Qualcomm may be facing a future decline in its CDMA business, and in its ability to milk revenues from its IPR portfolio, but nobody could accuse it of not preparing itself by seeking to broaden its revenue base and push its core expertise into new and advanced markets, sometimes with the help of acquisitions. Its latest move is to buy Firethorn, an important figure in US mobile banking because of its partnerships with both Verizon Wireless and AT&T Mobility. Existing carrier relationships are lifeblood to Qualcomm, and more than justify the $210 million price tag. With Firethorn it gains not only a technology springboard from which to try to drive the convergence of the wallet and cellphone, but also a guaranteed route to market in one of the largest potential growth markets.
Qualcomm announced its acquisition plan one day after AT&T said it would embed Firethorn’s technology in handsets to power mobile banking applications, and support a push into a revenue stream that has so far been undertapped in the US, with most progress being seen in Japan. Verizon Wireless had also announced a strategic partnership with the specialist vendor last month. Firethorn connects financial institutions and wireless operators with a software platform that in turn links to consumers’ devices. Its banking partners include Wachovia, SunTrust Bank, Regions Financial, BancorpSouth and Synovus. The punching weight of the start-up is less surprising when two members of its board of directors are considered ‘ Dave Dorman, former CEO of AT&T, and John Stanton, a wireless industry legend and Craig McCaw crony, who was a founder of McCaw Cellular, Western Wireless (now Alltel) and VoiceStream (now T-Mobile USA).
Handset makers have been keen on contactless payments and mobile wallets, usually driven by the Near Field Communications (NFC) standard, for some time, seeing them as a way to embed a premium function into a phone using low cost technology, and so drive another upgrade cycle. Nokia has offered NFC handsets for some months now, and earlier this year, Motorola took the lead role in a new pan-European consortium formed to develop an open architecture for the development, deployment and use of NFC in handsets (the group’s project is called ‘Store Logistics and Payment with NFC’ or StoLPaN.
This is clearly a trend Qualcomm – with its talent for leaping on handset enhancements early and integrating large numbers of technologies in one chipset ‘ could not ignore, and it represents another chance, like its recent activities in mobile TV, remote healthcare and machine-to-machine communications, to distance itself from vertical technology battles between CDMA, UMTS and so on, and address a cross-platform requirement that is driven by operator demand.
If Qualcomm can deliver early and effectively on a new requirement as this becomes important to the carriers, this will overcome the qualms those carriers’ phone suppliers may have about purchasing from the CDMA giant. This is the argument, and it has worked several times before, notably with technologies like UIone and even HSPA cards, where unlikely customers (such as O2) have been signed because there was no better technology available at the time.
However, this Qualcomm line of thinking only really works if the demand is strong from the operator, rather than the device maker, side, and until the Verizon and AT&T announcements, US operator interest was uncertain. For cellcos outside Japan, the business case has been less clear than for global role model NTT DoCoMo, which has been offering mobile wallet services based on the NFC-based Felica technology for more than two years and seen broad uptake. (Mobile Felica is a modification of Felica for use in cellphones, created by Felica Networks, a joint venture between DoCoMo and Sony. This technology has been licensed by KDDI and Softbank, which now also offer services.)
Elsewhere, while the operators are keen to embrace mobile payments as a way to generate new services for their high speed networks, and attract and retain customers, there remains the problem familiar from mobile content – how to turn all this activity into a profitable revenue stream, particularly if m-payments will require updated (subsidized) handsets with NFC facilities. DoCoMo generates a strong revenue stream because its parent company is also active in mainstream banking, and so its mobile network can act as a new channel to market for existing services. Most cellcos will have to partner with a separate financial institution, making the commercial case less clear.
However, the drive behind mobile payments from consumers and certain institutions such as transport organizations and credit card processors is becoming too strong to resist, and the cellcos clearly want to see contactless payments become part of the handset, rather than confined to other devices such as standalone smartcards and payment cards.
In the short term, remote payments are focusing mainly on online bill paying or funds transfer, purchase of specifically mobile services such as ringtones or prepaid credit top-ups, and there is a limited shift to mobile point of sale systems, using the cellphone or other device for contactless payment. But as NFC technology converges with cellphones, the handset could become the default device for any payments that can be carried out using a swipe mechanism, such as purchasing transport tickets.
