,961
                            Net cash provided by operating activities.................................                       1,584,610        1,710,243         1,181,585        11,020,192
                      Cash flows from investing activities:
                        Purchases of property, plant and equipment ...................................                        (700,468)       (625,284)         (668,413)        (6,234,033)
                        Purchases of intangible and other assets.........................................                     (164,238)       (177,645)         (242,668)        (2,263,272)
                        Purchases of non-current investments ...........................................                       (10,312)        (12,787)         (176,017)        (1,641,643)
                        Proceeds from sale of non-current investments..............................                                266           2,261           725,905          6,770,239
                        Purchases of short-term investments ..............................................                        (215)             —           (361,297)        (3,369,679)
                        Redemption of short-term investments ..........................................                            480              —            111,521          1,040,114
                        Loan advances .................................................................................           (161)        (38,307)             (580)            (5,409)
 Financial Section




                        Collection of loan advances ............................................................                   161              55            40,015            373,205
                        Other, net ........................................................................................      3,057           4,398            (6,795)           (63,376)
                            Net cash used in investing activities.........................................                    (871,430)       (847,309)         (578,329)        (5,393,854)
                      Cash flows from financing activities:
                        Issuance of long-term debt..............................................................               202,274            —                 —                 —
                        Repayment of long-term debt .........................................................                 (212,934)     (245,411)         (146,709)       (1,368,299)
                        Proceeds from short-term borrowings ............................................                       339,912       155,300            87,500           816,079
                        Repayment of short-term borrowings .............................................                      (410,962)     (165,300)          (87,500)         (816,079)
                        Principal payments under capital lease obligations ........................                             (6,908)       (5,716)           (4,748)          (44,283)
                        Payments to acquire treasury stock.................................................                   (234,470)     (394,903)         (425,247)       (3,966,116)
                        Dividends paid ................................................................................        (10,036)      (49,813)          (95,334)         (889,144)
                        Other, net ........................................................................................       (153)          (13)               (1)               (9)
                            Net cash used in financing activities ........................................                    (333,277)     (705,856)         (672,039)       (6,267,851)
                      Effect of exchange rate changes on cash and cash equivalents ..........                                        0             1               705             6,575
                      Net increase (decrease) in cash and cash equivalents .....................                               379,903       157,079           (68,078)         (634,938)
                      Cash and cash equivalents at beginning of year ..............................                            301,048       680,951           838,030         7,815,986
                      Cash and cash equivalents at end of year......................................... ¥ 680,951                         ¥ 838,030         ¥ 769,952        $ 7,181,048
                      Supplemental disclosures of cash flow information:
                        Cash received during the year for:
                          Tax refunds .................................................................................. ¥          —     ¥    107,200      ¥           7    $            65
                        Cash paid during the year for:
                          Interest .........................................................................................    19,874          16,384            10,323             96,279
                          Income taxes ................................................................................        558,084         259,883           541,684          5,052,080
                        Noncash investing and financing activities:
                          Acquisition of shares from sale of an investment ........................                                 —                 —           16,711           155,857
                          Purchase of minority interests of consolidated subsidiaries
                             through share exchanges .........................................................                 275,341             439                —                  —
                          Assets acquired through capital lease obligations .......................                              4,001           4,469             4,411             41,140
                          Retirement of treasury stock ........................................................                     —               —            311,371          2,904,038
                     See accompanying notes to consolidated financial statements.
              N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S                                            | 87
                                           NTT DoCoMo, INC. AND SUBSIDIARIES




1. Nature of operations:

NTT DoCoMo, Inc. and subsidiaries (the “Company” or               services (a wireless data and voice platform that enables
“DoCoMo”) is a joint stock corporation that was incorpo-          customers to access the internet, as well as to make calls),
rated under the laws of Japan in August 1991 as the wireless      Quickcast (paging) services, and satellite mobile communi-
telecommunications arm of Nippon Telegraph and                    cations services, primarily on its own nationwide networks.
Telephone Corporation (“NTT”). NTT, which is 40.86%               In addition, DoCoMo sells handsets, pagers and related
owned by the Japanese government, owns 59.85% of                  equipment primarily to agent resellers who in turn sell such
DoCoMo’s issued stock as of March 31, 2005.                       equipment to end user customers.
    DoCoMo provides subscribers with wireless telecommu-              DoCoMo ceased accepting new applications for
nications services such as FOMA (3G wireless services),           Quickcast services as of June 30, 2004 and announced to
mova (2G wireless services), packet communications ser-           terminate Quickcast services as of March 31, 2007.
vices (2G wireless data communications services using             DoCoMo also ceased accepting new applications for PHS
packet switching), Personal Handyphone System (“PHS”)             services as of April 30, 2005.


2. Summary of significant accounting and reporting policies:

DoCoMo maintains its books and records, and prepares              “Revenue Arrangements with Multiple Deliverables.” This
statutory financial statements in conformity with the             Issue provides guidance on when and how to separate ele-
Japanese Telecommunications Business Law and the related          ments of an arrangement that may involve the delivery or
accounting regulations and accounting principles generally        performance of multiple products, services and rights to use
accepted in Japan (“Japanese GAAP”), which differ in cer-         assets into separate units of accounting. The adoption of
tain respects from accounting principles generally accepted       EITF 00-21 did not have a significant impact on DoCoMo’s
in the United States of America (“U.S. GAAP”).                    results of operations and financial position.
    The accompanying consolidated financial statements
have been prepared in accordance with U.S. GAAP and,              Determining Whether an Arrangement Contains a Lease
therefore, reflect certain adjustments to DoCoMo’s books          Effective April 1, 2004, DoCoMo adopted EITF Issue No. 01-
and records.                                                      08 (“EITF 01-08”), “Determining Whether an Arrangement
                                                                  Contains a Lease.” This Issue provides guidance on how to
(1) Adoption of new accounting standards                          determine whether an arrangement contains a lease that is




                                                                                                                                  Financial Section
                                                                  within the scope of SFAS No. 13, “Accounting for Leases.”
Accounting for Certain Financial Instruments with                 The adoption of EITF 01-08 did not have any impact on
Characteristics of both Liabilities and Equity                    DoCoMo’s results of operations and financial position.
Effective April 1, 2004, DoCoMo adopted Statement of
Financial Accounting Standards (“SFAS”) No.150, “Accounting       (2) Significant accounting policies
for Certain Financial Instruments with Characteristics of
both Liabilities and Equity,” which Financial Accounting          Principles of consolidation—
Standards Board (“FASB”) issued. SFAS No. 150 requires            The consolidated financial statements include the accounts
that certain financial instruments with characteristics of        of DoCoMo and its majority-owned subsidiaries. All signif-
both liabilities and equity, which under previous guidance        icant intercompany balances and transactions have been
could be classified as equity, be classified as liabilities (or   eliminated in consolidation.
assets in some circumstances) in the statement of finan-              In January 2003, FASB issued FASB Interpretation
cial position. Further, SFAS No. 150 requires disclosure          (“FIN”) No. 46, “Consolidation of Variable Interest Entities
regarding the terms of those instruments and settlement           –an interpretation of Accounting Research Bulletin (“ARB”)
alternatives. The adoption of SFAS No. 150 did not have           No. 51,” which was revised in December 2003 (FIN 46R).
any impact on DoCoMo’s results of operations and finan-           FIN 46R addresses how a business enterprise should evalu-
cial position.                                                    ate whether it has a controlling financial interest in an
                                                                  entity through means other than voting rights and accord-
Accounting for Revenue Arrangements with Multiple                 ingly should consolidate the entity. Effective April 1, 2003,
Deliverables                                                      DoCoMo applied FIN 46R. At March 31, 2004 and 2005,
Effective April 1, 2004, DoCoMo adopted Emerging Issues           DoCoMo had no VIEs to be consolidated or disclosed.
Task Force (“EITF”) Issue No. 00-21 (“EITF 00-21”),
88             |


                     Use of estimates—                                                  mated useful lives of the respective assets with the excep-
                     The preparation of DoCoMo’s consolidated financial state-          tion of buildings that are depreciated on a straight-line
                     ments in conformity with U.S. GAAP requires management             basis. Useful lives are determined at the time the asset is
                     to make estimates and assumptions that affect the reported         acquired and are based on expected use, experience with
                     amounts of assets and liabilities and the disclosure of contin-    similar assets and anticipated technological or other
                     gent assets and liabilities at the date of the financial state-    changes. If technological or other changes occur more or
                     ments, as well as the reported amounts of revenues and             less rapidly or in a different form than anticipated or the
                     expenses during the reporting period. Actual results could         intended use changes, the useful lives assigned to these
                     differ from those estimates. DoCoMo has identified the fol-        assets are adjusted, as appropriate.
                     lowing areas where it believes estimates and assumptions are           The estimated useful lives of major depreciable assets
                     particularly critical to the financial statements. These are       are as follows:
                     determination of useful lives of property, plant and equip-            Major wireless telecommunications equipment
                     ment, internal use software and other intangible assets,                                                          6 to 15 years
                     impairment of long-lived assets, other than temporary                  Steel towers and poles for antenna equipment
                     impairment of investments in affiliates, realization of deferred                                                 30 to 40 years
                     tax assets, pension liabilities and revenue recognition.               Reinforced concrete buildings             38 to 50 years
                                                                                            Tools, furniture and fixtures              4 to 15 years
                     Cash and cash equivalents —
                     DoCoMo considers cash in banks and short-term highly liq-               Depreciation expense for the years ended March 31,
                     uid investments with an original maturity of three months          2003, 2004 and 2005 was ¥606,233 million, ¥570,324 mil-
                     or less at date of purchase to be cash and cash equivalents.       lion, and ¥571,955 million ($5,334,406 thousand), respec-
                                                                                        tively.
                     Short-term investments —                                                When depreciable telecommunications equipment is
                     The highly liquid investments, which have original maturi-         retired or abandoned in the normal course of business, the
                     ties of longer than three months at date of purchase and           amount of such telecommunications equipment is deducted
                     remaining maturities of one year or less at the end of fiscal      from the respective telecommunications equipment and accu-
                     year, are considered to be short-term investments.                 mulated depreciation accounts. Any remaining balance is
                                                                                        charged to expense immediately. Effective April 1, 2003,
                     Allowance for doubtful accounts —                                  DoCoMo accounts for legal obligations associated with the
                     The allowance for doubtful accounts is principally com-            retirement of tangible long-lived assets in accordance with
                     puted based on the historical bad debt experience plus the         SFAS No. 143, “Accounting for Asset Retirement Obligations.”
 Financial Section




                     estimated uncollectable amount based on the analysis of            DoCoMo’s asset retirement obligations subject to SFAS No.
                     certain individual accounts, including claims in bankruptcy.       143 primarily relate to its obligations to restore certain leased
                                                                                        land and buildings used for DoCoMo’s wireless telecommuni-
                     Inventories—                                                       cations equipment to their original state. DoCoMo estimates
                     Inventories are stated at the lower of cost or market. The         the fair values of the liabilities for an asset retirement obliga-
                     cost of equipment sold is determined by the first-in, first-       tion, and the aggregate amount of the fair values is immaterial.
                     out method. Inventories consist primarily of handsets and               Expenditures for replacements and betterments are capi-
                     accessories. DoCoMo evaluates its inventory for obsoles-           talized, while expenditures for maintenance and repairs are
                     cence on a periodic basis and records adjustments as               expensed as incurred. Assets under construction are not
                     required. Due to the rapid technological changes associated        depreciated until placed in service.
                     with the wireless communications business, DoCoMo dis-
                     posed of obsolete handsets during the years ended March            Capitalized interest—
                     31, 2003, 2004 and 2005 resulting in losses totaling               DoCoMo capitalizes interest related to the construction of
                     ¥22,383 million, ¥5,295 million and ¥12,047 million                property, plant and equipment over the period of construc-
                     ($112,358 thousand), respectively, which are included in           tion. DoCoMo also capitalizes interest associated with the
                     “cost of equipment sold” in the accompanying consolidated          development of internal-use software. DoCoMo amortizes
                     statements of income and comprehensive income.                     such capitalized interest over the estimated useful lives of
                                                                                        the related assets. Total interest costs incurred amounted to
                     Property, plant and equipment —                                    ¥19,545 million, and ¥15,466 million of which ¥2,675 mil-
                     Property, plant and equipment is stated at cost and includes       lion, and ¥2,250 million was capitalized during the years
                     interest cost incurred during construction, as discussed           ended March 31, 2003, and 2004, respectively. There was
                     below in “Capitalized interest.” Depreciation is computed          no interest capitalized for the year ended March 31, 2005.
                     by the declining-balance method at rates based on the esti-
                                                                                                                                       | 89


Investments in affiliates—                                          for-sale securities. Available-for-sale debt securities are car-
The equity method of accounting is applied to investments in        ried at fair value with unrealized holding gains or losses, net
affiliates where DoCoMo owns an aggregate of 20% to 50%             of applicable taxes, included as a component of accumu-
and/or is able to exercise significant influence over the affili-   lated other comprehensive income in shareholders’ equity.
ate. Under the equity method of accounting, DoCoMo                  Realized gains and losses are determined using the first-in,
records its share of earnings and losses of the affiliate and       first-out cost method and are reflected in earnings. Held-to-
adjusts its investment amount. For investments of less than         maturity and available-for-sale debt securities, whose
20%, DoCoMo periodically reviews the facts and circum-              remaining maturities at the end of fiscal years are one year
stances related thereto to determine whether or not it can          or less, are recorded as short-term investments in the con-
exercise significant influence over the operating and financial     solidated balance sheets.
policies of the affiliate and, therefore should apply the equity         DoCoMo did not hold or transact activity in any trading
method of accounting to such investments. Investments of            securities during the years ended March 31, 2003, 2004 and
less than 20% in which DoCoMo does not have significant             2005.
influence are recorded using the cost method of accounting if
they are non-marketable securities. For investees accounted         Goodwill and other intangible assets—
for under the equity method whose year end is December 31,          Goodwill is the excess of the acquisition cost of businesses
DoCoMo records its share of income or losses of such                over the fair value of the identifiable net assets acquired.
investees on a three months lag basis in its consolidated state-    Other intangible assets primarily consist of software for
ments of income and comprehensive income.                           telecommunications network, internal-use software, cus-
     DoCoMo evaluates the recoverability of the carrying            tomer related assets and rights to use certain telecommuni-
value of its investments in affiliates, which included investor     cations assets of wireline carriers.
level goodwill, when there are indicators that a decline in             DoCoMo accounts for goodwill and other intangible
value below its carrying amount may be other than tempo-            assets in accordance with SFAS No. 142, “Goodwill and
rary. In performing its evaluations, the Company utilizes           Other Intangible Assets.” Accordingly, DoCoMo does not
various information, as available, including cash flow projec-      amortize either goodwill, including embedded goodwill cre-
tions, independent valuations and, as applicable, quoted            ated through the acquisition of investments accounted for
market values to determine recoverable amounts and the              under the equity method, or intangible assets acquired in a
length of time an investment’s carrying value exceeds its esti-     purchase business combination and determined to have an
mated current recoverable amount. In the event of a deter-          indefinite useful life, but instead, (1) goodwill, excluding
mination that a decline in value is other than temporary, a         goodwill related to equity method investments, and (2)
charge to earnings is recorded for the loss, and a new cost         intangible assets that have indefinite useful lives are tested




