KDDI Corp., Japan's second-biggest mobile phone operator, said Thursday that operating profit for the year ended March 31 rose 16.2 percent to ¥400.5 billion as it continued to add new subscribers.

Net profit jumped 16.6 percent to ¥217.8 billion from a year ago and sales climbed 7.8 percent to ¥3.6 trillion.

KDDI started offering free calls for family and corporate customers last month who sign two-year contracts in an attempt to narrow Softbank Corp.'s lead in those areas.

In March, No. 3 player Softbank grabbed more subscribers than its rivals for the 11th consecutive month on the strength of its unique handsets and discount plans.

KDDI said its au brand had 30.1 million subscribers as of March 31, exceeding its goal of 30 million after adding 500,500 new customers.

Softbank topped that by adding 543,900 new customers in March, bringing its total to 18.6 million. Industry leader NTT DoCoMo Inc. meanwhile added 173,700 the same month for a total of 53.4 million subscribers.

For the current year, KDDI expects group operating profit to jump 10.6 percent to ¥443 billion and sales to rise 2.9 percent to ¥3.7 trillion. Net profit is projected to come in at ¥250 billion, up 14.8 percent.

But Noritaka Kobayashi, a senior consultant at Nomura Research Institute in Tokyo, said KDDI is losing competitiveness in handset lineups and services amid fierce price wars in a saturated market.

"I'm most worried about KDDI as it has failed to show its uniqueness in terms of handsets and services, compared with DoCoMo and Softbank," he said.

KDDI President Tadashi Onodera acknowledged those challenges at a Tokyo news conference on Thursday.

"Au was known as a provider of advanced services and handsets, but that trend has lost momentum," Onodera said.

The au brand is at a crossroads, and KDDI needs to think about what course it should take, he added.