All this has led the two leading US operators to make their moves, and Qualcomm to follow in their wake. Len Lauer, Qualcomm’s group president, who will oversee Firethorn, said that the acquisition will also build on the chipmaker’s Enterprise Services unit, which provides integrated wireless systems to businesses and is a key focus for future growth.
AT&T plans to offer a nationwide mobile banking platform that will enable subscribers to view account balances and history, transfer funds and pay bills from their handsets using NFC. The carrier is working with Wachovia and SunTrust banks and will begin preloading the Firethorn enabling application on handsets by year end. Among the Firethorn features is a banking icon that provides one-touch access to the service.
The application is already available for download on 30 handset models from AT&T, or about 30 million units in use. The carrier will offer the service for free, relying on data charges to increase revenue, though it claims Firethorn is optimized to reduce the number of page views necessary to complete each transaction. Over time, it may consider other revenue streams from mobile payments, such as revenue sharing deals with retailers and other organizations, or premium banking applications.
With this acceleration of activity in the US, often seen as the most hostile market to mobile payments, and with the rising interest coming from emerging economies where wireless is the main method of communication and transaction, we can expect further interest in specialist start-ups, and will almost certainly see mobile internet challengers like Nokia and Google making a move soon.
Motorola has also shown an interest in mobile commerce, investing an undisclosed sum in start-up VivOTech. Nokia is already a strategic investor, along with NCR, and the company also has funding from First Data, Alloy Ventures, Draper Fisher Jurvetson, DFJ Gotham Ventures and Miven Venture Partners.
VivOTech specializes in contactless payment readers and applications based on the NFC standards.
The GSM Association has offered an update on its Pay-Buy-Mobile initiative, which it launched in Barcelona at the 3GSM event in February. The body says that 12 operators across the world will kick off trials of contactless payments services in the coming months, with tests in Australia, France, Ireland, Korea, Malaysia, Norway, The Phillipines, Singapore, Taiwan, Turkey and the US.
The 12 operators involved include AT&T, Far EasTone, Orange, KTF, Maxis, SFR, SingTel, Telstra and Turkcell. Altogether, 35 operators with over three billion customers are supporting the initiative.
MasterCard is powering the trials in the US and Korea (among others), where AT&T and KTF, respectively, are testing handsets equipped with NFC to use MasterCard’s PayPass application in retail settings.
“Mobile payment services, which will enable transactions to be completed faster in shops, restaurants and train stations, will also make it easier for merchants to offer their customers precisely targeted discounts and other promotional offers,” said GSMA CEO Rob Conway in a statement.
The Pay-Buy-Mobile initiative supports the use of the Single Wire Protocol, which was adopted by ETSI as a standard last month, and which links the Universal Integrated Circuit Card (UICC) contained within the handset with the phone’s embedded NFC chip. This chip then communicates with existing contactless payment systems.
Sony and NXP continued their long standing partnership on contactless payments and formed a joint venture last week called Moversa. This aims to drive adoption of contactless smartcard applications in mobile phones using Near Field Communication (NFC). Moversa aims to develop, produce and market a chip that includes two key contactless smartcard technologies, Mifare and Felica, which were developed by former NXP parent Philips, and by Sony, respectively.
The major efforts in NFC to date have been spearheaded by Sony and Philips/NXP, and their de facto standards gained significant backing in 2004-5, notably from Nokia and Samsung, which conducted trials with Mastercard and Visa. While Samsung has focused on mobile content functions, most projects have been centered on mobile payments, with NTT DoCoMo the first to launch commercial services in this area based on NFC/Felica.
NXP aims to build significant market share on its technology headstart, and recently teamed with digital security specialist Gemalto to define standards for SIM-based NFC products and ensure interoperability with Mifare, hoping to accelerate uptake beyond the transport sector where Mifare has mainly seen uptake.
Jean-Louis Carrara, head of telecoms strategy at NXP, said: ‘People carry three, four, five credit cards with them, but usually one is at the top of the wallet. If you put a smartcard in a phone, that may become top of the wallet very quickly.’
The Sony/NXP work complements that of the NFC Forum, which takes care of the radio communications standards to facilitate mobile payment, but not the logistical structure of managing financial transactions. The operators’ initiative will adopt the structure mapped out by the GSMA in 2006.