                                                                                                                                       Financial Section
basis in the investment is established.                             for impairment at least annually. Intangible assets that have
                                                                    finite useful lives, consisting primarily of software for
Marketable securities—                                              telecommunications network, internal-use software, cus-
Marketable securities consist of debt and equity securities.        tomer related assets and rights to use telecommunications
DoCoMo accounts for such investments in debt and equity             facilities of wireline are amortized over their useful lives.
securities in accordance with SFAS No. 115, “Accounting                 Goodwill related to equity method investments is tested for
for Certain Investments in Debt and Equity Securities.”             other than temporary impairment in accordance with existing
Management determines the appropriate classification of its         standards under Accounting Principles Board (“APB”) Opinion
investment securities at the time of purchase.                      No. 18, “The Equity Method of Accounting for Investments in
    Equity securities held by DoCoMo, whose fair values are         Common Stock.”
readily determinable, are classified as available-for-sale.             DoCoMo capitalizes the cost of internal-use software
Available-for-sale equity securities are carried at fair value      which has a useful life in excess of one year in accordance
with unrealized holding gains or losses, net of applicable          with American Institute of Certified Public Accountants
taxes, included as a component of accumulated other com-            (AICPA) Statement of Position (“SOP”) 98-1, “Accounting
prehensive income in shareholders’ equity. Equity securi-           for the Costs of Computer Software Developed or Obtained
ties, whose fair values are not readily determinable, are           for Internal Use.” Computer software acquired to be used
carried at cost. Other than temporary declines in value are         in the manufacture of handsets is capitalized if the techno-
charged to earnings. Realized gains and losses are deter-           logical feasibility of the handset to be ultimately marketed
mined using the average cost method and are reflected in            has been established at the time of purchase in accordance
earnings. Debt securities held by DoCoMo, which DoCoMo              with SFAS No. 86, “Accounting for the costs of Computer
has the positive intent and ability to hold to maturity, are        Software to Be Sold, Leased, or Otherwise Marketed.”
classified as held-to-maturity, and the other debt securities       Subsequent costs for additions, modifications or upgrades
that may be sold before maturity are classified as available-       to internal-use software are capitalized only to the extent
90             |


                     that the software is able to perform a task it previously did          DoCoMo accounts for derivative instruments and other
                     not perform. Software maintenance and training costs are          hedging activities in accordance with SFAS No. 133,
                     expensed in the period in which they are incurred.                “Accounting for Derivative Instruments and Hedging
                     Capitalized computer software costs are being amortized on        Activities,” as amended by SFAS No. 138 and No. 149. All
                     a straight-line basis over a period of 5 years.                   derivative instruments are recorded on the balance sheet at
                         Customer related assets principally consist of contrac-       fair value, with the change in the fair value recognized either
                     tual customer relationships in the mobile phone business of       in other comprehensive income or in net income depending
                     ¥38,919 million and ¥30,428 million ($283,790 thousand)           on whether the derivative instrument qualifies as a hedge for
                     as of March 31, 2004 and 2005, respectively, that were            accounting purposes, and if so, the nature of hedging activity.
                     recorded in connection with the acquisition of minority           DoCoMo discontinues hedge accounting prospectively when
                     interests of the regional subsidiaries in November 2002           DoCoMo determines that the derivative or non-derivative
                     through the process of identifying separable intangible           instrument is no longer highly effective as a hedge or when
                     assets apart from goodwill. The customer related assets are       DoCoMo decides to discontinue the hedging relationship.
                     amortized over the expected term of customer relationships             Cash flows from derivative instruments are classified in
                     in mobile phone businesses, which is 6 years.                     the consolidated statements of cash flows under the same
                         Amounts capitalized related to rights to use certain          categories as the cash flows from the related assets, liabili-
                     telecommunications assets of wireline carriers, primarily         ties or anticipated transactions.
                     NTT, are being amortized over 20 years.
                                                                                       Employee benefit plans—
                     Impairment of long-lived assets—                                  Pension benefits earned during the year as well as interest
                     DoCoMo’s long-lived assets other than goodwill, including         on projected benefit obligations are accrued currently. Prior
                     property, plant and equipment, software and intangibles           service costs and credits resulting from changes in plan ben-
                     subject to amortization, are reviewed for impairment when-        efits are amortized over the average remaining service
                     ever events or changes in circumstances indicate that the         period of the employees expected to receive benefits.
                     carrying amount may not be recoverable in accordance with
                     SFAS No. 144, “Accounting for the Impairment or Disposal          Revenue recognition—
                     of Long-Lived Assets.” Recoverability of assets to be held        DoCoMo primarily generates its revenues from two sources—
                     and used is evaluated by a comparison of the carrying             wireless services and equipment sales. These revenue sources
                     amount of the asset with future undiscounted cash flows           are separate and distinct earnings processes. Wireless service
                     expected to be generated by the asset or asset group. If the      is sold to the ultimate subscriber directly or through third-
                     asset (or asset group) is determined to be impaired, the loss     party retailers who act as agents, while equipments, including
 Financial Section




                     recognized is the amount by which the carrying value of the       handsets, are sold principally to primary distributors.
                     asset (or asset group) exceeds its fair value as measured by           DoCoMo sets its wireless services rates in accordance with
                     discounted cash flows, salvage value or expected net pro-         the Japanese Telecommunications Business Law and govern-
                     ceeds, depending on the circumstances.                            ment guidelines, which currently allow wireless telecommuni-
                         Information relating to goodwill is disclosed in “Goodwill    cations operators to set their own tariffs without government
                     and other intangible assets”.                                     approval. Wireless service revenues primarily consist of base
                                                                                       monthly service, airtime and fees for activation.
                     Hedging activities—                                                    Base monthly service and airtime are recognized as rev-
                     DoCoMo uses derivative financial instruments, including           enues as service is provided to the subscribers. DoCoMo’s
                     interest rate swap, foreign currency swap, foreign exchange       monthly rate plans for cellular (FOMA and mova) services
                     forward contracts and non-derivative financial instruments to     generally include a certain amount of allowances (free min-
                     manage its exposure to fluctuations in interest rates and for-    utes and/or packets), and the used amount of the
                     eign exchange rates. These financial instruments are effective    allowances is subtracted from total usage in calculating the
                     in meeting the risk reduction objectives of DoCoMo by gener-      airtime revenue from a subscriber for the month. Prior to
                     ating either cash flows which offset the cash flows related to    November 2003, the total amount of the base monthly
                     the underlying position in respect of amount and timing or        charges was recognized as revenues in the month they were
                     transaction gains and losses which offset transaction gains and   charged as the subscribers could not carry over the unused
                     losses of the hedged item. DoCoMo does not hold or issue          allowances to the following months. In November 2003,
                     derivative financial instruments for trading purposes. Interest   DoCoMo introduced a new billing arrangement, called
                     rate swap contracts are designated as hedges of the financial     “Nikagetsu Kurikoshi” (two-month carry over), in which
                     risk associated with market interest rate changes. Foreign        the unused allowances are automatically carried over up to
                     currency swap contracts are designated as hedges of the finan-    the following two months. In addition, DoCoMo intro-
                     cial risk associated with foreign exchange rate changes.          duced a new arrangement which enables the unused
                                                                                                                                                                    | 91


allowances offered in and after December 2004 that have                                        The adoption has resulted in the reclassification of certain
been carried over for two months to be automatically used                                      amounts of commissions paid to agent resellers, previously
to cover the airtime and/or packet fees exceeding the                                          included in selling, general and administrative expenses, as
allowances of the other lines in the “Family Discount”                                         a reduction of equipment sales. EITF 01-09 also requires
group, a discounted billing arrangement for families with                                      that reduction of revenue and corresponding expenses for
between two and ten DoCoMo subscriptions. DoCoMo has                                           such commissions be recognized at the time of equipment
deferred revenues based on the portion of unused                                               sales to the agent instead of the date of resale to the end
allowances that are estimated to be utilized prior to expira-                                  user customer. The adoption resulted in an adjustment as
tion. As DoCoMo does not have sufficient empirical evi-                                        of April 1, 2002 for the cumulative effect of accounting
dence to reasonably estimate such amounts, DoCoMo                                              change in DoCoMo’s statement of income and comprehen-
currently deducts and defers all amounts allocated to                                          sive income of ¥(35,716) million, net of taxes of ¥25,852
unused allowances from revenues. The deferred revenues                                         million, related to the timing of recognizing the commis-
are recognized as revenues as the subscribers make calls or                                    sions to be paid.
data communications, similar to the way airtime revenues                                           Non-recurring upfront fees such as activation fees are
are recognized, or as allowance expire.                                                        deferred and recognized as revenues over the estimated
    Effective April 1, 2002, DoCoMo adopted EITF 01-09,                                        average period of the customer for each service. The related
“Accounting for Consideration Given by a Vendor to a                                           direct costs are deferred only to the extent of the upfront fee
Customer (Including a Reseller of the Vendor’s Products).”                                     amount and are amortized over the same period.

Deferred revenue and deferred charges as of March 31, 2004 and 2005 comprised the following:
                                                                                                                                                     Thousands of
                                                                                                                              Millions of yen        U.S. dollars

                                                                                                                          2004              2005        2005
Current deferred revenue .............................................................................................   ¥ 81,724        ¥ 108,415   $ 1,011,145
Long-term deferred revenue.........................................................................................        71,841           75,096       700,392
Current deferred charges..............................................................................................     49,424           47,660       444,507
Long-term deferred charges .........................................................................................       71,841           75,096       700,392

Current deferred revenue is included in “Other current lia-                                    Earnings per share—
bilities” in the consolidated balance sheets.                                                  Basic earnings per share includes no dilution and is com-
                                                                                               puted by dividing income available to common sharehold-




                                                                                                                                                                    Financial Section
Selling, general and administrative expenses—                                                  ers by the weighted average number of shares of common
Selling, general and administrative expenses primarily                                         stock outstanding for the period. Diluted earnings per
include commissions paid to agents, expenses associated                                        share assumes the dilution that could occur if securities or
with DoCoMo’s customer loyalty programs, advertising                                           other contracts to issue common stock were exercised or
costs, as well as other expenses such as payroll and related                                   converted into common stock or resulted in the issuance of
benefit costs of personnel not directly involved in the oper-                                  common stock. DoCoMo has no dilutive securities out-
ations and maintenance process. Commissions paid to                                            standing at March 31, 2003, 2004 and 2005, and therefore
agents represent the largest portion of selling, general and                                   there is no difference between basic and diluted earnings
administrative expenses.                                                                       per share.

Income taxes—                                                                                  Foreign currency translation—
Income taxes are accounted for under the asset and liability                                   All asset and liability accounts of foreign subsidiaries and
method. Deferred tax assets and liabilities are recognized                                     affiliates are translated into Japanese yen at appropriate
for the future tax consequences attributable to differences                                    year-end current rates and all income and expense accounts
between the financial statement carrying amounts of exist-                                     are translated at rates that approximate those rates prevail-
ing assets and liabilities and their respective tax bases and                                  ing at the time of the transactions. The resulting translation
operating loss and tax credit carryforwards. Deferred tax                                      adjustments are included as a component of accumulated
assets and liabilities are measured using enacted tax rates                                    other comprehensive income.
expected to apply to taxable income in the years in which                                           Foreign currency receivables and payables of DoCoMo
those temporary differences are expected to be recovered or                                    are translated at appropriate year-end current rates and the
settled. The effect on deferred tax assets and liabilities of a                                resulting translation gains or losses are included in “Other
change in tax rates is recognized in income in the period                                      (income) expense” in the consolidated statements of
that includes the enactment date.                                                              income and comprehensive income.
92             |


                          DoCoMo transacts limited business in foreign curren-        rial impact on its result of operations and financial position.
                     cies. The effects of exchange rate fluctuations from the ini-         In May 2005, the FASB issued SFAS No. 154, “Accounting
                     tial transaction date to the settlement date are recorded as     Changes and Error Corrections -a replacement of APB
                     exchange gain or loss in the accompanying statements of          Opinion No.20 and FASB statement No.3.” SFAS No. 154
                     income and comprehensive income.                                 replaces APB Opinion No. 20 (“APB No. 20”), “Accounting
                                                                                      Changes,” and SFAS No. 3, “Reporting Accounting Changes
                     (3) Recent accounting pronouncements—                            in Interim Financial Statements,” and changes the require-
                                                                                      ments for the accounting for and reporting of a change in
                     In November 2004, FASB issued SFAS No. 151, “Inventory           accounting principle. APB No. 20 previously required that
                     Costs -an amendment of ARB No. 43, Chapter 4.” SFAS              most voluntary changes in accounting principle be recognized
                     No. 151 amends the guidance in ARB No. 43, Chapter 4,            by including in net income of the period of the change the
                     “Inventory Pricing,” to clarify the accounting for abnormal      cumulative effect of changing to the new accounting princi-
                     amounts of idle facility expense, freight, handling costs, and   ple. SFAS No. 154 requires retrospective application to prior
                     wasted material (spoilage). ARB No. 43, Chapter 4 previ-         periods’ financial statements of changes in accounting princi-
                     ously stated that such costs might be so abnormal as to          ple. SFAS No. 154 is effective for accounting changes and cor-
                     require treatment as current period charges. SFAS No. 151        rections of errors made in fiscal years beginning after
                     requires that those items be recognized as current-period        December 15, 2005. The impact of SFAS No. 154 will depend
                     charges regardless of whether they meet the criterion of “so     on the change, if any, in a future period.
                     abnormal.” In addition, SFAS No. 151 requires that alloca-            In March 2005, FASB issued FIN No. 47 (“FIN 47”)
                     tion of fixed production overheads to the costs of conver-       “Accounting for Conditional Asset Retirement Obligations -
                     sion be based on the normal capacity of the production           an interpretation of FASB Statement No. 143.” FIN 47 pro-
                     facilities. SFAS No. 151 is effective for inventory costs        vides guidance relating to the identification of and financial
                     incurred during fiscal years beginning after June 15, 2005.      reporting for legal obligations to perform an asset retire-
                     DoCoMo does not expect that adoption of SFAS No. 151             ment activity. FIN 47 requires recognition of a liability for
                     will have a material impact on its result of operations and      the fair value of a conditional asset retirement obligation
                     financial position.                                              when incurred if the liability’s fair value can be reasonably
                         In December 2004, FASB issued SFAS No. 153,                  estimated. FIN 47 is effective for fiscal years ending after
                     “Exchanges of Nonmonetary Assets -an amendment of APB            December 15, 2005. DoCoMo is in the process of determin-
                     Opinion No. 29.” The amendment eliminates the exception          ing the impact, if any, that adoption of FIN 47 will have on
                     for non-monetary exchanges of similar productive assets          its result of operations and financial position.
                     and replaces it with a general exception for exchanges of
 Financial Section




                     non-monetary assets that do not have commercial sub-             (4) Reclassifications—
                     stance. The provisions in SFAS No. 153 are effective for
                     non-monetary asset exchanges occurring during fiscal peri-       Certain reclassifications have been made to the prior years’
                     ods beginning after June 15, 2005. DoCoMo does not               consolidated financial statements to conform to the presen-
                     expect that that adoption of SFAS No. 153 will have a mate-      tation used for the year ended March 31, 2005.



