“Pay-by-Phone Dialed Back” is NOT bad news for mobile payments in the US

If you don’t read past the headlines, things look pretty gloomy for Isis, the AT&T/T-Mobile/Verizon Wireless joint venture for mobile commerce:

• Pay-by-Phone Dialed Back (Wall Street Journal) 
• Operators scale back Isis m-commerce network as NFC competition mounts (Fierce Wireless) 
• Wireless Carriers Losing Isis M-commerce network in favor of simpler mobile payments solutions (Mobile Marketing Watch).

Sounds pretty grim with all those negative words: "Dialing back… losing… mounting competition." It almost sounds like this is the end, doesn’t it?

Actually, no. In fact, it indicates that Isis (and presumably the companies behind it), are maturing and facing the realities of the mobile payment market. And, perhaps, they were also reading my blog. So what's happened so far?

Isis started out with a business plan that basically put the mobile operators in the middle of the transaction, collecting fees on transactions. Everything passed through their system – and ONLY their system – using their specifications and their business systems… the entire process from start to finish. If you’ve been in this business a while, you’d recognize it as a pretty typical heavy-handed first draft from the telcos.

The dissent showed up pretty quickly when Research in Motion announced that its NFC-equipped handsets would not be compatible with the Isis approach. The result was a public row over who “owns” the customer  (personally, I don’t care to be “owned” by anybody.)

The reaction was hardly predictable, though. Isis seems to have realized that their requirement that they own mobile financial transactions would delay or even kill the prospects of the technology.  (http://alloymarketresearch.blogspot.com/2011/03/should-have-known-mobile-payment.html). Instead of taking their toys and going home, Isis appears to have taken a much more mature approach and called for open standards that would allow everybody to participate. (I mean, seriously, Isis, did you think you could have your own nationwide financial transaction system and leave VISA and MasterCard out of it? Seriously?)

What did Isis do?

The Fierce Wireless article by Jason Ankeny says,

Citing sources familiar with the matter, The Wall Street Journal reports the three operator partners are now in talks with Visa and MasterCard to bring the credit card giants into the Isis equation after determining building a rival payment network would have been too complex and time-consuming.

"Too complex and time consuming? I'd like to add "nearly impossible" to that list.

The article also says,

Isis previously said it would partner with Discover Financial Services to build out the necessary mobile payment structure, but in April the firm stated the service would be available to all payment networks, merchants, banks and mobile carriers. The Wall Street Journal notes many merchants expressed major doubts over Discover's reach: In 2010, 57.2 percent of debit or credit card purchases were transacted through Visa, nearly a quarter were executed via MasterCard, and Discover accounted for a market share of only 3.3 percent.

What does this mean for mobile payments in the US?

ViVOtech 4500m Contactless transaction device

Forget the doom-and-gloom sound of the headlines. What this about-face really represents is the first acknowledgment that the carrier-centric closed mobile payments system was not really practical from a commercial point of view. There are a lot of people who need to own part of this and Isis appears to be taking steps to open things up.

The best approach would be to offer a handset that provides a way to use Near Field Communications technology to securely include credentials and payment methods from a wide range of sources, including financial institutions, credit card issuers, loyalty cards and even identification cards like your library card or gym membership.

A mobile wallet that can replace your leather wallet is going to require an open system. If that’s where Isis is headed, I can once again be optimistic about getting mobile wallet in the US.

Google Voice a Threat to Mobile Operators. We Mean it This Time.

How many times have we heard this? “A new technology that is starting to gain acceptance signals the death knell of the incumbent telecommunication operators.” Let’s see. What was that technology again?

Wi-Fi.

Skype.

Vonage.

WiMAX.

And on and on and on. Now, in the article CNN Money by David Goldman, Google: Your Next Phone Carrier  breathlessly predicts Google will become a mobile operator by using its voice over IP application. Based on what evidence? The article cites the fact that Google might be buying dark fiber, might become an ISP and once bid on some wireless spectrum. But the key information is here:

“Google already allows people to bypass their mobile carrier's service. Google Voice lets customers send free text messages, and the new version of Android ("Gingerbread") supports VoIP Internet calling, allowing users to make calls over over Wi-Fi networks.”

