The Mechanics Magazine, 1829

Back in the early 19th century, the public debut of George Stephenson’s Rocket steam engine was a harbinger of the Age of Steam, which applied the technologies of the industrial revolution to transport with great success. Funded by eager speculators, railway infrastructure soon expanded across the world and eventually usurped canals as the main form of transportation.

Such technology-driven revolutions have occurred at surprisingly regular intervals in the last 250 years, according to economic historians. Steam, steel, electricity, mass production – all had dramatic impacts on world economies. Could smart cities be the next inflection point?

Smart city technology is live and effective in numerous flagship projects and in new-build showcases, such as Songdo in South Korea and Masdar in the United Arab Emirates. Yet history shows that mainstream technology adoption is always hostage to external factors, not least the availability of finance and readiness of institutions and people to adopt new ways of doing things.

So how did technologies of the past win political and public support, given that they, like smart cities, required a comprehensive overhaul of established institutions and processes?

More than a decade ago, Venezuelan economist Carlotta Perez drew attention to a simple but vivid pattern in the complex co-evolution of technological change and economic development ( Technological revolutions and financial capital, Perez, C (2002), Edward Elgar Publishing). Every 50 years or so, since about 1770, a new technological revolution has taken hold.

Perez associates a ‘big bang’ with each revolutionary epoch. This is the crucial point when emerging clusters of innovation come together to produce a highly visible new product or event – for instance, the Rocket’s victory in the Rainhill speed trials in 1829. This immediately captures the attention of pioneers in finance and technology, attracted by the growth opportunity in cheaper, more efficient products.

A frenzied period of boom and bust results, accompanied by repeated challenges to existing institutions and ways of working. Eventually – and not without job losses and financial bloodshed – the new technology displaces the previously dominant technology, which by now is recognized as inefficient and costly.

This process of socio-institutional change lags technological breakthroughs by as much as 20-30 years. Hence, the overall 50-year cycle. Perez identifies Intel’s microprocessor as the most recent ‘big bang’ event. If the model proves to be predictive as well as historical, the next is due around 2020.

The next big bang

Will the next revolution come from smart cities, or bio-tech, or some other collection of technological enablers waiting in the wings?

Informa’s view is that truly revolutionary impact will come from closed loop control, when human oversight and intervention is minimal and machine communications really is ‘machine to machine’. Systems can then respond in real time and continually learn and optimize. In contrast today, even so-called intelligent transport systems are rarely out of direct control of human operators.

The challenge will be to make the benefits of closed-loop control visible in some way to investors and the public. Like the Rocket belching smoke and noise on its maiden voyage at 24mph, smart cities need to inspire the popular imagination.

TU Me offers similar functionality to existing OTT plays

Telefónica Digital, the innovation arm of the Spanish incumbent telco, has offered its first retort to the third party messaging apps like WhatsApp, Skype and Viber that are threatening operator business models. The TU Me application enables rich communications between users on any network, mimicking the functionality of OTT applications and tying them to the subscriber’s phone number. It has much in common with what is expected of the RCSe collaboration Joyn, which was announced by Telefónica with other leading operators in February.

The application will initially be available for iOS users, with an Android version in the works. It can be used regardless of network, as long as a wifi or data connection is enabled, but will be marketed as part of a bundle for users on its O2, movistar and Vivo branded networks. Telecoms.com notes that the operator said the app will be “free to use at launch,” and “will continue to be developed with added value functionality,” which suggests premium functionality—and associated pricing—is in the post.

Users of the application can exchange text messages, make calls, leave voice messages, share photos and location information. Unlike Skype however, users cannot yet call circuit switched lines, so all communication is within the boundaries of the application itself. Interactions are stored in the now popular timeline format with all content stored in the cloud so that it is always available whenever users log into the app.

“We’ve seen the growing popularity of communications apps on smartphones but we believe we’ve gone one better with TU Me using our knowledge and insights of how people use their devices,” said Stephen Shurrock, chief commercial officer at Telefónica Digital.

According to Informa, the likes of WhatsApp and Facebook Messenger among other OTT services are set to take almost four per cent of voice and messaging revenues from the mobile operators in 2012. And while the operators can’t afford to lose this money, they also can’t afford to lose the relationship they have with their customers.

A compelling user experience is essential but making the service cost free is also likely to be important as this is what consumers already get from OTT players. This makes Telefónica’s hint at some kind of ‘TU premium’ a potentially tricky issue.