                     3. U.S. dollar amounts:

                     The consolidated financial statements are stated in Japanese     31, 2005, which was ¥107.22 to U.S. $1. The convenience
                     yen. Translations of the Japanese yen amounts into U.S.          translations should not be construed as representations that
                     dollars are included solely for the convenience of readers by    the Japanese yen amounts have been, could have been, or
                     using the noon buying rate in New York City for cable            could in the future be, converted into U.S. dollars at this or
                     transfers in foreign currencies as certified for customs pur-    any other rate of exchange.
                     poses by the Federal Reserve Bank of New York on March
                                                                                                                                                                                       | 93


4. Inventories:

Inventories as of March 31, 2004 and 2005 comprised the following:
                                                                                                                                                                        Thousands of
                                                                                                                                          Millions of yen               U.S. dollars

                                                                                                                                      2004              2005               2005
Telecommunications equipment to be sold .................................................................                            ¥ 125,007       ¥ 154,805          $ 1,443,807
Materials and supplies..................................................................................................                   499             369                3,442
Other ............................................................................................................................       1,763           1,252               11,677
  Total ..........................................................................................................................   ¥ 127,269       ¥ 156,426          $ 1,458,926



5. Impairment of long-lived assets:

Impairment of PHS business assets—                                                                       because of the absence of an observable market price.
As a result of its revised business outlook, DoCoMo evalu-                                               Because DoCoMo estimated that future cash flows from the
ated the recoverability of its long-lived assets, including                                              PHS business would be negative, DoCoMo write-down the
property, plant and equipment and rights to use telecommu-                                               entire carrying value of its long-lived assets related to the
nications facilities of wireline carriers, of its PHS business in                                        PHS business, resulting in a non-cash impairment loss of
accordance with SFAS No. 144 for the year ended March 31,                                                ¥60,399 million ($563,318 thousand). The impairment
2005. To estimate the fair value of the long-lived assets                                                loss is recorded in “Impairment loss” in the consolidated
related to PHS business, DoCoMo used future undiscounted                                                 statements of income and comprehensive income.
cash flows expected to be generated by the long-lived assets



6. Investments in affiliates:

DoCoMo’s investments in the following entities are accounted for on the equity method as of March 31, 2004 and 2005
except for AT&T Wireless Services, Inc. and Hutchison 3G UK Holdings Limited as explained below for 2005:
                                                                                                                                                            Ownership Percentage




                                                                                                                                                                                       Financial Section
 Company name                                                                                                                                               2004           2005
Hutchison Telephone Company Limited (“HTCL”) ...............................................................................                           24.10%             24.10%
Hutchison 3G HK Holdings Limited (“H3G HK”) .................................................................................                          24.10%             24.10%
Hutchison 3G UK Holdings Limited (“H3G UK”)..................................................................................                          20.00%              N.A.
AT&T Wireless Services, Inc. (“AT&T Wireless”)..................................................................................                       15.89%              N.A.


All of the above investments which are accounted for on the                                              Wireless becoming an independent, publicly-traded com-
equity method are privately held companies. As discussed                                                 pany. DoCoMo’s investment in AT&T Wireless preferred
below, DoCoMo began accounting for its investment in                                                     tracking stock was converted into AT&T Wireless common
H3G UK using the cost method for the year ended March                                                    stock resulting in approximately 16% voting interest in
31, 2005.                                                                                                AT&T Wireless. DoCoMo accounted for its common stock
                                                                                                         investment in AT&T Wireless using the equity method due
AT&T Wireless—                                                                                           to its ability to exercise significant influence over operating
In July 2001, AT&T Corp. (“AT&T”) completed the                                                          and financial policies primarily through board representa-
planned split-off of its wireless group (“AT&T Wireless                                                  tion, appointment of key management positions, approval
Group”). In connection with the split-off, all the assets and                                            rights and rights to require repurchase of the investment
liabilities of AT&T Wireless Group were transferred to                                                   under certain circumstances.
AT&T Wireless, a wholly owned subsidiary of AT&T. The                                                         In February 2004, AT&T Wireless entered into a merger
split-off was then effected by redeeming all the outstanding                                             agreement with Cingular Wireless LLC (“Cingular”), a
shares of AT&T Wireless Group tracking stock in exchange                                                 mobile operator in the United States of America, and certain
for shares of AT&T Wireless common stock and distribut-                                                  of its affiliates. Under the terms of the merger agreement, it
ing additional shares of AT&T Wireless common stock to                                                   was agreed that all the outstanding shares of common stock
holders of AT&T common stock, resulting in AT&T                                                          of AT&T wireless shall be converted into US$15 per share in
94             |


                     cash. On October 26, 2004, pursuant to the merger agree-           KG Telecommunications Co., Ltd.—
                     ment, the merger between AT&T Wireless and Cingular                In October 2003, KG Telecommunications Co., Ltd.
                     became effective. As a result, DoCoMo transferred all of its       (“KGT”), a former equity method investee of DoCoMo,
                     AT&T Wireless shares to Cingular, and DoCoMo received              entered into a stock purchase agreement with Far EasTone
                     US$6,495 million (equivalent to approximately ¥699,514             Telecommunications Co., Ltd. (“FET”), a mobile operator
                     million) in cash. DoCoMo ceased to account for it under the        in Taiwan, by which KGT agreed to become a wholly owned
                     equity method. DoCoMo recognized a gain of ¥501,781 mil-           subsidiary of FET. Simultaneously, DoCoMo signed a mem-
                     lion ($4,679,920 thousand) on the transaction and recorded         orandum of understanding with FET to collaborate on the
                     as gain on sale of affiliate shares for the year ended March 31,   promotion of third-generation (3G) mobile phone busi-
                     2005. The gain on sale of affiliate shares included reclassifi-    nesses and i-mode business in Taiwan. Pursuant to the
                     cation of unrealized holding gains (losses) on available-for-      stock purchase agreement, KGT merged into a subsidiary of
                     sale securities, net revaluation of financial instruments and      FET and ceased to exist in January 2004. DoCoMo ceased
                     foreign currency translation adjustment amounting to ¥(144)        the equity method of accounting for its investment in KGT
                     million ($(1,343) thousand), ¥461 million ($4,300 thou-            at that time. On April 29, 2004, the entire transaction was
                     sand) and ¥64,564 million ($602,164 thousand), respectively.       completed and the former shareholders of KGT received
                                                                                        0.46332 FET shares plus NT$6.72 for each KGT share they
                     H3G UK—                                                            owned. As a result, DoCoMo became an approximately 5%
                     On May 27, 2004, DoCoMo agreed to sell its entire share-           shareholder of FET, and received NT$2.5 billion (¥8.1 bil-
                     holding in H3G UK to Hutchison Whampoa Limited                     lion). The transaction did not have a material impact on
                     (“HWL”) for a total consideration of £120 million in a Sale        DoCoMo’s results of operations and financial position.
                     and Purchase Agreement signed between DoCoMo and
                     HWL. Under the terms of the agreement, DoCoMo were to              DoCoMo AOL, Inc.—
                     receive payment in three installments, the final installment       In December 2003, DoCoMo entered into a stock sales
                     of which was expected to be made in December 2006, either          agreement with America Online, Inc. (“AOL”). Pursuant to
                     in cash or in shares of Hutchison Telecommunications               the stock sales agreement, DoCoMo sold all the shares of
                     International Limited (“HTIL”), a subsidiary company of            DoCoMo AOL, Inc. (“DoCoMo AOL”), a former equity
                     HWL that is being listed on the Stock Exchange of Hong             method investee of DoCoMo, DoCoMo owned and ceased
                     Kong since October 15, 2004. DoCoMo’s right to receive             the equity method of accounting for its investment in
                     £120 million as of the time of completion of the transaction       DoCoMo AOL at that time. The transaction did not have a
                     in February 2007 is secured by the Sale and Purchase               material impact on DoCoMo’s results of operations and
                     Agreement. As a result of the agreement, DoCoMo waived             financial position.
 Financial Section




                     certain of its minority shareholder’s rights, including voting
                     right and supervisory board representation. As DoCoMo no           KPN Mobile N.V.—
                     longer had the ability to exercise significant influence over      In November 2002, DoCoMo was requested by KPN Mobile
                     H3G UK, DoCoMo ceased to account for our investment in             N.V. (“KPNM”), a former equity method investee of
                     H3G UK using the equity method.                                    DoCoMo, to subscribe for additional shares of KPNM as
                          During the year ended March 31, 2005, DoCoMo                  DoCoMo had a right to subscribe for additional shares of
                     received 187,966,653 shares of HTIL (equivalent to £80 mil-        KPNM for maintaining its portion of voting right. In
                     lion) as the first installment payment by HWL, which was           December 2002, DoCoMo decided not to exercise its right
                     reported as marketable securities and other investments,           to subscribe for additional shares of KPNM. As a result,
                     with a corresponding amount recorded as other long-term            DoCoMo’s ownership interest in KPNM decreased from
                     liabilities until such time that the transfer of H3G UK shares     15% to approximately 2.2% and DoCoMo lost certain of its
                     is completed. On May 9, 2005, DoCoMo received a notice             minority shareholder’s rights under the shareholders’ agree-
                     from HWL that HWL intends to exercise its right to acceler-        ment, including supervisory board representation. As a
                     ate completion of the payment on June 23, 2005. As a result        result, DoCoMo no longer has the ability to exercise signifi-
                     of the transaction, DoCoMo will record a gain on sale of           cant influence over KPNM, and ceased to account for its
                     affiliate shares of approximately ¥62 billion for the year end-    investment in KPNM using the equity method from
                     ing March 31, 2006.                                                December 2002.
                          As part of the Sale and Purchase Agreement, the £200
                     million shareholder loan provided by DoCoMo to H3G UK              Impairment.—
                     in May 2003 was transferred for value to Hutchison Europe          DoCoMo evaluates the recoverability of the carrying value of
                     Telecommunications S.à r.l., a HWL subsidiary company, on          its investments in affiliates when there are indications that a
                     May 27, 2004 and the payment was completed. See Note 9.            declines in value below carrying amount may be other than
                                                                                        temporary. As a result of such evaluations, the Company
                                                                                                                                                                                        | 95


determined that there were other than temporary decline in                                           impairment charges are included with equity in net losses of
values of certain investments and has recorded impairment                                            affiliates in the accompanying statement of income and com-
charges aggregating ¥319,564 million, net of deferred                                                prehensive income.
income taxes of ¥225,535 million, for the year ended March                                                The Company believes the estimated fair values of its
31, 2003. The gross impairment charges were ¥284,078 mil-                                            investments in affiliates at March 31, 2005 equal or exceed
lion for AT&T Wireless, ¥117,898 million for KPNM,                                                   the related carrying values.
¥123,245 million for H3G UK, ¥9,619 million for KGT and                                                   The following represents summarized financial informa-
¥10,259 million for DoCoMo AOL. The Company did not                                                  tion for DoCoMo’s investments in equity method investees
record impairment charges for the years ended March 31,                                              for the years ended March 31, 2003, 2004 and 2005.
2004. The Company recorded impairment charges for                                                    Financial information for individually insignificant equity
HTCL, a mobile operator in Hong Kong, of ¥8,612 million                                              method investments is presented on a combined basis as
($80,321 thousand) for the year ended March 31, 2005. The                                            “Others” in 2003 and “Total” in 2004 and 2005.
                                                                                                                                             Millions of yen

                                                                                                                                                 2003
                                                                                                        AT&T Wireless                H3G UK                KGT             Others

Balance sheet data:
  Current assets ..................................................................................      ¥     633,192          ¥      34,100            ¥ 26,695        ¥ 60,757
  Noncurrent assets ............................................................................             4,858,948              1,100,016             170,634         125,832
  Current liabilities ............................................................................             370,851                 64,214              35,156          62,515
  Noncurrent liabilities.......................................................................              1,816,845                269,100              62,358         116,330
  Minority interest ..............................................................................               5,755                     —                   —               —
  Mandatorily redeemable preferred stock .........................................                              18,105                     —                   —               —
  Mandatorily redeemable common stock..........................................                                918,914                     —                   —               —

Income statement data:
  Revenues ..........................................................................................    ¥ 1,956,689            ¥          —             ¥ 78,982        ¥ 97,959
  Operating income (loss) ..................................................................                 (32,296)                 (31,498)             (3,584)         (8,595)
  Income (loss) from continuing operations ......................................                           (276,022)                 (37,474)             (6,422)          1,373
  Net income (loss) ............................................................................            (290,918)                 (37,474)             (4,332)            787


                                                                                                                                                                         Thousands of




                                                                                                                                                                                        Financial Section
                                                                                                                                         Millions of yen                 U.S. dollars

                                                                                                                                     2004                 2005              2005
                                                                                                                                     Total                Total             Total

Balance sheet data:
  Current assets...........................................................................................................     ¥     987,955        ¥     58,826    $     548,648
  Noncurrent assets.....................................................................................................            5,486,170             108,938        1,016,023
  Current liabilities ....................................................................................................            501,898              97,082          905,447
  Noncurrent liabilities ...............................................................................................            2,287,029              64,332          600,000
  Minority interest.......................................................................................................              3,214                  —                —
  Mandatorily redeemable preferred stock..................................................................                             18,962                  —                —
  Mandatorily redeemable common stock ..................................................................                              821,044                  —                —

Income statement data:
  Revenues ..................................................................................................................   ¥ 2,028,519          ¥     73,094    $     681,720
  Operating income (loss)...........................................................................................                (26,211)              (19,478)        (181,664)
  Income (loss) from continuing operations ..............................................................                          (126,921)              (24,093)        (224,706)
  Net income (loss) .....................................................................................................          (126,921)              (24,093)        (224,706)
96             |


                     DoCoMo’s share of undistributed earnings of affiliates                                                      affiliates in the accompanying consolidated balance sheet at
                     included in consolidated retained earnings were ¥3,369 mil-                                                 March 31, 2004 and 2005 was lower by ¥304,085 million
                     lion, ¥2,532 million and ¥1,022 million ($9,532 thousand) as                                                and greater by ¥36,625 million ($341,587 thousand) than
                     of March 31, 2003, 2004 and 2005, respectively. Dividends                                                   its aggregate underlying equity in net assets of such affili-
                     received from affiliates were ¥20 million, ¥20 million and ¥20                                              ates as of the date of the most recent available financial
                     million ($187 thousand) for the years ended March 31, 2003,                                                 statements of the investees, respectively. Such change from
                     2004 and 2005, respectively. DoCoMo does not have signifi-                                                  2004 to 2005 is primarily due to DoCoMo’s disposal of
                     cant business transactions with its affiliates.                                                             AT&T Wireless shares.
                         The total carrying value of DoCoMo’s investments in


                     7. Marketable securities and other investments:

                     Marketable securities and other investments as of March 31, 2004 and 2005 comprised the following:
                                                                                                                                                                                           Thousands of
                                                                                                                                                              Millions of yen              U.S. dollars

                                                                                                                                                           2004             2005               2005
                     Marketable securities:
                      Available-for-sale ......................................................................................................        ¥ 22,395          ¥ 223,107         $ 2,080,834
                      Held-to-maturity ......................................................................................................                20                  7                  65
                     Other investments .......................................................................................................           39,776             19,955             186,113
                        Total ......................................................................................................................   ¥ 62,191          ¥ 243,069         $ 2,267,012


                     Debt securities, which were classified as current assets                                                    marketable securities recorded as a non-current item,
                     because the maturities at the end of fiscal years were one                                                  “Marketable securities and other investments,” on the con-
                     year or less, were included in the above table in addition to                                               solidated balance sheets.

