NTT DoCoMo (NYSE: DCM) reported first quarter profits of 173.5 billion yen ($1.6 billion) in the three months ended June 30, the company said today. The 41 percent jump in profits—up from 122.8 billion yen ($1.14 billion) compared to the same period last year—was attributed to reduced handset subsidies to customers. Sales, however, were down 1.1 percent to 1.17 trillion yen ($10.8 billion).

In November, DoCoMo embarked on a new pricing plan in which they cut the subsidies they pay on phones in exchange for lower priced or free calls. Customers who accepted the new tariffs were put on a monthly payment plan to pay for their phones, which “helped bolster profit in the quarter,’’ President Ryuji Yamada said in a press conference. Analysts, however, questioned whether the boost form the reduced handset subsidies could last. Bloomberg reports that Deutsche Bank analyst Kenji Nishimura called the results a “matter of accounting.” He noted, “DoCoMo’s challenge is how to shore up its earnings once the positive effect of the installment plan dissipates and its discount offerings start depressing profit.”

Earnings Highlights:

— Net Adds: The carrier has seen net adds stall, as its smaller rivals add at nearly twice its rate. In the 12 months ended June 30, DoCoMo added a net 783,000 subscribers, while Softbank added 2.7 million and KDDI added 1.6 million. Japan’s Telecommunications Carriers Association estimates that DoCoMo currently has a 52 percent share of Japan’s mobile market, as compared with KDDI’s share of 29 percent, and Softbank’s 18 percent slice.

— Churn Rate Down: DoCoMo’s churn rate fell to to .51 percent down from .85 percent a year ago, on the back of its new offers.

— Aggregate APRU Down, Data ARPU Up: Aggregate ARPU for FY2008, 1Q was 5,890 yen ($55), down 10.2 percent year on year. Data ARPU was 2,330 yen ($22), up 9.9 percent yoy.

Earnings Release | Presentation