Yet Dario Talmesio, principal analyst at Informa, believes the carrier is quite right to think about a monetisation model which can be implemented further down the line. While the service as it stands does not have any unique attributes and is largely an OTT copycat that has appeared two years behind the pack, there is scope to integrate it with other operator run cloud services such as storage facilities, Talmesio said. He added that rich communications offerings make interaction more fun and therefore more sticky.

The TU programme shifts more traffic from the voice to data, which seems somewhat at odds with plentiful reports of operators struggling with data traffic and the lowering of data usage ceilings.

Although it is app-based, from a functionality perspective TU foreshadows the network-based Joyn RCSe initiative, announced by the Spanish offices of Telefonica, Vodafone and Orange as well as T-Mobile and Telecom Italia at MWC in February. In a bid to stave off the threat from the over the top players, the five carriers are banding together to deliver their own brand of rich communications candy to their existing subscriber bases.

At MWC there was much speculation as to whether this plan was a last ditch bid for service supremacy from the operator camp. The TU offering launched by Telefónica today stands in direct competition with what is planned for Joyn, yet will likely in future be run in parallel. This is not the first time that Telefónica has pushed out its own version of a product on which a collaborative effort is in the works. O2 UK recently unveiled its mobile wallet service, while its Project Oscar JV with Vodafone and Everything Everywhere remains held up by EC investigation. Interestingly, TU, like the O2 mobile wallet, is designed to appeal to subscribers of competitor networks as well as Telefónica’s own customers.

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Global sales of NFC-enabled handsets increased ten-fold in 2011

For many within the mobile financial services ecosystem—and in particular for mobile operators—mass adoption of NFC-enabled payment from the mobile device is the end game. For years now, the tap-to-pay dream has been held up as The Future, positioning the mobile phone so visibly at the centre of the transaction. But here we are in 2012, and the use of mobile phone-based contactless payment is still far from mainstream. In fact, it remains decidedly niche.

It is not altogether absent, and advocates of the technology are keen to point to Japan and South Korea, where

NFC-enabled handsets are in ready supply, and services that exploit their presence are well established. In South Korea NFC handsets are “flying off the shelves” says Nav Bains, business lead for mobile NFC services at GSMA. In 2011, five million units were sold in the market, he says, enabling ten per cent of the population.

And forecasts for future uptake elsewhere in the world offer signs of encouragement. A recent report from analyst firm Berg Insight shows that global sales of NFC-enabled handsets increased ten-fold in 2011 to 30 million units, with 40 different models from a range of vendors on the market. The report also finds that sales of handsets are growing at a compound annual growth rate of 87.8 per cent and forecasts that shipments of NFC handsets will hit 700 million units in 2016.

But availability of the handset and uptake of a specific service are two very different things—and in research firm Gartner’s Hype Cycle for Emerging Technologies, 2011, published in the summer of last year and outlining the firm’s predictions for the take-up of new technology, NFC was at the “Peak of Inflated Expectations”. This translates into Gartner’s belief that the technology is four to nine years away from mainstream adoption.

In addition, a survey carried out at this year’s Mobile World Congress by mobile commerce and messaging firm Sybase 365 found that 81 per cent of mobile industry executives believe that NFC will not emerge as a driver for mass adoption of mobile payment services for another two to five years. Less than ten per cent of delegates polled said they believed that NFC payments would become mainstream in the next year.

So why is it taking so long for NFC-based mobile payment usage to become popular? As you would expect, there are a number of reasons. The first is the simplest; handset vendors do not necessarily have NFC at the top of their ‘to-do’ list. “NFC is a handset issue,” says Fred Huet, managing partner at Greenwich Consulting. “And at the moment the handset manufacturers are having to share their profits with the OS manufacturers, so subsidising NFC as well is not a top priority for them.”

Second is the fact that, within the complex, multi-faceted mobile financial services ecosystem—where several groups of stakeholders are vying for leadership—SIM-based NFC is viewed as the mobile operators’ ace card, raising their importance in the value chain. “Mobile NFC means that financial institutions will have to share part of the revenue that they see from pure payment solutions [with MNOs] says Jean-Noel Georges, smart cards director at Frost & Sullivan. “This is why they were not interested [in NFC] before,” he adds

The third reason for the delay is more subtle. There is a conflation of NFC and mobile payments in the outlook of some within the industry that does more to confuse the issue than to clarify it. “I’m still not convinced why some people are linking NFC and mobile payment,” says Fred Huet. “NFC is a means to an end, it’s not the end in itself—it’s just a connection.”