                     Maturities of debt securities classified as held-to-maturity at March 31, 2005 are as follows:
                                                                                                                                          Millions of yen                   Thousands of U.S. dollars

                                                                                                                                                2005                                   2005
 Financial Section




                                                                                                                                 Carrying amounts      Fair value      Carrying amounts       Fair value

                     Due within 1 year ...............................................................................                 ¥ 7                 ¥ 7                  $ 65            $ 65
                     Due after 1 year through 5 years ........................................................                          —                   —                     —               —
                     Due after 5 years through 10 years.....................................................                            —                   —                     —               —
                     Due after 10 years...............................................................................                  —                   —                     —               —
                     Total....................................................................................................         ¥ 7                 ¥ 7                  $ 65            $ 65


                     Maturities of debt securities classified as available-for-sale at March 31, 2005 are as follows:
                                                                                                                                          Millions of yen                   Thousands of U.S. dollars

                                                                                                                                                2005                                   2005
                                                                                                                                 Carrying amounts      Fair value      Carrying amounts       Fair value

                     Due within 1 year ...............................................................................             ¥      —            ¥      —         $        —        $        —
                     Due after 1 year through 5 years ........................................................                       150,565             150,565          1,404,262         1,404,262
                     Due after 5 years through 10 years.....................................................                              —                   —                  —                 —
                     Due after 10 years...............................................................................                    —                   —                  —                 —
                     Total....................................................................................................     ¥ 150,565           ¥ 150,565        $ 1,404,262       $ 1,404,262


                     Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations.
                                                                                                                                                                                   | 97


The aggregate fair value, gross unrealized holding gains and losses and cost by type of marketable security at March 31,
2004 and 2005 are as follows:
                                                                                                                                     Millions of yen

                                                                                                                                            2004
                                                                                                         Cost /           Gross unrealized    Gross unrealized       Fair value
                                                                                                         Amortized cost   holding gains       holding losses

Available-for-sale:
  Equity securities ...............................................................................         ¥ 4,546          ¥ 17,476              ¥ 50              ¥ 21,972
  Debt securities ..................................................................................            400                23                —                    423
Held-to-maturity:
  Debt securities ..................................................................................             20                    0               —                    20


                                                                                                                                     Millions of yen

                                                                                                                                           2005
                                                                                                         Cost /           Gross unrealized    Gross unrealized       Fair value
                                                                                                         Amortized cost   holding gains       holding losses

Available-for-sale:
  Equity securities ...............................................................................       ¥ 37,782           ¥ 35,087              ¥ 327         ¥ 72,542
  Debt securities ..................................................................................       150,509                 56                 —           150,565
Held-to-maturity:
  Debt securities ..................................................................................                  7                0               —                      7


                                                                                                                               Thousands of U.S. dollars

                                                                                                                                           2005
                                                                                                         Cost /           Gross unrealized    Gross unrealized       Fair value
                                                                                                         Amortized cost   holding gains       holding losses

Available-for-sale:
  Equity securities ............................................................................... $ 352,379               $ 327,243              $ 3,050       $     676,572
  Debt securities .................................................................................. 1,403,740                    522                   —            1,404,262
Held-to-maturity:
  Debt securities ..................................................................................        65                         0                  —                   65




                                                                                                                                                                                   Financial Section
The proceeds and gross realized gains (losses) from the sale of available-for-sale securities and other investments for the
years ended March 31, 2003, 2004 and 2005 are as follows:

                                                                                                                          Millions of yen                        Thousands of
                                                                                                                                                                 U.S. dollars

                                                                                                            2003              2004                 2005               2005
Proceeds .............................................................................................     ¥ 2,278           ¥ 1,831           ¥ 27,046          $ 252,248
Gross realized gains............................................................................               103             1,444                 17                158
Gross realized losses...........................................................................                (2)               —              (1,118)           (10,427)
98             |


                     Gross unrealized holding losses on and fair value of mar-                      gated by investment category and length of time that indi-
                     ketable securities and cost method investments included in                     vidual securities have been in a continuous unrealized loss
                     “other investments” at March 31, 2004 and 2005, aggre-                         position were as follows:
                                                                                                              Millions of yen

                                                                                                                    2004
                                                                          Less than 12 months              12 months or longer                       Total
                                                                                       Gross                               Gross                             Gross
                                                                      Fair value       unrealized      Fair value          unrealized   Fair value           unrealized
                                                                                       holding                             holding                           holding
                                                                                       losses                              losses                            losses
                     Available-for-sale:
                       Equity securities .........................    ¥ 1,710             ¥ 47           ¥ 14                ¥ 3        ¥ 1,724                ¥ 50
                       Debt securities ............................        —                —              —                  —              —                   —
                     Held-to-maturity:
                       Debt securities ............................          —              —               —                   —             —                   —

                                                                                                              Millions of yen

                                                                                                                    2005
                                                                          Less than 12 months              12 months or longer                       Total
                                                                                       Gross                               Gross                             Gross
                                                                      Fair value       unrealized      Fair value          unrealized                        unrealized
                                                                                       holding                             holding      Fair value           holding
                                                                                       losses                              losses                            losses
                     Available-for-sale:
                       Equity securities .........................    ¥ 1,539            ¥ 218          ¥ 124               ¥ 109       ¥ 1,663               ¥ 327
                       Debt securities ............................        —                —              —                   —             —                   —
                     Held-to-maturity:
                       Debt securities ............................          —              —               —                    —            —                   —
                     Cost method investments ..............                  —              —               61                   76           61                  76


                                                                                                        Thousands of U.S. dollars

                                                                                                                    2005
                                                                          Less than 12 months              12 months or longer                       Total
 Financial Section




                                                                                       Gross                               Gross                             Gross
                                                                      Fair value       unrealized      Fair value          unrealized                        unrealized
                                                                                       holding                             holding      Fair value           holding
                                                                                       losses                              losses                            losses
                     Available-for-sale:
                       Equity securities .........................    $ 14,354          $ 2,033         $ 1,156            $ 1,017      $ 15,510             $ 3,050
                       Debt securities ............................         —                —               —                  —             —                   —
                     Held-to-maturity:
                       Debt securities ............................           —                 —            —                   —             —                   —
                     Cost method investments ..............                   —                 —           569                 709           569                 709


                     Other investments includes long-term investments in various                    (¥1,142.5 billion) in AT&T Wireless Group. The $9.8 bil-
                     privately held companies. The aggregate carrying amounts of                    lion cost was allocated based on estimated fair values at
                     DoCoMo’s cost method investments included in other invest-                     date of investment to AT&T preferred tracking stock $9.5
                     ments totaled ¥15,954 million ($148,797 thousand) at March                     billion (¥1,111.8 billion) and warrants $0.3 billion (¥30.7
                     31, 2005. DoCoMo did not evaluate fair values of invest-                       billion) and were accounted for on the cost basis. As dis-
                     ments with an aggregate carrying amount of ¥10,823 million                     cussed in Note 6, in July 2001, upon the split-off of AT&T
                     ($100,942 thousand) for impairment because DoCoMo                              Wireless and automatic conversion of its investment into
                     believed that it was not practicable for it to estimate the fair               AT&T Wireless common stock and warrants, DoCoMo
                     value as it did not identify any events or changes in circum-                  began to account for its investment in AT&T Wireless com-
                     stances that may have had a significant adverse effect on the                  mon stock on the equity method, while the warrants began
                     fair value of those investments, in accordance with para-                      to be carried on a mark to market basis. Market Value of
                     graphs 14 and 15 of SFAS No. 107, “Disclosures about Fair                      the warrants was computed using the Black-Scholes option
                     Value of Financial Instruments.”                                               pricing methodology through the year ended March 31,
                         In January 2001, DoCoMo invested $9.8 billion                              2003. In February 2004, AT&T Wireless entered into a
                                                                                                                                                                                   | 99


merger agreement with Cingular and its subsidiaries.                                              to zero. In this regard, a market value write-down of ¥599
Under the terms of the merger agreement, per share pur-                                           million and ¥1,706 million has been included in “Other,
chase price of the outstanding common stock of AT&T                                               net” in the accompanying consolidated statement of income
Wireless was $15 and was below the exercise price of the                                          and comprehensive income for the years ended March 31,
warrant of $35 per share. In addition, the price movement                                         2003 and 2004, respectively. See Note 13. On October 26,
of AT&T Wireless shares showed that capital market                                                2004, pursuant to the merger agreement, the merger
expected that the merger would be completed, although                                             between AT&T Wireless and Cingular became effective. As
transaction was subject to approval by regulatory authori-                                        a result thereof, DoCoMo determined that the book value of
ties, and other closing conditions. Consequently, DoCoMo                                          the warrant as of March 31, 2005 was also nil. The expira-
reduced the book value of the warrant as of March 31, 2004                                        tion date of the warrants is on January 26, 2006.


8. Goodwill and other intangible assets:

Goodwill—                                                                                         the net assets of each of the subsidiaries are assigned to
Goodwill of DoCoMo consists largely of the goodwill which                                         DoCoMo’s pro rata share of assets acquired and liabilities
was recognized when DoCoMo purchased all the remaining                                            assumed based on estimated fair value at the date of the
minority interests in its eight regional subsidiaries through                                     share exchanges, and deferred tax liabilities or assets are
share exchanges and made these subsidiaries wholly owned                                          recognized for differences between the assigned values and
in November 2002. In August 2003, DoCoMo purchased                                                the tax bases of the recognized assets acquired and liabilities
all the remaining minority interests in another subsidiary                                        assumed. The aggregate amount of acquisition costs that
through a share exchange and made the subsidiary wholly                                           exceed the related determinable assets including intangible
owned. These share exchanges were accounted for using                                             assets less liabilities is recorded as goodwill, which is exclu-
the purchase method, in accordance with SFAS No. 141,                                             sively attributable to the mobile phone business segment,
“Business Combinations.” In accordance therewith, the                                             on the consolidated balance sheet.
acquisition costs of the subsidiaries’ shares which exceed

The changes in the carrying amount of goodwill by business segment for the years ended March 31, 2004 and 2005 are as follows:
                                                                                                                                             Millions of yen

                                                                                                                                                   2004




                                                                                                                                                                                   Financial Section
                                                                                                                             Mobile phone    Miscellaneous          Consolidated
                                                                                                                             businesses      businesses

Balance at beginning of year..........................................................................................        ¥ 133,196             ¥—              ¥ 133,196
Goodwill acquired during the year ...............................................................................                   158              —                    158
Balance at end of year....................................................................................................    ¥ 133,354             ¥—              ¥ 133,354


                                                                                                                                             Millions of yen

                                                                                                                                                   2005
                                                                                                                             Mobile phone    Miscellaneous          Consolidated
                                                                                                                             businesses      businesses

Balance at beginning of year..........................................................................................        ¥ 133,354         ¥    —              ¥ 133,354
Goodwill acquired during the year ...............................................................................                    —            6,743                 6,743
Balance at end of year....................................................................................................    ¥ 133,354         ¥ 6,743             ¥ 140,097


                                                                                                                                        Thousands of U.S. dollars

                                                                                                                                                   2005
                                                                                                                             Mobile phone    Miscellaneous          Consolidated
                                                                                                                             businesses      businesses

Balance at beginning of year.......................................................................................... $ 1,243,742             $     —          $ 1,243,742
Goodwill acquired during the year ...............................................................................                   —            62,889              62,889
Balance at end of year.................................................................................................... $ 1,243,742         $ 62,889         $ 1,306,631


Information regarding the business segment is discussed in Note 15.
100             |


                      Other intangible assets—
                      The following table displays the major components of DoCoMo’s intangible assets, all of which are subject to amortization,
                      at March 31, 2004 and 2005.
                                                                                                                                                                        Millions of yen

                                                                                                                                                                            2004
                                                                                                                                                   Gross carrying       Accumulated            Net carrying
                                                                                                                                                   amount               amortization           amount

                      Software for telecommunications network ................................................................... ¥ 402,686                               ¥ 227,747            ¥ 174,939
                      Internal-use software ....................................................................................................              576,121       321,437              254,684
                      Computer software acquired to be used in the manufacture of handsets .....................                                                3,732            62                3,670
                      Customer related assets .................................................................................................                50,949        12,030               38,919
                      Rights to use telecommunications facilities of wireline carriers ...................................                                     48,366        19,613               28,753
                      Other .............................................................................................................................       7,193         1,381                5,812
                                                                                                                                                          ¥ 1,089,047     ¥ 582,270            ¥ 506,777


                                                                                                                                                                        Millions of yen

                                                                                                                                                                            2005
                                                                                                                                                   Gross carrying       Accumulated            Net carrying
                                                                                                                                                   amount               amortization           amount

                      Software for telecommunications network ................................................................... ¥ 424,305                              ¥ 232,446             ¥ 191,859
                      Internal-use software ....................................................................................................              669,047      405,716               263,331
                      Computer software acquired to be used in the manufacture of handsets .....................                                               39,276        1,858                37,418
                      Customer related assets .................................................................................................                50,949       20,521                30,428
                      Rights to use telecommunications facilities of wireline carriers ...................................                                     12,300        5,868                 6,432
                      Other .............................................................................................................................       8,084        1,757                 6,327
                                                                                                                                                          ¥ 1,203,961    ¥ 668,166             ¥ 535,795


                                                                                                                                                                   Thousands of U.S. dollars

                                                                                                                                                                            2005
                                                                                                                                                   Gross carrying       Accumulated            Net carrying
                                                                                                                                                   amount               amortization           amount
  Financial Section




                      Software for telecommunications network ................................................................... $ 3,957,331 $ 2,167,935                                  $ 1,789,396
                      Internal-use software ....................................................................................................             6,239,946   3,783,958           2,455,988
                      Computer software acquired to be used in the manufacture of handsets .....................                                               366,312      17,329             348,983
                      Customer related assets .................................................................................................                475,182     191,392             283,790
                      Rights to use telecommunications facilities of wireline carriers ...................................                                     114,717      54,728              59,989
                      Other .............................................................................................................................       75,396      16,387              59,009
                                                                                                                                                          $ 11,228,884 $ 6,231,729         $ 4,997,155


                      As discussed in Note 5, DoCoMo recognized an impairment                                           March 31, 2003, 2004 and 2005 was ¥142,964 million,
                      charge for its long-lived assets related to PHS business dur-                                     ¥150,673 million and ¥163,468 million ($1,524,604thou-
                      ing the year ended March 31, 2005. The amount of the                                              sand), respectively. Estimated amortization of intangible
                      reduction in net carrying amount of intangible assets related                                     assets for fiscal years ending March 31, 2006, 2007, 2008,
                      to software for telecommunications network and rights to                                          2009 and 2010 is ¥161,585 million, ¥132,377 million,
                      use telecommunications facilities of wireline carriers due to                                     ¥92,524 million, ¥55,672 million, and ¥20,371 million,
                      the impairment was ¥4,539 million ($42,334 thousand) and                                          respectively. The weighted-average amortization period of
                      ¥16,089 million ($150,056 thousand), respectively, during                                         the intangible assets acquired for the year ended March 31,
                      the year ended March 31, 2005.                                                                    2005 is 5.2 years.
                          Amortization of intangible assets for the years ended
                                                                                                                                                                                                 | 101


9. Other assets:

Other assets at March 31, 2004 and 2005 are summarized as follows:
                                                                                                                                                                                 Thousands of
                                                                                                                                                  Millions of yen                U.S. dollars

                                                                                                                                           2004                    2005              2005
Deposits .......................................................................................................................        ¥ 68,505                ¥ 68,348         $   637,456
Deferred customer activation costs ..............................................................................                          71,841                  75,096            700,392
Loan to an affiliate........................................................................................................               38,618                      —                  —
Other ............................................................................................................................         16,442                  20,879            194,730
                                                                                                                                        ¥ 195,406               ¥ 164,323        $ 1,532,578


Loan to an affiliate represents the loan for H3G UK, which DoCoMo collected on May 27, 2004. See Note 6.