Wow! It’s wireless Skype all over again, which has had exactly zero effect on the mobile operators. And hasn’t really cut the legs out from under the wireline companies, either.  And, really, all this talk ignores some of the most important facts out there: 

• Wi-Fi isn’t a wide area network. Isn’t now. Won't ever be. Tried a couple of times and crashed (remember municipal wi-fi networks?”). Even Google’s own experiments in San Francisco have tanked.
• If you’re going to have mobile access, you will have to use a mobile network. 4G doesn’t yet have enough footprint and will end up being controlled by the mobile operators anyway. 
• It’s not easy to build a mobile network. The vaunted Verizon Wireless has achieved its current network coverage after more than 20 years of buildout. AT&T has also had 20 years and Sprint 15. People are still complaining about coverage.

A couple of scenarios:

“I’m going to replace my AT&T/Verizon Wireless/Sprint/T-Mobile with the Google network.” Assuming a deployment twice as fast as those companies were able to accomplish, it would be 2021 before there would be similar coverage. And, as rich as Google is, it still doesn’t have the financial resources of the telcos. Come back in 10 years. Oh, wait. It’ll be at least two years before they can complete the paperwork with the FCC and obtain nationwide spectrum. And all those communities who are already sick of putting up cell towers? They don’t want more. 

“Google Voice will replace the mobile operators because the price is zero.” OK, where are you going to get mobile access? From a mobile operator who is charging you a for a voice plan whether or not you use it. Or you could go with a data-only plan using a 3G/4G dongle for your laptop. Great: 1) you’re still tethered to a laptop, which is tough to use at the bar when you want your buddies to come down and 2) you’re still using AT&T/Verizon Wireless/Sprint/T-Mobile and paying $60 a month… about the same as a basic voice plan.

“I’ll use Google Voice on Wi-Fi.” Great idea. But where? Home, Starbucks, McDonalds, home, someone else’s home and… where else? Wi-Fi’s not a mobile network (something I’ve been saying since 2003). Terrible coverage. Not useful where you want to make calls.

What it really means: Nothing. Is Google going to become a serious mobile operator using its Android phones, some spectrum somewhere or Wi-Fi? Probably not. Skype didn’t. Vonage didn’t. Once again, Nethead domination of the telecommunication space will remain a fantasy. Bellheads, ultimately will be responsible for paying for, building, and maintaining very complex, very expensive networks. And consumers will keep paying – and paying a lot – for access to those networks.

Two Worlds: Netheads and Bellheads creating our future.

In a previous post, I alluded to what I consider to be two different worlds in the mobile payments space. In reality, those two worlds are facing off in almost everything mobile.  I call people from those two worlds "Bellheads" and "Netheads."

Bellheads, as you might guess, are people who work for the phone companies. Call them what you like... telcos, telecom carriers, incumbents. Their business has always been to connect two phones and make one of them ring. And, of course, keep meticulous records so they can charge for every minute of use. All of the US telephone companies and cellular operators are run by Bellheads

Netheads, on the other hand, come from Silicon Valley and are wrap their businesses around computers and communication via the Internet. You know the Netheads by name: Apple, Google, Microsoft, Dell, Yahoo!

Bellheads are network builders. Netheads are network users.

Bellheads want the meter running for everything. Netheads prefer unlimited bandwidth.

Even though they'd been eying each other warily for years, the real collision came in 2007 with the release of the iPhone when the Netheads showed the Bellheads their best. And, because of their success, the Netheads got to dictate some of their own terms.

However, despite the fantastic hardware and all the App Store applications, there's still one place where the Bellheads have the upper hand: Capitol Hill.  Their influence is strong, they are savvy and they know how to make legislation and FCC rulings go the right way.

Back from the dead... NFC shows up in cell operators' plans

I had all but given up on near-field communication (NFC) for financial transactions in the US. It's extremely popular in Japan, but I've been pessimistic about the ability of diverse companies to put aside their competitive differences and pull together behind a single standard.