Indeed payment is just one possible use case for NFC, and not one that has a powerful enough pull to accelerate the deployment of the contactless technology. The vision that NFC technology providers have involves services that allow consumers to simply tap phones together to share information, photos or other content, or to automatically set a driver profile for a family car, for example. Those in the payment space are more concerned about the take up of NFC than the NFC technology providers are about the take up of payments.

This reflects perception of user demand for NFC. “Nobody is going to buy a mobile phone just because they can use it for mobile payments,” says David Birch, director at Consult Hyperion. “Once they’ve bought it for some other reason, then they will start using it for payments. But payment is not a buying trigger,” he says.

It is for this reason that US mobile wallet provider Isis, owned by Verizon, AT&T and T-Mobile and set to launch in the summer of this year, has chosen launch markets where NFC is already popular for other reasons. “The reason we’re in Salt Lake City (Utah) as one of our first markets is because the city’s public transit system is open loop contactless-enabled. You can tap to ride with your NFC-enabled bank card. They’re the first in the US to have this, so it will work with your phone too,” says Jaymee Johnson, head of marketing at Isis.

Orange is another operator exploring a variety of uses for NFC in a bid to help stimulate the payment business. It has mobile payment partnerships in the UK with Barclaycard and in France with BNP Paribas, but it is taking a wider view of the technology and its potential. “The core proposition that we offer is enabling third parties to use a security infrastructure that we put in place and operate, which is based on the secure element,” explains Vincent Barnaud, director for contactless services at Orange.

“But a secure element connected to nothing is useless, so we don’t just provide the SIM, we provide the full system to which third parties can connect so that they can download their private data into the hands of the customer. They can develop their own business with their own customers, which happen to also be Orange customers.”

Barnaud says that the operator is in the R&D stages of its NFC-related work with airlines. But it has successfully carried out concept demonstrations with airline association SITA, where boarding passes have been loaded onto a smartphone SIM to enable a passenger to go through a boarding gate, using NFC as the connection.

Orange is also working with hotels, to provide guests with a key to their room embedded into their handsets, and with car rental companies, so that customers can register and then get the keys of the car in a city, rent it for a period of time, and then leave it somewhere for the car to be ready for somebody else.

“We have demonstrated we can do this for large number of use cases,” says Barnaud. “What is missing is the number of customers that are able to use it, which is why we have seeded the market with handsets and SIMs to create the customer base because we believe the service providers are ready to go if and when there is a customer base ready to use it,” he adds.

While it doesn’t make sense to lump NFC and mobile payments together, they do have one thing in common: How Apple will play in both spheres is the source of much anticipation within the mobile industry. Apple’s ability to drive fundamental shifts in user behaviour, while not infallible, is rightly taken very seriously and NFC is just the kind of technology that the firm has the knack for exploiting with dynamic results.

“Once we see the likes of Apple integrating NFC into the iPhone, then we’ll start to see other use cases, perhaps using NFC to access office documents, or for airport check-in,” says Simon Collins, VP at Praesidium, the business consulting division of WeDo Technologies. “There have to be a number of uses that act as a catalyst for why I would use this type of payment,” he adds.

The inclusion of NFC was expected with the iPhone 4 and 4S and, Apple being Apple, the reasons for its absence are anyone’s guess. Paradoxically for mobile operators, though, there is a feeling that—when Apple does embrace some kind of mobile payment and deploy NFC—it will not be along the lines that the operators have in mind.

“Apple will find some way of making NFC really cute to use. But it is very unlikely that Apple will play the game and go with SIM-based NFC,” says David Birch. “In fact, I’m sure they won’t.” »

Indeed there are alternatives to NFC for payment, and some believe there is a real opportunity to embed, exploit and extend the reach of these alternatives during the time it takes for NFC to become mainstream. Premium SMS and operator billing are two options that will be used by the Swedish mobile wallet JV 4T when it launches in the summer of 2012 (see feature, p10 and interview p16), for example. There are also “siren voices” calling from the cloud, according to Consult Hyperion’s David Birch, while a number of retailers are seeing traction with self-branded smartphone apps.