10. Short-term borrowings and long-term debts:

DoCoMo’s debt obligations are denominated in Japanese                                                     rent portion of long-term debt, at March 31, 2004 and 2005.
yen and U.S. dollars.                                                                                         Long-term debt at March 31, 2004 and 2005 is com-
   DoCoMo had no short-term borrowings, excluding the cur-                                                prised of the following:
                                                                                                                                                                                 Thousands of
                                                                                                                                                  Millions of yen                U.S. dollars
                                                                                    Interest rates             Maturities                  2004                    2005              2005
Debt denominated in Japanese Yen:
  Unsecured corporate bonds .................................. 0.3% – 2.1%                                  2005 – 2011               ¥     750,490             ¥ 745,956        $ 6,957,247
  Unsecured indebtedness to banks,
    insurance companies and others ....................... 0.8% – 4.9%                                      2005 – 2012                     330,537               191,828            1,789,106
Debt denominated in U.S. dollars:
  Unsecured corporate bonds ..................................               3.5%                                     2008                10,569                   10,739            100,159
Sub-total...................................................................                                                           1,091,596                  948,523          8,846,512
Less: Current portion...............................................                                                                    (136,642)                (150,304)        (1,401,828)




                                                                                                                                                                                                 Financial Section
Total Long-term debt ...............................................                                                                  ¥ 954,954                 ¥ 798,219        $ 7,444,684


Interest rates on most of DoCoMo’s borrowings are fixed in                                                issue up to ¥1,000 billion of domestic corporate bonds dur-
nature. Interest costs related specifically to short-term bor-                                            ing the two-year period starting April 3, 2004 in Japan. As
rowings and long-term debts for the years ended March 31,                                                 of March 31, 2005, DoCoMo have no domestic corporate
2004 and 2005 totaled ¥15,045 million and ¥9,525 million                                                  bond issued.
($88,836 thousand), respectively.                                                                             The aggregate amounts of annual maturities of long-
    DoCoMo has made a shelf registration that allows it to                                                term debt at March 31, 2005, were as follows:
                                                                                                                                                                                 Thousands of
                                                                                                                                                               Millions of yen   U.S. dollars
Year ending March 31,

2006 .......................................................................................................................................................    ¥ 150,304         $ 1,401,828
2007 .......................................................................................................................................................      193,724           1,806,790
2008 .......................................................................................................................................................      129,939           1,211,891
2009 .......................................................................................................................................................       75,200             701,362
2010 .......................................................................................................................................................       29,000             270,472
Thereafter...............................................................................................................................................         370,356           3,454,169
                                                                                                                                                                ¥ 948,523         $ 8,846,512
102             |


                      11. Shareholders’ equity:

                      The Commercial Code of Japan (the “Code”) provides that          wholly-owned subsidiaries of DoCoMo by way of share
                      (i) all appropriations of retained earnings, including divi-     exchanges in order to increase the DoCoMo group’s overall
                      dends, require approval at an ordinary general meeting of        value by unifying its business and financing strategies.
                      shareholders, (ii) interim cash dividends can be distributed         In July and August 2002, DoCoMo repurchased 870,000
                      upon the approval of the board of directors if the articles of   shares of its common stock, or 1.73% of the total issued
                      incorporation provide for such interim cash dividends, sub-      shares of DoCoMo, for ¥234,462 million in the stock mar-
                      ject to some restrictions in the amount, and (iii) an amount     ket. In July 2002, 551,000 shares of DoCoMo stock were
                      equal to at least 10 percent of cash dividends and other         sold by NTT in the market.
                      appropriations paid in cash be appropriated as a legal               On November 1, 2002, DoCoMo completed the share
                      reserve until the aggregated amount of capital surplus and       exchanges. The treasury stock amount of ¥234,462 million
                      legal reserve equals 25% of stated capital.                      (870,000 shares), which had been acquired before the share
                          The capital surplus and legal reserve, up to 25% of          exchanges, was decreased to ¥2,585 million (9,594 shares)
                      stated capital, are not available for dividends but may be       as a result of the share exchanges and the subsequent pur-
                      used to reduce a deficit or may be transferred to stated capi-   chase of odd lot equal to ¥8 million (34 shares) from the
                      tal. The capital surplus and legal reserve, exceeding 25% of     former minority shareholders of the regional subsidiaries.
                      stated capital, are available for distribution upon approval         On May 13, 2003, DoCoMo entered into memorandum
                      of the shareholders’ meeting.                                    of understanding with DoCoMo Sentsu, Inc. (“Sentsu”)
                          The amount of statutory retained earnings of the             which provide that Sentsu shall become a wholly-owned
                      Company available for the payments of dividends to share-        subsidiary of DoCoMo by way of share exchanges in order
                      holders as of March 31, 2005 was ¥1,074,047 million              to increase the DoCoMo group’s overall value by unifying
                      ($10,017,226 thousand).                                          its business and financing strategies. On August 1, 2003,
                          The shareholders’ meeting on June 21, 2005, approved         DoCoMo completed the share exchange. Treasury stock
                      cash dividends of ¥46,272 million ($431,561 thousand),           with carrying value of ¥587 million (2,180 shares) was allo-
                      ¥1,000 per share, payable to shareholders of record as of        cated and transferred for the former minority shareholders
                      March 31, 2005, which were declared by the Board of              of Sentsu as a result of the share exchange.
                      Directors on May 10, 2005.                                           On June 19, 2003 and June 18, 2004, the shareholders’
                                                                                       meetings approved stock repurchase plans under which
                      Share repurchase, share exchanges for converting sub-            DoCoMo may repurchase up to 2,500,000 shares at an
                      sidiaries into wholly-owned subsidiaries, and share              aggregate amount not to exceed ¥600,000 million in order
  Financial Section




                      retirement—                                                      to improve capital efficiency and to implement flexible capi-
                      On May 8, 2002, DoCoMo entered into memoranda of                 tal policies in accordance with the business environment.
                      understanding with the eight regional subsidiaries which         Also, DoCoMo repurchased its fractional shares.
                      provide that the eight regional subsidiaries shall become

                         Class, aggregate number and price of shares repurchased for the year ended March 31, 2004, were as follows:
                            Class of shares repurchased:                 Shares of common stock of the Company
                            Aggregate number of shares repurchased:      1,576,222 shares
                                                                         (3.1% of the outstanding shares at the date of the general shareholders’
                                                                         meeting held in 2003)
                            Aggregate price of shares repurchased:       ¥394,903 million

                         Class, aggregate number and price of shares repurchased for the year ended March 31, 2005, were as follows:
                            Class of shares repurchased:                 Shares of common stock of the Company
                            Aggregate number of shares repurchased:      2,324,156 shares
                                                                         (4.6% of the outstanding shares at the date of the general shareholders’
                                                                         meeting held in 2004)
                            Aggregate price of shares repurchased:       ¥ 425,247 million ($3,966,116 thousand)
                                                                                                                                                                      | 103


Of the total shares repurchased, 698,000 and 1,748,000                                          In May and June 2005, based on a resolution of the
shares were purchased from NTT during the year ended                                       Board of Directors on March 23, 2005, DoCoMo repur-
March 31, 2004 and 2005, respectively.                                                     chased total 102,383 shares of its common stock (0.21% of
    Based on the resolution of the board of directors on                                   issued shares as of March 31, 2005) for ¥16,916 million in
March 23, 2005, DoCoMo retired 1,480,000 of its own                                        the stock market.
shares (purchase price: ¥311,371 million ($2,904,038 thou-                                      On June 21, 2005, the shareholders’ meeting approved a
sand)). As a result of the share retirement, retained earn-                                stock repurchase plan under which the Company may
ings were decreased by ¥311,371 million ($2,904,038                                        repurchase up to 2,200,000 shares at an aggregate amount
thousand) and the number of common stocks authorized                                       not to exceed ¥400,000 million in order to improve capital
decreased from 191,500,000 shares to 190,020,000 shares                                    efficiency and to implement flexible capital policies in
during the year ended March 31, 2005.                                                      accordance with the business environment.

Accumulated other comprehensive income:
The table that follows presents the change in accumulated other comprehensive income, net of applicable taxes:
                                                                                                                Millions of yen
                                                                          Unrealized holding Net revaluation      Foreign         Minimum             Accumulated
                                                                          gains (losses) on  of financial         currency        pension liability   other
                                                                          available-for-sale instruments          translation     adjustment          comprehensive
                                                                          securities                              adjustment                          income
Balance at March 31, 2002 .........................................           ¥ 1,199            ¥ (90)          ¥ 130,768             ¥ (9,245)       ¥ 122,632
2003 change ...............................................................       (727)             257            (39,315)              (19,910)        (59,695)
Balance at March 31, 2003 ........................................            ¥    472           ¥ 167           ¥ 91,453              ¥ (29,155)      ¥ 62,937
2004 change ...............................................................     12,238              (13)            (9,862)               16,055          18,418
Balance at March 31, 2004 .........................................           ¥ 12,710           ¥ 154           ¥ 81,591              ¥ (13,100)      ¥ 81,355
2005 change ..............................................................       9,220             (367)           (32,670)                   71         (23,746)
Balance at March 31, 2005 .......................................             ¥ 21,930           ¥ (213)         ¥ 48,921              ¥ (13,029)      ¥ 57,609


                                                                                                           Thousands of U.S. dollars

                                                                          Unrealized holding Net revaluation      Foreign         Minimum             Accumulated
                                                                          gains on available- of financial        currency        pension liability   other
                                                                          for-sale securities instruments         translation     adjustment          comprehensive
                                                                                                                  adjustment                          income
Balance at March 31, 2004 ........................................            $ 118,541        $ 1,436          $ 760,969          $ (122,179)        $ 758,767




                                                                                                                                                                      Financial Section
2005 change ..............................................................       85,992          (3,423)          (304,701)               662           (221,470)
Balance at March 31, 2005 .......................................             $ 204,533        $ (1,987)        $ 456,268          $ (121,517)        $ 537,297


The amount of taxes applied to the items in accumulated other comprehensive income is described in Note 17.


12. Research and development expenses, and advertising cost:

Research and development expenses                                                          years ended March 31, 2003, 2004 and 2005 is ¥17.5 bil-
Research and development expenses are charged to expense                                   lion, ¥23.5 billion and nil, respectively.
as incurred.                                                                                   Research and development expenses are included pri-
    For the years ended March 31, 2003 and 2004, DoCoMo                                    marily in selling, general and administrative expenses, and
expended funds for research and development of new FOMA                                    amounted to ¥126,229 million, ¥124,514 million and
3G handsets manufactured by handset vendors. The move is                                   ¥101,945 million ($950,802 thousand) for the years ended
part of a strategy to promote the rapid development of                                     March 31, 2003, 2004 and 2005, respectively.
FOMA handset technology and stimulate market demand for
FOMA services. Under the agreements with manufacturers,                                    Advertising costs
they are required to develop new FOMA handsets, featuring                                  Advertising costs are also expensed as incurred. Such costs
advanced applications and longer battery life. DoCoMo                                      are included in selling, general and administrative expenses
shares ownership rights for FOMA handset patented tech-                                    and amounted to ¥58,738 million, ¥58,434 million and
nologies and know-how with the manufacturers.                                              ¥57,773 million ($538,827 thousand) for the years ended
    The total amount expensed by DoCoMo in the develop-                                    March 31, 2003, 2004 and 2005, respectively.
ment of FOMA handsets by handset manufacturers for the
104             |


                      13. Other (income) expense:

                      Components of (income) expense included in “other, net” in the financial statement for the years ended March 31, 2003,
                      2004 and 2005 are as follows:

                                                                                                                                               Millions of yen                 Thousands of
                                                                                                                                                                               U.S. dollars

                                                                                                                                   2003            2004              2005         2005

                      Net realized holding (gains) losses on
                        marketable securities and other investments..................................                             ¥ (101)        ¥ (1,444)       ¥   1,101      $ 10,269
                      Foreign exchange gains, net ...............................................................                     (228)          (483)          (1,283)       (11,966)
                      Rental revenue received .....................................................................                 (2,666)        (2,744)          (2,442)       (22,776)
                      Dividends income...............................................................................                  (86)          (181)            (954)        (8,898)
                      Write-down of warrants related to AT&T Wireless............................                                      599          1,706               —              —
                      Gain on share-exchange right related to investment in KGT ............                                            —          (2,665)              —              —
                      Penalties and compensation for damages...........................................                             (2,827)        (3,675)          (2,674)       (24,939)
                      Commissions received from credit card companies ..........................                                        —              —              (848)        (7,908)
                      Other, net ...........................................................................................         2,290            (18)          (3,075)       (28,680)
                                                                                                                                  ¥ (3,019)      ¥ (9,504)       ¥ (10,175)     $ (94,898)



                      14. Related party transactions:

                      As previously noted, DoCoMo is majority-owned by NTT,                                                    DoCoMo. These sales are recorded as revenue from each
                      which is a holding company for more than 400 companies                                                   third-party customer receiving the services and are not
                      comprising the NTT group.                                                                                included in the amount of sales to related parties. During
                          DoCoMo has entered into a number of different types of                                               the years ended March 31, 2003, 2004 and 2005, DoCoMo
                      transactions with NTT, its other subsidiaries and its affiliated                                         purchased capital equipment from NTT Group companies
                      companies in the ordinary course of business. DoCoMo’s                                                   in the amount of ¥123,473 million, ¥100,994 million and
                      transactions with NTT group companies include purchases                                                  ¥71,896 million ($670,547 thousand), respectively.
                      of wireline telecommunications services (i.e. for DoCoMo’s                                                   DoCoMo has entered into cost-sharing and construction
  Financial Section




                      offices and operations facilities, including its PHS business)                                           and maintenance contracts with In-Tunnel Cellular Association,
                      based on actual usage, leasing of various telecommunica-                                                 chairman of which is also one of DoCoMo’s directors. The
                      tions facilities and sales of DoCoMo’s various wireless com-                                             contracts were entered into on terms similar to those made
                      munications services.                                                                                    with third parties. Income from such contracts was
                          Receivables include primarily customer accounts receiv-                                              ¥11,970 million and ¥14,797 million ($138,006 thousand)
                      ables related to DoCoMo’s sales of wireless communications                                               for the years ended March 31, 2004 and 2005, respectively.
                      services to customers, which NTT collects on behalf of
                                                                                                                                                              | 105


15. Segment reporting:

From a resource allocation perspective, DoCoMo views                                      cated to any business segment.
itself as having four primary business segments. The mobile                                   DoCoMo identified its reportable segments based on the
phone business segment includes FOMA services, mova ser-                                  nature of services included, as well as the characteristics of
vices, packet communications services, satellite mobile                                   the telecommunications networks used to provide those
communications services and the equipment sales related to                                services. DoCoMo’s chief operating decision maker moni-
these services. The PHS business segment includes PHS                                     tors and evaluates the performance of its segments based on
services and the related equipment sales for such service.                                the information that follows as derived from the Company’s
As of April 30, 2005, DoCoMo ceased accepting new appli-                                  management reports. Assets by segment are not included in
cations for PHS services. In addition, DoCoMo recognized                                  the management reports, however, they are included herein
an impairment loss on long-lived assets related to PHS busi-                              only for the purpose of disclosure. Depreciation and amor-
ness of ¥60,399 million, which is deducted from assets and                                tization is shown separately, as well as included as part of
recorded in operating expenses of PHS business segment for                                operating expenses. Corporate assets include primarily cash,
the year ended March 31, 2005 (see Note 5). The Quickcast                                 deposits, securities, loans and investments in affiliates. The
business segment includes paging services and related                                     allocation of common assets, such as buildings for telecom-
equipment sales for such service. DoCoMo also ceased                                      munications purposes and common facilities, is done on a
accepting new applications for Quickcast services as of June                              systematic and rational basis. The assets are allocated pro-
30, 2005, and DoCoMo will terminate Quickcast service as                                  portionately based on the amount of network assets of each
of March 31, 2007. The miscellaneous business segment                                     segment. Capital expenditures in the “Corporate” column
includes international dialing and roaming services and                                   include certain expenditures related to the buildings for
other miscellaneous services, which in the aggregate are not                              telecommunications purposes and common facilities, and
significant. The “Corporate” column in the tables below is                                are not allocated to each segment.
not an operating segment but is included to reflect the                                       Segment information is prepared in accordance with
recorded amounts of common assets which cannot be allo-                                   U.S. GAAP.
                                                                                                        Millions of yen
                                                                 Mobile phone         PHS          Quickcast     Miscellaneous    Corporate    Consolidated
Year ended March 31, 2003                                        businesses           business     business      businesses