And yet, here's news from two different fronts that suggests that a technology I've been trying to champion for the past four years may actually be gaining a foothold. In one corner is Google. In the other corner is a consortium of rivals from the cellular and financial industries.

First, there's this New York Times article by Claire Cain Miller about Google's new phone including an NFC chip. Google's CEO, Eric Schmidt, was quoted in the article saying:

Phones will know when someone walks into a store and can provide relevant information, he said. The technology reduces the risk of fraud, he said, because the person and their phone must be present at the point of payment, and could be connected to a person’s credit card number.

“This could replace your credit card,” he said. “The reason this N.F.C. chip is so interesting is because the credit card industry thinks the loss rate is going to be much better, they’re just more secure.”

Sounds a lot like something I'd said a couple weeks ago.

Isis

Second, there's ISIS, a consortium of AT&T, Verizon Wireless (it's hard to picture them in the same room) and T-Mobile along with Discover Card said:

Isis is working with Discover Financial Services' payment network ... to develop an extensive mobile payment infrastructure for the joint venture.  Barclaycard US, part of Barclays PLC, is expected to be the first issuer on the network, offering multiple mobile payment products to meet the needs of every customer.

Realistically, what does this mean? Unless your favorite color is purple, don't hold your breath while you wait for ISIS to allow you to make payments from your cellphone.  Here's what will need to happen before the first card swipe (or phone tap) happens:

•  Develop and distribute NFC-compatible card terminals to millions of retail locations (somehow, convincing those retailers that they need to purchase the new terminals, with are exactly like existing credit card readers, but also have a touch-and-go capability)
• Arrange with credit card companies, retailers, banks and other financial institutions to accept this new technology
• Convince cell phone vendors that there are enough compatible card terminals at retailers to spark demand for the phone
• Convince wireless subscribers to buy an NFC-equipped smartphone
• Convince owners of NFC-equipped smartphones that they are safe and secure enough to use them as a credit or debit card

That looks daunting, almost impossible. Yet, I'm really optimistic about mobile payments, much more than I have been for several years.  First of all, these three mobile operators have access to about 200 million US mobile users. That covers it from the telco side.  Plus, Google, and its incredibly successful Android smartphone operating system are pushing from the other direction. If the mobile operators don't get there first, they're going to have to cede yet another battle to the Internet companies.

But if these diverse groups are willing to cooperate on the telco side and compete with the Internet world, I'm suddenly full of hope that you'll see this soon. My guess is that it will be routine within five years... call it 2015.

Go back and read my pessimistic post about the leather wallet vs. the smartphone from only two weeks ago. That vision is not likely to happen without NFC, and NFC wasn't likely to happen in the US before these announcements.

(But what do we know about ISIS? Well, according to Wikipedia, Isis is "also known as the goddess of simplicity, protector of the dead and goddess of children from whom all beginnings arose." She also had a baby with her brother Osiris, which would pretty well disqualify her from, say, being a Supreme Court justice or holding any other public office.  

Video services come to smartphones, and vice-versa. AT&T U-Verse on Windows Phone 7

Now that they are delivering Windows Phone 7 smartphones, AT&T has decided to include their U-Verse application, which is already available on Android and BlackBerry phones (U-Verse is AT&T's home video service that delivers tv programming over a broadband connection.)

If I look through the press release for the exciting parts, it seems to be two-fold: First, Windows Phone 7 users can get U-Verse applications even if they're not current U-Verse customers.  Second, you can use it for an entire month at no charge! After that, it's 10 bucks a month for non-subscribers and U-Verse customers who pay more than $80/month get it for free.

So what does the U-Verse mobile application do, exactly?  I'm sure it makes a lot of sense when you're using it, but it's kind of hard to describe.

• Program the digital video recorder remotely to record new programs or delete recorded shows
• View the channel guide and program descriptions
• Download and view popular TV programs

About that last item... yes, you can download TV programs to your Windows Phone 7, iPhone, Android or BlackBerry phone... with some limitations.  First of all, it's not the entire U-Verse channel lineup that's available, it's a smattering of popular network shows. And second,  you have to download the shows over Wi-Fi, even though the phone is also connected to AT&T's fast 3G network. After that, you can watch the episode for about two weeks, whereupon it will "expire" and be deleted from your device.