Operating revenues.......................................... ¥ 4,690,444             ¥ 85,038     ¥  8,088         ¥ 25,518               —    ¥ 4,809,088
Operating expenses ......................................... 3,603,257                 113,332      14,546           21,234               —      3,752,369
Operating income (loss) .................................. ¥ 1,087,187               ¥ (28,294)   ¥ (6,458)        ¥ 4,284                —    ¥ 1,056,719




                                                                                                                                                              Financial Section
Assets ............................................................... ¥ 4,818,323   ¥ 134,900    ¥ 15,653         ¥ 4,823       ¥ 1,084,308   ¥ 6,058,007
Depreciation and amortization ........................ ¥ 712,726                     ¥ 27,668     ¥ 7,934          ¥   869                —    ¥ 749,197
Capital expenditures........................................ ¥ 600,769               ¥ 8,357      ¥    182              —        ¥ 244,648     ¥ 853,956


                                                                                                        Millions of yen
                                                                 Mobile phone         PHS          Quickcast     Miscellaneous    Corporate    Consolidated
Year ended March 31, 2004                                        businesses           business     business      businesses

Operating revenues.......................................... ¥ 4,937,666             ¥ 75,702      ¥ 5,981         ¥ 28,716               —    ¥ 5,048,065
Operating expenses ......................................... 3,798,785                 111,224        7,832          27,306               —      3,945,147
Operating income (loss) .................................. ¥ 1,138,881               ¥ (35,522)    ¥ (1,851)       ¥ 1,410                —    ¥ 1,102,918

Assets ............................................................... ¥ 4,847,982   ¥ 127,224     ¥ 13,531        ¥ 8,644       ¥ 1,264,885   ¥ 6,262,266
Depreciation and amortization ........................ ¥ 693,102                     ¥ 23,508      ¥ 2,643         ¥ 1,744                —    ¥ 720,997
Capital expenditures........................................ ¥ 601,060               ¥ 12,280      ¥     38             —        ¥ 192,104     ¥ 805,482
106             |


                                                                                                                                  Millions of yen
                                                                                       Mobile phone            PHS          Quickcast      Miscellaneous    Corporate      Consolidated
                      Year ended March 31, 2005                                        businesses              business     business       businesses

                      Operating revenues.......................................... ¥ 4,741,096                ¥ 63,095      ¥ 4,574          ¥ 35,845                  — ¥ 4,844,610
                      Operating expenses ......................................... 3,869,130                    148,976        9,682           32,656                  —   4,060,444
                      Operating income (loss) .................................. ¥ 871,966                    ¥ (85,881)    ¥ (5,108)        ¥ 3,189                   — ¥ 784,166

                      Assets ............................................................... ¥ 4,754,139      ¥ 50,907      ¥ 8,406          ¥ 10,781      ¥ 1,312,288 ¥ 6,136,521
                      Depreciation and amortization ........................ ¥ 705,716                        ¥ 22,996      ¥ 4,699          ¥ 2,012                — ¥ 735,423
                      Capital expenditures........................................ ¥ 696,638                  ¥ 4,840       ¥    10                —       ¥ 160,029 ¥ 861,517


                                                                                                                             Thousands of U.S. dollars
                                                                                       Mobile phone            PHS          Quickcast      Miscellaneous   Corporate       Consolidated
                      Year ended March 31, 2005                                        businesses              business     business       businesses

                      Operating revenues.......................................... $ 44,218,392 $ 588,463 $ 42,660                          $ 334,313                  — $ 45,183,828
                      Operating expenses ......................................... 36,085,898 1,389,442     90,300                            304,571                  — 37,870,211
                      Operating income (loss) .................................. $ 8,132,494 $ (800,979) $ (47,640)                         $ 29,742                   — $ 7,313,617

                      Assets ............................................................... $ 44,340,039 $     474,790    $ 78,400         $ 100,550 $ 12,239,209 $ 57,232,988
                      Depreciation and amortization ........................ $ 6,581,944 $                      214,475    $ 43,826         $ 18,765            — $ 6,859,010
                      Capital expenditures........................................ $ 6,497,277 $                 45,141    $     93                — $ 1,492,529 $ 8,035,040


                      DoCoMo does not disclose geographical segments, since                                        March 31, 2003, 2004 and 2005.
                      operating revenues generated outside Japan are immaterial.                                       Revenues from external customers for each similar prod-
                          There have been no sales and operating revenue from                                      uct and service are presented in the table “Breakdown of oper-
                      transactions with single external customer amounting to                                      ating revenues” included in Operating and Financial Review
                      10% or more of DoCoMo’s revenues for the years ended                                         and Prospects; Operating Results, of this annual report.


                      16. Employee benefits:
  Financial Section




                      DoCoMo participates in a contributory defined benefit wel-                                   were allocated by NTT and are based on actuarial calcula-
                      fare pension plan sponsored by the NTT group (“NTT/                                          tions related to DoCoMo’s covered employees.
                      Employee Pension Fund”). The number of DoCoMo’s                                                  DoCoMo adopted EITF 03-02, “Accounting for the
                      employees covered by the contributory plan represented                                       Transfer to the Japanese Government of the Substitutional
                      approximately 9.8% and 10.2% of the total people covered by                                  Portion of Employee Pension Fund Liabilities.” This Issue
                      such plan as of March 31, 2004 and 2005, respectively. The                                   provides a consensus that Japanese employers should
                      amount of expense allocated in DoCoMo’s consolidated state-                                  account for the entire separation process as a single settle-
                      ments of income and comprehensive income related to the                                      ment event upon completion of the transfer to the Japanese
                      contributory plan for the years ended March 31, 2003, 2004                                   government of the substitutional portion of the benefit
                      and 2005 was ¥8,661 million, ¥7,808 million and ¥5,719 mil-                                  obligations and related plan assets. Under the Law
                      lion ($53,339 thousand), respectively. The liability for                                     Concerning Defined-Benefit Corporate Pension Plans,
                      employees’ benefits covered by such contributory plan was                                    NTT/Employee Pension Fund, in which DoCoMo partici-
                      ¥25,499 million and ¥31,026 million ($289,367 thousand) as                                   pates, applied to the Japanese government for permission
                      of March 31, 2004 and 2005, respectively. Such amounts                                       that NTT/ Employee Pension Fund be released from future
                                                                                                                                                                                    | 107


obligation to disburse the NTT Plan benefits covering the                                             participants whose benefits have not been paid would fluc-
substitutional portion, and the application was approved in                                           tuate with market interest rates and other factors. As a
September 2003. However, in accordance with EITF 03-02,                                               result, the projected benefit obligation decreased by
no accounting should occur until the completion of the                                                ¥10,344 million ($96,475 thousand) in December 2003,
entire transfer. It is undetermined when the transfer of the                                          when the non-contributory defined benefit pension plans
benefit obligations and related plan assets will take place                                           were amended. From the plan amendment date, the effect
and what the net effect of settlement on DoCoMo’s result of                                           of such a reduction in the projected benefit obligation is
operations and financial position will be.                                                            reflected as an offset to the amortization of unrecognized
    DoCoMo also sponsors non-contributory defined bene-                                               prior service cost over the remaining service periods.
fit pension plans covering substantially all employees.                                                   The following table presents reconciliations of the
Based on the plans, employees whose services with                                                     changes in the non-contributory pension plans’ projected
DoCoMo are terminated are normally entitled to lump-sum                                               benefit obligations and fair value of plan assets at March 31,
severance payments and pension payments. On April 1,                                                  2004 and 2005. DoCoMo uses a measurement date of
2004, DoCoMo and its eight regional subsidiaries intro-                                               March 31 for its non-contributory pension plans.
duced a plan under which future pension benefits for plan
                                                                                                                                                                     Thousands of
                                                                                                                                        Millions of yen              U.S. dollars

                                                                                                                                     2004             2005              2005
Change in benefit obligations:
  Projected benefit obligation, beginning of year ........................................................                       ¥ 177,238        ¥ 172,530         $ 1,609,121
  Service cost ...............................................................................................................      10,715            9,683              90,310
  Interest cost...............................................................................................................       3,631            3,358              31,319
  Benefit payments.......................................................................................................           (9,263)          (8,935)            (83,333)
  Plan amendment .......................................................................................................           (11,774)             564               5,260
  Transfer of liability from NTT non-contributory funded pension plan....................                                            5,686            1,700              15,855
  Actuarial loss (gain)..................................................................................................           (3,703)             492               4,589
  Projected benefit obligation, end of year ..................................................................                   ¥ 172,530        ¥ 179,392         $ 1,673,121
Change in fair value of plan assets:
  Fair value of plan assets, beginning of year ..............................................................                    ¥   45,934       ¥       58,359    $   544,292
  Actual return on plan assets......................................................................................                  6,714                1,763         16,443
  Employer contributions ............................................................................................                 5,310                5,318         49,599




                                                                                                                                                                                    Financial Section
  Benefits payments .....................................................................................................            (1,233)              (1,048)        (9,774)
  Transfer of plan assets from NTT non-contributory funded pension plan ..............                                                1,634                  378          3,525
  Fair value of plan assets, end of year ........................................................................                ¥   58,359       ¥       64,770    $   604,085
At March 31:
  Funded status............................................................................................................      ¥ (114,171)      ¥ (114,622)       $ (1,069,036)
  Unrecognized net losses............................................................................................                50,110           48,149             449,068
  Unrecognized transition obligation ..........................................................................                       1,786            1,697              15,827
  Unrecognized prior service cost ...............................................................................                ¥ (25,976)       ¥ (23,597)        $ (220,080)
  Net amount recognized.............................................................................................             ¥ (88,251)       ¥ (88,373)        $ (824,221)
108             |


                      The following table provides the amounts recognized in DoCoMo’s consolidated balance sheets:
                                                                                                                                                                                      Thousands of
                                                                                                                                                             Millions of yen          U.S. dollars

                                                                                                                                                        2004               2005            2005
                      At March 31:
                        Liability for employees’ retirement benefits .............................................................                   ¥ (108,455)       ¥ (107,648)   $ (1,003,992)
                        Prepaid pension cost ................................................................................................                —                 58             541
                        Intangible assets .......................................................................................................           470               669           6,240
                        Accumulated other comprehensive income ............................................................                              19,734            18,548         172,990
                        Net amount recognized ............................................................................................           ¥ (88,251)        ¥ (88,373)    $ (824,221)

                      Liability for employees’ retirement benefits covered by the NTT Group
                        contributory defined benefit welfare pension plan ..................................................                         ¥ (25,499)        ¥ (31,026)    $     (289,367)

                      Total liability for employees’ retirement benefits ........................................................                    ¥ (133,954)       ¥ (138,674)   $ (1,293,359)


                      Prepaid pension cost is recorded in “Other assets.”                                                          The projected benefit obligation, the accumulated bene-
                          The accumulated benefit obligation for the non-contrib-                                             fit obligation and the fair value of plan assets in the pension
                      utory pension plans was ¥166,454 million and ¥172,376                                                   plans with accumulated benefit obligation in excess of plan
                      million ($1,607,685 thousand) at March 31, 2004 and                                                     assets on March 31, 2004 and 2005 are as follows:
                      2005, respectively.
                                                                                                                                                                                      Thousands of
                                                                                                                                                             Millions of yen          U.S. dollars

                                                                                                                                                        2004               2005            2005
                      At March 31:
                        Projected benefit obligation .....................................................................................            ¥ 172,380         ¥ 179,188     $ 1,671,218
                        Accumulated benefit obligation ...............................................................................                  166,330           172,202       1,606,062
                        Fair value of plan assets ...........................................................................................            58,205            64,586         602,369


                      The charges to income for the non-contributory pension plans for the years ended March 31, 2003, 2004 and 2005,
  Financial Section




                      included the following components:

                                                                                                                                                    Millions of yen                   Thousands of
                                                                                                                                                                                      U.S. dollars

                                                                                                                                  2003                  2004               2005            2005
                      Service cost.........................................................................................      ¥ 9,354              ¥ 10,715          ¥ 9,683          $ 90,310
                      Interest cost on projected benefit obligation......................................                           3,953                3,631             3,358            31,319
                      Expected return on plan assets...........................................................                    (1,180)              (1,181)           (1,497)          (13,962)
                      Amortization of prior service cost......................................................                     (1,217)              (1,465)           (1,815)          (16,928)
                      Amortization of actuarial loss ............................................................                   2,188                3,063             2,187            20,397
                      Amortization of transition obligation.................................................                          637                  637                89               830
                      Net pension cost ................................................................................          ¥ 13,735             ¥ 15,400          ¥ 12,005         $ 111,966
                                                                                                                                                                           | 109


The assumptions used in determination of the pension plans’ projected benefit obligations at March 31, 2004 and 2005 are
as follows:
                                                                                                                                                    2004          2005
Discount rate ..............................................................................................................................        2.0%          2.0%
Long-term rate of salary increases..............................................................................................                    2.1           2.1


The assumptions used in determination of the net pension costs for the years ended March 31, 2003, 2004 and 2005 are as
follows:
                                                                                                                                             2003          2004     2005
Discount rate.................................................................................................................               2.5%          2.0%     2.0%
Long-term rate of salary increases.................................................................................                          2.1           2.1      2.1
Expected long-term rate of return on plan assets .........................................................                                   2.5           2.5      2.5


In determining the expected long-term rate of return on plan                                              sis of historical results.
assets, DoCoMo considers the current and projected asset                                                       The non-contributory pension plan weighted-average
allocations, as well as expected long-term investment returns                                             asset allocations at March 31, 2004 and 2005 by asset cate-
and risks for each category of the plan assets based on analy-                                            gory are as follows:
                                                                                                                                                    2004          2005
Domestic stocks.........................................................................................................................             26.4%         24.7%
Domestic bonds .........................................................................................................................             28.7          29.0
International stocks ...................................................................................................................             14.4          14.8
International bonds ...................................................................................................................              17.2          10.0
Other..........................................................................................................................................      13.3          21.5
Total ...........................................................................................................................................   100.0%        100.0%


The non-contributory pension plan’s policy toward plan                                                     NTT, common stocks in the amount of ¥164 million (0.3%
assets management is formulated with the ultimate objective                                                of total plan assets) and ¥9 million ($84 thousand) (0.0% of
of ensuring the steady disbursement of pension benefits in                                                 total plan assets), and NTT Urban Development Co., a sub-




                                                                                                                                                                           Financial Section
future periods. The long-term objective of asset manage-                                                   sidiary of NTT, common stocks in the amount of nil and ¥13
ment, therefore, is to secure the total profits deemed neces-                                              million ($121 thousand) (0.0% of total plan assets) at March
sary to ensure financial soundness of plan assets. To achieve                                              31, 2004 and 2005, respectively.
this, DoCoMo selects various investments and takes into                                                        Prior service cost and unrecognized net losses in excess
consideration their expected returns and risks and the corre-                                              of 10% of the greater of the projected benefit obligation or
lation among the investments. DoCoMo then sets a target                                                    the fair value of plan assets are being amortized over the
allocation ratio for the plan assets and endeavors to maintain                                             expected average remaining service life of employees on a
that ratio. The target ratio is formulated from a mid- to                                                  straight-line basis.
long-term perspective and reviewed annually. In the event                                                      From time to time, employees of NTT transfer to
that the investment environment changes dramatically,                                                      DoCoMo. Upon such transfer, NTT transfers the related
DoCoMo will review the asset allocation, as necessary. The                                                 vested pension obligation for each employee, along with a
target ratio in March 2005 is: domestic stocks, 25.0%;                                                     like amount of plan assets and cash. Therefore, the differ-
domestic bonds, 30.0%; international stocks, 15.0%; interna-                                               ence between the pension obligation and related plan assets
tional bonds, 20.0%; and other financial instruments 10.0%.                                                transferred from NTT to DoCoMo, included in the above
     Domestic stocks include DoCoMo common stocks in the                                                   reconciliation, represents cash paid by NTT to DoCoMo,
amount of ¥346 million (0.6% of total plan assets) and ¥217                                                which has not been invested in plan assets.
million ($2,024 thousand) (0.3% of total plan assets), NTT                                                     DoCoMo expects to contribute ¥5,645 million ($52,649
common stocks in the amount of ¥314 million (0.5% of total                                                 thousand) to the non-contributory pension plan in the year
plan assets) and ¥180 million ($1,679 thousand) (0.3% of                                                   ending March 31, 2006.
total plan assets), NTT DATA Corporation, a subsidiary of
110             |


                      The benefit payments, which reflect expected future service under the non-contributory pension plans, as appropriate, are
                      expected to be as follows:
                                                                                                                                                                                                       Thousands of
                                                                                                                                                                                     Millions of yen   U.S. dollars
                      Year ending March 31,

                      2006 .......................................................................................................................................................     ¥ 10,275         $ 95,831
                      2007 .......................................................................................................................................................       10,515           98,069
                      2008 .......................................................................................................................................................       12,550          117,049
                      2009 .......................................................................................................................................................       11,549          107,713
                      2010 .......................................................................................................................................................       14,892          138,892
                      2011-2015 ..............................................................................................................................................           54,078          504,365


                      Certain of DoCoMo’s employees participate in an employee                                                  each participating employee’s salary, with a small contribu-
                      stock purchase plan, pursuant to which a plan administra-                                                 tion from DoCoMo. The expense recorded by DoCoMo for
                      tor makes open market purchases of DoCoMo shares for the                                                  contributions made toward employee stocks purchases was
                      accounts of participating employees on a monthly basis.                                                   not material to its results of operations for the years ended
                      Such purchases are made out of amounts deducted from                                                      March 31, 2003, 2004 and 2005, respectively.