The content is fairly limited, with episodes from about 50 shows from ABC, Disney Channel, ESPN, Disney, Animal Planet, TLC, and Discovery Channel. You can see Grey's Anatomy, Ugly Betty, Desperate Housewives, Cougar Town, Scrubs, Lost plus other shows like Phineas & Ferb, Whale Wars, and Mythbusters.

What does it all mean? What comes through loud and clear is that even the mobile operators are considering TV viewing a routine part of the cellphone experience. Obviously, there are cross-marketing opportunities for AT&T to push U-Verse to mobile users who aren't getting it yet. Plus there's the upsell to existing consumers ("The application is free if you upgrade to the U300 level").

It's vaguely disappointing, though. I'd rather see something like "view every U-Verse channel you have now from any location at any time over any network."

It's not that.

But it's a step in the right direction.

More smartphones means more online shopping... once the payment schemes are ready

We love our smartphones and the one thing they're able to provide is a more computer-like internet experience.  We can read news, check email, view video, and go shopping.  Sure, we can shop all day, but can we pay for the items we want?

Well, that's been difficult. For most of us, the default payment method for online purchases has been a credit card.  Sometimes we can make purchases from places where we have our credit card information stored but in other cases we want something from a new vendor. So you're stuck entering name, address, shipping information and credit card numbers time and again... not as easy as when we're typing on a full-sized keyboard.

That's where mobile payments come in.  There are several approaches and a couple are actually being launched in the US.

The biggest and most successful deployment of mobile payments is in Japan, where all the mobile operators are using something called osaifu-keitei (wallet phone). A chip in the handset allows users to wave their phone near receivers on vending machines, in convenience stores and to pay subway fares. It works well, but there are a million reasons that success won't necessarily be replicated outside Japan. (The chip technology is called "Near Field Communication" or NFC).

In the US, both Sprint and AT&T announced their own versions of mobile payments.

AT&T, working with several vendors, is focusing on digital goods you can buy with your phone... downloaded music, games and other content you use on your phone.  The charges would show up on your mobile phone bill.

Sprint's approach, called Mobile Wallet, is a bit more inclusive.  Its downloadable application (from partner Cardinal Commerce) sets up a place to store credit card data that is then accessible through a PIN. When you find an item you want to purchase online from a vendor that participates in Cardinal Commerce or Sprint Mobile Wallet, you can complete the transaction by just entering your PIN.

Both methods have limitations... with AT&T, you're buying digital goods. With Sprint, you can only use it at participating merchants. However, both are good first steps. The market potential is there and, I believe, the cellphone could replace the leather wallet in the near future. We'll keep an eye on mobile payments in this blog as well.

Finally! Mobile Video Becoming Important

During the controversial runup to deploying third-generation (3G) networks, several infrastructure vendors were touting mobile video as the reason to upgrade from GPRS to UMTS. You have to remember, this was 1999, and the Palm Treo was almost two years away.  I was pretty astounded by the projections that subscribers -- particularly those in Europe -- would be willing to increase their monthly spending by US$12 for the privilege of watching video on their phones.  That was an increase, by the way, of about 50%. Pretty ambitious, huh?

Today, Microsoft rolled out several new Windows 7 models with AT&T, T-Mobile and others.

The HTC HD7 was rolled out by T-Mobile (along with several other Windows 7 handsets).  As with other recent HTC phones, this one is oriented toward video with an extra-large screen and the kickstand that premiered on Sprint's 4G EVO (also a product of HTC)

What we're really seeing here is -- finally -- all the pieces coming together. No, it's not 1999 or even 2005, but by 2010, we're finally seeing phones and networks that are ready for video. But are people paying $12 for mobile video?  No, not in most cases.  But here in the US at least, they are paying for access to a number of mobile data applications, including video. And, ultimately, it's more than $12/month.

Maybe those projections weren't so wild after all. Just premature.