                      17. Income taxes:

                      Total income taxes for the years ended March 31, 2003, 2004 and 2005 were allocated as follows:

                                                                                                                                                           Millions of yen                             Thousands of
                                                                                                                                                                                                       U.S. dollars

                                                                                                                                        2003                     2004                    2005             2005
                      Income from continuing operations .................................................                          ¥ 454,487                 ¥ 429,116                ¥ 527,711        $ 4,921,759
                      Equity in net losses of affiliates ........................................................                   (226,450)                    4,527                   (1,492)           (13,916)
                      Cumulative effect of accounting change ...........................................                             (25,852)                       —                        —                  —
                      Other comprehensive income (loss):
                        Unrealized holding gains (losses)
                          on available-for-sale securities ...................................................                               (476)                  6,711                  8,045           75,033
                        Less: Reclassification adjustments
  Financial Section




                          for net gains (losses) included in net income ............................                                          (41)                   (106)                   259             2,416
                        Net revaluation of financial instruments .......................................                                      176                      53                   (148)           (1,380)
                        Less: Reclassification adjustments
                          for net gains (losses) included in net income ............................                                         —                        —                     (155)          (1,446)
                        Foreign currency translation adjustment ......................................                                  (28,779)                 (23,752)                  3,672           34,247
                        Less: Reclassification adjustments
                          for net gains (losses) included in net income ............................                                      —                         —                   (25,985)          (242,352)
                        Minimum pension liability adjustment .........................................                               (13,637)                   11,104                       49                457
                                                                                                                                   ¥ 159,428                 ¥ 427,653                ¥ 511,956        $ 4,774,818
                                                                                                                                                                        | 111


Virtually all income or loss before income taxes and income                                           reverse after March 31, 2004. The effect of the change in
tax expenses or benefit are domestic.                                                                 the rates on net deferred tax assets was a reduction of
    The Company and its domestic subsidiaries are subject                                             ¥18,213 million and was charged to income taxes in the
to a National Corporate Tax of 30%, an Inhabitant Tax of                                              year ended March 31, 2003. During the year ended March
approximately 6% and a deductible Japanese Enterprise Tax                                             31, 2004, a change to the Japanese Enterprise Tax rates was
of approximately 10%. The Inhabitant Tax rate and the                                                 enacted in the local jurisdictions. The combined statutory
Japanese Enterprise Tax rate vary by local jurisdiction. In                                           income tax rate was raised to approximately 40.9% effective
March 2003, the Japanese government promulgated the                                                   April 1, 2004. The effect of the change in the rates on net
amendments to the tax law, which introduced the pro forma                                             deferred tax assets was an increase of net income by ¥3,447
standard taxation system for one-fourth of the corporate                                              million in the year ended March 31, 2004.
enterprise tax assessed on income where tax is determined                                                 The aggregate statutory income tax rate was 42.0%,
by a value-added assessment rate applied to wages paid and                                            42.0% and 40.9% for the years ended March 31, 2003, 2004
by a capital assessment rate applied to capital. The new                                              and 2005. The effective income tax rate for the years ended
statutory income tax rates are effective for the years begin-                                         March 31, 2003, 2004 and 2005 was 43.6%, 39.0% and
ning after March 31, 2004. As a result of the change in tax                                           41.0%, respectively.
laws, with a new combined statutory income tax rate                                                       Reconciliation of the difference of the effective tax rates
reduced to 40.7%, DoCoMo recalculated deferred tax assets                                             of DoCoMo and the statutory tax rates are as follows:
and liabilities for temporary differences scheduled to
                                                                                                                                  2003     2004           2005
Statutory tax rate...........................................................................................................     42.0%   42.0%           40.9%
  Expenses not deductible for tax purposes .................................................................                       0.3     0.2             0.2
  Tax credit for special tax treatment applied to
    IT and research and development investment ........................................................                           (0.2)   (3.0)           (1.9)
  Changes in valuation allowance ................................................................................                   —       —              1.8
  Others, net .................................................................................................................    1.5    (0.2)           (0.0)
Effective tax rate............................................................................................................    43.6%   39.0%           41.0%




                                                                                                                                                                        Financial Section
112             |


                      Deferred income taxes result from temporary differences                                                ponents of deferred tax assets and liabilities at March 31,
                      between the financial statement carrying amounts and the                                               2004 and 2005 are as follows:
                      tax bases of existing assets and liabilities. Significant com-
                                                                                                                                                                                     Thousands of
                                                                                                                                                              Millions of yen        U.S. dollars

                                                                                                                                                           2004             2005         2005
                      Deferred tax assets:
                        Investments in affiliates ............................................................................................           ¥ 487,234      ¥ 91,750     $   855,717
                        Loss carryforwards....................................................................................................                  —         74,643         696,167
                        Liability for employee benefits..................................................................................                   49,484        53,641         500,289
                        Property, plant and equipment and intangible assets
                          due to differences in depreciation and amortization .............................................                                 39,163         50,343        469,530
                        Allowance for loyalty programs ................................................................................                     40,013         39,015        363,878
                        Accrued commissions to agent resellers ...................................................................                          24,886         26,436        246,558
                        Deferred revenues regarding Nikagetsu Kurikoshi...................................................                                  13,139         24,849        231,757
                        Tax credit carryforwards ...........................................................................................                    —          23,526        219,418
                        Compensated absences ............................................................................................                    7,415          7,845         73,167
                        Accrued bonus ..........................................................................................................             6,648          6,370         59,411
                        Accrued enterprise tax ..............................................................................................               30,954          2,571         23,979
                        Marketable securities and other investments ...........................................................                             16,382            873          8,142
                        Other.........................................................................................................................      11,783         14,050        131,039
                        Subtotal gross deferred tax assets .............................................................................                   727,101        415,912      3,879,052
                        Less valuation allowance .........................................................................................                      —         (23,436)      (218,578)
                      Total deferred tax assets ..............................................................................................           ¥ 727,101      ¥ 392,476    $ 3,660,474
                      Deferred tax liabilities:
                        Foreign currency translation adjustment..................................................................                           38,377         16,064        149,823
                        Unrealized holding gains on available-for-sale securities ........................................                                   6,872         15,176        141,541
                        Intangible assets (principally customer related assets).............................................                                25,064         12,445        116,070
                        Enterprise tax refunds receivable..............................................................................                         —           8,627         80,461
                        Property, plant and equipment due to differences in capitalized interest.................                                            4,056          2,944         27,457
                        Other ........................................................................................................................       7,509         10,744        100,205
                      Total gross deferred tax liabilities ................................................................................              ¥ 81,878       ¥ 66,000     $ 615,557
  Financial Section




                      Net deferred tax assets ................................................................................................           ¥ 645,223      ¥ 326,476    $ 3,044,917


                      At March31, 2005, DoCoMo has loss carryforwards for                                                    allowance on deferred tax assets to reflect the expected
                      income tax purposes of ¥74,643 million ($696,167 thou-                                                 future tax benefits to be realized. The net change in the
                      sand), which are available to offset future taxable income                                             total valuation allowance for the year ended March 31, 2005
                      for up to 7 years (through the year ended March 31, 2012)                                              is an increase of ¥23,436 million ($218,579 thousand). The
                      in tax laws, as well as tax credits carryforwards for the spe-                                         valuation allowance at March 31, 2005 relates to tax credit
                      cial tax treatment applied to IT and research and develop-                                             carryforwards for special treatment applied to IT and
                      ment investment of ¥23,526 million ($219,418 thousand),                                                research and development. Management believes that the
                      which are allowed to be carried forward for 1 year if there is                                         amount of the deferred tax assets, less valuation allowance,
                      an excess amount over the limitation.                                                                  is realizable, however, could be reduced in the near term if
                          In assessing the realizability of deferred tax assets, man-                                        estimates of future taxable income during the carryforward
                      agement considers whether it is more likely than not that                                              period are reduced.
                      some portion or all of the deferred tax assets will not be
                      realized. The ultimate realization of deferred tax assets is                                           Other taxes—
                      dependent upon the generation of future taxable income                                                 The consumption tax rate for all taxable goods and services,
                      during the periods in which those temporary differences                                                with minor exceptions, is 5 percent. Consumption tax
                      and tax carryforwards become deductible. Management                                                    payable or receivable is determined based on consumption
                      considers the scheduled reversal of deferred tax liabilities,                                          taxes levied on operating revenues offset by consumption
                      projected future taxable income, and tax planning strategies                                           taxes directly incurred by the Company when purchasing
                      in making this assessment. DoCoMo records a valuation                                                  goods and services.
                                                                                                                                                                                                 | 113


18. Commitments and contingencies:

Leases—
DoCoMo leases certain facilities and equipment in the normal course of business. Assets covered under capital leases at
March 31, 2004 and 2005 are as follows:
                                                                                                                                                                                  Thousands of
                                                                                                                                                 Millions of yen                  U.S. dollars
Class of property                                                                                                                          2004                    2005              2005
Tools, furniture and fixtures.........................................................................................                 ¥ 20,515                 ¥ 13,226          $ 123,354
Computer software.......................................................................................................                  1,881                    1,648             15,370
                                                                                                                                         22,396                   14,874            138,724
Accumulated depreciation and amortization ...............................................................                               (15,714)                  (9,327)           (86,989)
                                                                                                                                       ¥ 6,682                  ¥ 5,547           $ 51,735


Tools, furniture and fixtures are classified as part of property, plant and equipment, while computer software is classified as
part of intangible assets.

Future minimum lease payments by year under capital leases together with the present value of the net minimum lease pay-
ments as of March 31, 2005 are as follows:.
                                                                                                                                                                                  Thousands of
Year ending March 31,                                                                                                                                           Millions of yen   U.S. dollars

2006 ........................................................................................................................................................     ¥ 3,693         $ 34,443
2007 ........................................................................................................................................................       2,721           25,378
2008 ........................................................................................................................................................       1,026            9,569
2009 ........................................................................................................................................................         532            4,962
2010 ........................................................................................................................................................         193            1,800
Thereafter ................................................................................................................................................            50              466
  Total minimum lease payments ...........................................................................................................                          8,215           76,618
Less – Amount representing interest.......................................................................................................                           (450)          (4,197)
Present value of net minimum lease payments .......................................................................................                                 7,765           72,421
Less – Amounts representing estimated executory costs ........................................................................                                       (858)          (8,002)




                                                                                                                                                                                                 Financial Section
Net minimum lease payments.................................................................................................................                         6,907           64,419
Less – Current obligation........................................................................................................................                  (3,146)         (29,342)
Long-term capital lease obligations.........................................................................................................                      ¥ 3,761         $ 35,077


The above obligations are classified as part of other current and long-term liabilities, as appropriate.

The minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in
excess of one year at March 31, 2005 are as follows:
                                                                                                                                                                                  Thousands of
Year ending March 31,                                                                                                                                           Millions of yen   U.S. dollars

2006 ........................................................................................................................................................    ¥ 1,506          $ 14,046
2007 ........................................................................................................................................................       1,507            14,055
2008 ........................................................................................................................................................       1,424            13,281
2009 ........................................................................................................................................................       1,424            13,281
2010 ........................................................................................................................................................       1,424            13,281
Thereafter ................................................................................................................................................        18,509           172,627
  Total minimum future rentals ..............................................................................................................                    ¥ 25,794         $ 240,571
114             |


                      The following schedule shows total rental expense for all operating leases for the years indicated except those with terms of
                      one month or less that were not renewed:

                                                                                                                                                Millions of yen               Thousands of
                                                                                                                                                                              U.S. dollars

                                                                                                                               2003                 2004           2005          2005
                      Minimum rentals .................................................................................      ¥ 41,653            ¥ 76,879         ¥67,078     $625,611


                      Litigation—                                                                                         nize an initial liability for the fair value of the obligations it
                      At March 31, 2005, DoCoMo had no litigation or claims                                               has undertaken in issuing and must disclose that informa-
                      outstanding, pending or threatened against it, which in the                                         tion in its financial statements.
                      opinion of management would have a material adverse                                                     DoCoMo enters into agreements in the normal course of
                      effect on the results of operations or the financial position.                                      business that provide for guarantees of counterparties.
                                                                                                                          These counterparties include customers, related parties and
                      Purchase commitments—                                                                               other business partners. Although the most of guarantees
                      DoCoMo has entered into various contracts for the pur-                                              provided for customers relate to product defects of cellular
                      chase of property, plant and equipment and inventories                                              phone handsets sold by DoCoMo, DoCoMo is provided
                      (primarily handsets). Commitments outstanding at March                                              similar guarantees by the handset vendors. Though the
                      31, 2005 amounted to ¥44,266 million ($412,852 thou-                                                guarantees or indemnifications provided in other transac-
                      sand) (of which ¥1,233 million ($11,500 thousand) are                                               tions than with the customers are different in each con-
                      with related parties) for property, plant and equipment and                                         tracts, the likelihood of almost all of the performance of
                      ¥37,626 million ($350,923 thousand) (of which none are                                              these guarantees or indemnifications are remote and
                      with related parties) for inventories.                                                              amount of payments DoCoMo could be required is not
                                                                                                                          specified in almost all of the contract.             Historically,
                      Guarantees—                                                                                         DoCoMo has not made any significant guarantee or indem-
                      DoCoMo adopted FIN No. 45 (“FIN 45”), “Guarantor’s                                                  nification payments under such agreements. DoCoMo esti-
                      Accounting and Disclosure Requirements for Guarantees,                                              mates the estimated fair value of the obligations related to
                      Including Indirect Guarantees of Indebtedness of Others.”                                           these agreements is not significant. Accordingly, DoCoMo
                      FIN 45 requires that if a company issues or modifies a guar-                                        has no liabilities have been recognized for these obligations
                      antee on or after January 1, 2003, the company must recog-                                          as of March 31, 2005.
  Financial Section




                      19. Fair value of financial instruments:

                      All cash and temporary investments, current receivables,                                            Long-term debt, including current portion—
                      current payables, and certain other short-term financial                                            The fair value of long-term debt, including current portion,
                      instruments are short-term in nature, and therefore their                                           is estimated based on the discounted amounts of future
                      carrying amount approximates fair values. Information                                               cash flows using DoCoMo’s current incremental borrowings
                      relating to investments in affiliates and marketable securi-                                        rates for similar liabilities.
                      ties and other investments are disclosed in Notes 6, 7 and 9,
                      respectively.

                      The carrying amounts and the estimated fair values of long-term debt, including current portion at March 31, 2004 and
                      2005 are as follows:
                                                      Millions of yen                                          Thousands of U.S. dollars

                                       2004                                      2005                                       2005
                           Carrying           Fair value             Carrying            Fair value            Carrying            Fair value
                           amounts                                   amounts                                   amounts

                        ¥1,091,596          ¥1,106,339             ¥ 948,523           ¥ 956,952           $ 8,846,512 $ 8,925,126
                                                                                                                                              | 115


Risk management—                                                             the net investments in a foreign operation are reclassified
DoCoMo’s earnings and cash flows may be negatively                           into earnings for the year ended March 31, 2005, and we
impacted by fluctuating interest and foreign exchange rates.                 recorded gains totaled to ¥6,468 million ($60,325 thou-
To manage these risks, DoCoMo uses financial instruments                     sand) as a part of gain on sale of affiliate shares, which is
such as interest rate and currency swap contracts. The                       included in other (income) expense, in the consolidated
derivative financial instruments are executed with credit-                   statements of income and comprehensive income for the
worthy financial institutions, and DoCoMo management                         year ended March 31, 2005.
believes there is little risk of default by these counterparties.                 In February 2005, DoCoMo entered into a currency
DoCoMo has and follows internal regulations that establish                   swap contract to hedge currency exchange risk associated
conditions to enter into derivative contracts, and proce-                    with the original principal and interest payments of the
dures of approving and monitoring such contracts.                            $100 million unsecured corporate bonds. The currency
    In March 2003, DoCoMo issued $100 million unsecured                      swap is designated as a cash flow hedging instrument and is
corporate bonds in order to hedge a portion of its net                       highly effective as a hedge against fluctuations in currency
investment in AT&T Wireless. This financial instrument                       exchange rates, as it fixes the future cash flows of the bonds
was effective as a hedge against fluctuations in currency                    in yen. As all the essential terms of the currency swap and
exchange rates. Translation gains or losses from this instru-                the hedged item are identical, there is no ineffective portion
ment, which offset translation gains or losses on the invest-                to the hedge. The gain or loss from the fluctuation in the
ment in AT&T Wireless, were recorded as a foreign                            fair value of the swap transaction is recorded as accumu-
currency translation adjustment in other comprehensive                       lated other comprehensive income. The amount recorded
income. The translation loss as of March 31, 2004 from this                  as accumulated other comprehensive income will be reclas-
instrument was ¥712 million and recorded as a foreign cur-                   sified as the gain or loss when the offsetting gain or loss
rency translation adjustment for the year ended March 31,                    derived from the hedged item is recorded in our consoli-
2004. During the year ended March 31, 2005, DoCoMo                           dated statements of income and comprehensive income.
used foreign exchange forward contracts to hedge a portion                   For the year ended March 31, 2005, ¥254 million ($2,369
of its net investment in AT&T Wireless. These financial                      thousand) of loss from currency translation and ¥28 million
instruments were effective as hedges against fluctuations in                 ($261 thousand) of interest expense are reclassified and
net investment in AT&T Wireless derived from fluctuations                    ¥213 million ($1,987 thousand) of loss, net of applicable
of currency exchange rates. On October 26, 2004, as a                        taxes, was recorded as a valuation difference of financial
result of the completion of the AT&T Wireless and Cingular                   instruments included in accumulated other comprehensive
merger, we sold all our AT&T Wireless shares. As the                         income in our consolidated statements of income and com-
hedged item no longer exists, these hedging instruments for                  prehensive income.




                                                                                                                                              Financial Section
Foreign currency swap agreement —
The table below shows the contract amounts and fair value of those derivative financial instruments at March 31, 2004 and 2005:
                           Millions of yen                             Thousands of U.S. dollars

              2004                                2005                           2005
   Contract          Fair value        Contract          Fair value   Contract          Fair value
   Amounts                             Amounts                        Amounts

     ¥—                ¥—             ¥ 10,485             ¥ 79       $ 97,790           $ 737
116             |


                      The foreign currency swap agreements have a remaining                                         amounts that DoCoMo could have settled with the counter-
                      term to maturity of 3 years.                                                                  parties to terminate the swaps outstanding at March 31,
                          The fair value of a foreign currency swap was obtained                                    2004 and 2005.
                      from counterparty financial institutions and represents the

                      Interest rate swap agreements—
                      The table below shows the contract amounts and fair value of the derivative financial instruments at March 31, 2004 and 2005:
                                                                                                                                 Millions of yen
                                                                                            Weighted average rate                      2004
                                                                                       Receive floating    Pay fixed        Contract          Fair value
                      Term                                                                                                  Amounts

                      1995–2005 ....................................................       0.4%             3.2%            ¥ 1,500            ¥ (66)
                                                                                        Receive fixed     Pay floating      Contract          Fair value
                                                                                                                            Amounts

                      2003–2011 ....................................................       1.5%             0.1%            ¥ 50,000              ¥ 90


                                                                                                                                 Millions of yen               Thousands of U.S. dollars
                                                                                            Weighted average rate                      2005                               2005
                                                                                       Receive floating    Pay fixed        Contract          Fair value       Contract          Fair value
                      Term                                                                                                  Amounts                            Amounts

                      1995–2005 ....................................................       0.5%             3.6%           ¥   1,000          ¥     (31)   $       9,327 $          (289)
                                                                                        Receive fixed     Pay floating      Contract          Fair value       Contract          Fair value
                                                                                                                            Amounts                            Amounts

                      2003–2011 ....................................................       1.5%             0.1%           ¥120,000           ¥ 3,556      $ 1,119,194 $ 33,165


                      The interest rate swap agreements have remaining terms to                                     Concentrations of risk—
                      maturity ranging from 9 months to 6 years and 6 months.                                       As of March 31, 2005, DoCoMo did not have any significant
                          The fair value of interest rate swaps was obtained from                                   concentration of business transacted with an individual
                      counterparty financial institutions and represents the                                        counterparty or groups of counterparties that could, if sud-
                      amounts that DoCoMo could have settled with the counter-                                      denly eliminated, severely impact its operations.
  Financial Section




                      parties to terminate the swaps outstanding at March 31,
                      2004 and 2005.


                      20. Subsequent event:

                      Purchase of the shares of Sumitomo Mitsui Card Company,                                       new credit transaction services which use mobile phones
                      Limited                                                                                       with wallet functions and DoCoMo would form a capital
                      On April 27, 2005, DoCoMo entered into an agreement with                                      alliance with Sumitomo Mitsui Card. Based on the agree-
                      Sumitomo Mitsui Card Company, Limited (“Sumitomo                                              ment, DoCoMo plans to acquire 34% of Sumitomo Mitsui
                      Mitsui Card”), Sumitomo Mitsui Financial Group, Inc.                                          Card’s common shares for approximately ¥98 billion, includ-
                      (“SMFG”) and Sumitomo Mitsui Banking Corporation that                                         ing new shares to be issued by Sumitomo Mitsui Card.
                      DoCoMo and these companies would jointly promote the
                 R E P O RT O F I N D E P E N D E N T R E G I S T E R E D                                           | 117
                          PUBLIC ACCOUNTING FIRM




                         Report of Independent Registered Public Accounting Firm

The Board of Directors and the Shareholders
NTT DoCoMo, Inc.:

We have audited the accompanying consolidated balance sheets of NTT DoCoMo, Inc. (a Japanese corpora-
tion) and subsidiaries as of March 31, 2004 and 2005, and the related consolidated statements of income and
comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended
March 31, 2005. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the management, as well as evaluat-
ing the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of NTT DoCoMo, Inc. and subsidiaries as of March 31, 2004 and 2005, and the results of
their operations and their cash flows for each of the years in the three-year period ended March 31, 2005, in




                                                                                                                    Financial Section
conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 of the notes to consolidated financial statements, the Company changed its method of
accounting for certain commissions paid to agents as required by Emerging Issues Task Force Issue No. 01-09,
“Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's
Products),” effective April 1, 2002.

The accompanying consolidated financial statements as of and for the year ended March 31, 2005 have been
translated into United States dollars solely for the convenience of the reader. We have audited the translation
and, in our opinion, the consolidated financial statements expressed in Japanese yen have been translated into
dollars on the basis set forth in Note 3 of the notes to the consolidated financial statements.




Tokyo, Japan
June 21, 2005
118             |                              R E C O N C I L I AT I O N S O F T H E D I S C L O S E D
                                N O N - G A A P F I N A N C I A L M E A S U R E S T O T H E M O S T D I R E C T LY
                                            C O M PA R A B L E G A A P F I N A N C I A L M E A S U R E S
                      EBITDA and EBITDA margin
                                                                                                                                           Millions of yen
                                                                                                                                       Year ended March 31,
                                                                                                        2001               2002                 2003                  2004                  2005
                       a.EBITDA ..................................................................   ¥ 1,425,335      ¥ 1,680,596           ¥ 1,836,264          ¥ 1,858,920           ¥ 1,625,661
                       Depreciation and amortization expenses ..................                        (595,598)        (640,505)             (749,197)            (720,997)             (735,423)
                       Losses on sale or disposal of property,
                         plant and equipment ..............................................             (51,117)           (39,204)              (30,348)              (35,005)             (45,673)
                       Impairment loss.........................................................              —                  —                     —                     —               (60,399)
                       Operating income......................................................           778,620          1,000,887             1,056,719             1,102,918              784,166
                       Other income (expense)............................................               (20,489)           (44,496)              (13,751)               (1,795)             504,055
                       Income taxes .............................................................      (317,337)          (399,643)             (454,487)             (429,116)            (527,711)
                       Equity in net losses of affiliates .................................             (17,767)          (643,962)             (324,241)              (21,960)             (12,886)
                       Minority interests in earnings
                         of consolidated subsidiaries ...................................               (21,272)           (28,977)              (16,033)                    (40)                  (60)
                       Cumulative effect of accounting change ...................                            —                  —                (35,716)                     —                     —

                       b.Net income (loss)...................................................           401,755           (116,191)              212,491               650,007             747,564
                       c.Total operating revenues.........................................            4,178,056          4,659,254             4,809,088             5,048,065           4,844,610
                       EBITDA margin(=a/c)...............................................                 34.1%              36.1%                 38.2%                 36.8%               33.6%
                       Net income (loss) margin (=b/c)...............................                      9.6%             (2.5)%                  4.4%                 12.9%               15.4%
                      Note : EBITDA and EBITDA margin, as we use them, are different from EBITDA as defined in Item 10(e) of regulation S-K and may not be comparable to similarly titled measures
                             used by other companies.




                      Adjusted free cash flows (excluding irregular factors and changes in investments for cash management purpose)
                                                                                                                                           Millions of yen
                                                                                                                                       Year ended March 31,
                                                                                                        2001               2002                 2003                  2004                  2005
                       Adjusted free cash flows
  Financial Section




                         (excluding irregular factors and changes
                         in investments for cash management purpose) .. ¥ 134,771                                    ¥     233,327         ¥     468,915         ¥    862,934          ¥ 1,003,583
                       Irregular factors (1)...................................................   (2,019,843)              (20,000)              244,000                   —                    —
                       Changes in investments for cash
                         management purpose (2).......................................                (1,297)                 2,668                  265                    —             (400,327)
                       Free cash flows .......................................................... (1,886,369)               215,995              713,180               862,934             603,256
                       Net cash used in investing activities .........................            (2,744,215)            (1,125,093)            (871,430)             (847,309)           (578,329)
                       Net cash provided by operating activities .................                   857,846              1,341,088            1,584,610             1,710,243           1,181,585
                      Notes : (1) Irregular factors represent the effects of uncollected revenues due to a bank holiday at the end of periods. For the year ended March 31, 2001, this also included the
                                  effect of foreign investments totaling ¥1,795.8 billion.
                              (2) Changes in investments for cash management purpose were derived from purchases, redemption at maturity and sales of financial instruments held for cash manage-
                                  ment purpose with original maturity of longer than three months.
                                                                      S T O C K I N F O R M AT I O N                                                                                          | 119
                                                                                 (AS OF MARCH 31, 2005)




Transfer Agent                                                                                            Number of Shares
  UFJ Trust Bank Limited Corporate Agency Department                                                       Authorized: 190,020,000
   4-3, Marunouchi 1-chome, Chiyoda-ku,                                                                    Issued: 48,700,000
   Tokyo 100-0005, Japan
   Phone: +81 3 5683 5111                                                                                 Number of Shareholders
                                                                                                           361,924
Depositary for American Depositary Receipts (“ADRs”)
 The Bank of New York                                                                                     Distribution of Ownership among Shareholders
   101 Barclay Street, New York, NY 10286, U.S.A.                                                              Treasury Stocks (4.99%)                          Other Corporations (1.40%)
   Phone: +1 212 815 8161                                                                                      Individuals and Other
                                                                                                               (6.23%)

Stock Listings                                                                                                 Foreign Corporations
                                                                                                               (12.93%)
  Tokyo Stock Exchange, First Section (Code: 9437)
  New York Stock Exchange (Symbol: DCM)                                                                        Financial Institutions                                          NTT (59.85%)
                                                                                                               (14.60%)
  London Stock Exchange (Symbol: NDCM)


Major Shareholders
                                                                                                                                                  Number of     Percentage of
                                                                                                                                                  Shares Held   Total Issued Shares (%)

 Nippon Telegraph and Telephone Corporation .....................................................................                                29,146,000            59.85
 Japan Trustee Services Bank, Ltd. (Trust Account) ...............................................................                                1,793,996             3.68
 The Master Trust Bank of Japan, Ltd. (Trust Account) .........................................................                                   1,689,231             3.47
 State Street Bank and Trust Company 505103 ......................................................................                                  422,230             0.87
 Trust & Custody Services Bank, Ltd. (Trust Account B) ......................................................                                       261,598             0.54
 Japan Trustee Services Bank, Ltd. (Trust Account 4) ............................................................                                   248,564             0.51
 The Mitsubishi Trust and Banking Corporation (Trust Account) .........................................                                             191,023             0.39
 Mizuho Trust & Banking Co., Ltd. (Trust Account Z) .........................................................                                       190,914             0.39
 UFJ Trust Bank Limited (Trust Account A) ...........................................................................                               184,660             0.38
 The Chase Manhattan Bank, N.A. London ............................................................................                                 180,864             0.37
 Total .......................................................................................................................................   34,309,080            70.45
Note: Treasury shares are not included in the above list.




                                                                                                                                                                                              Stock Information
Stock Performance of NTT DoCoMo on the Tokyo Stock Exchange
(yen)                                                                                                                                                                                (yen)
25,000                                                                                                                                                                             750,000
                                                         Nikkei 225 Index (left)
20,000                                                                                                                                                                             600,000


15,000                                                                                                                                                                             450,000


10,000                                                                                                                                                                             300,000


 5,000                                                                                                                                                                             150,000
                                                         DoCoMo Share Price (right)
       0                                                                                                                                                                                  0
(Million)                                                   Trading Volume
       4
      3
      2
      1
      0
                                2001                                  2002                                   2003                                2004                  2005
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