This is not to say that NFC-payment cannot be done. One operator that has successfully exploited the opportunities NFC has to offer is Japan’s NTT DoCoMo; a favourite among NFC proponents looking to demonstrate proof of concept. Japan is one of the most mature markets for mobile payment services; DoCoMo launched its mobile wallet in 2004 and has been processing mobile payments for the mass market ever since.

But this example is one that is difficult for other operators to follow, says Ovum analyst Eden Zoller. “The Japanese market is quite unique; at least, NTT DoCoMo’s role in that market is quite unique. It has a very dominant position in the entire mobile ecosystem, not just payments. It has been able to create a payment ecosystem around its core proposition because, way back, it invested in a credit card issuer and developed its own proprietary technology with Sony—the FeliCa mobile payment network,” she says.

In fact, DoCoMo’s mobile payment proposition is so entrenched that FeliCa is licensed to other operators. But there are few operators in other markets that enjoy such a position.

“The Japanese have shown you can do it, but they’ve only shown that you can do it on a proprietary system,” says Orange’s Vincent Barnaud. “No-one outside of Japan is willing to do this using a proprietary solution—nobody is like DoCoMo. In other markets, stakeholders need to come to an agreement which works on a standard solution, and that takes more time.”

Nonetheless, there are lessons to be learned from NTT DoCoMo. Nokia’s Juha Kuosmanen, director and group manager for the firm’s Windows Phone programme management, believes that in Japan, stakeholders have been better able to clarify the roles in the ecosystem. “Many of the payment technologies have been adopted quite well because there have been clear players and clear roles in what people are doing in the ecosystem,” he says. “In Europe, or US, everyone is still trying to find their place in the ecosystem.”

Unusual markets like Japan aside, NFC does have key assets in the mobile payment space. The fact that it is a standard, as Vincent Barnaud points out, is essential. “You can use your GSM phone anywhere in the world today to receive voice and data; the standard is at the heart of that interoperability,” says GSMA’s Nav Bains. “By having a similarly common platform for NFC services that is interoperable, the consumer will be able to use the offering wherever they go.”

From a consumer perspective the NFC usage model speaks to the human nature of pointing and touching. It is quicker than other forms of payment authentication, which appeals to retailers, and the NFC can be combined with other functions of the handset; providing haptic or visual feedback on the transaction.

But perhaps the most significant positive for NFC is that there is now serious momentum behind it. “When you see the number of handsets coming to the market and the number of countries where merchants are deploying PoS equipment—it’s just a momentum that cannot be stopped,” says Orange’s Vincent Barnaud. “Really the question is now what will be the value proposition developed by the service providers? How innovative will they be, and how aggressive form a commercial point of view will they be? We have no answer to that.”

Security Services—it’s all about the context

For mobile payments to take off in a meaningful way, the protection of the user’s funds is paramount. When any new technology that uses sensitive information enters the fray—especially one that deals with users’ money—customers need to feel assured that their details are secure.

But security in mobile payments is not just about he fears of the end user—it is also about the very real costs borne by the financial services provider, which will be held liable for any losses of its customers’ funds. “The user just wants to buy products, but it’s the service provider that has to pick up the pieces if it goes wrong,” says Rob Brown, secure solutions segment marketing manager at ARM.

How security is managed and implemented in the mobile financial services space depends on the business model and the service in question. When SIM-based NFC is the connection mechanism, operators have a significant role to play in security, which many hope to leverage in order to maintain their stake in the value chain. But there are some in the mobile payment ecosystem who argue that it is important, from a security perspective, not to store any personal financial data on the device whatsoever.

“The minute you start storing personal information on the device, there are issues around losing the device and that information becoming readily available to somebody else,” says Russel Sheffiled, director of innovation and development at Paythru “The mobile wallet application also sits alongside other applications, and you don’t necessarily know what they’re doing,” he adds. Sheffield argues that the security flaw recently exposed in the Google Wallet (although that is not handset based), proves the danger.

Earlier this year Google had to address a security flaw in its wallet product that could have allowed a hacker access to the user’s prepaid balance. The ability to provision new prepaid cards was suspended pending the update, and subsequently restored.

“The scare with Google Wallet didn’t help,” says Eden Zoller of Ovum. “And if there’s even a perception that a mobile wallet service might be slightly insecure, it’s going to have a huge effect on consumers.”

“It is the role of the operator/financial service provider to establish the appropriate processes and systems to prevent fraud and to ensure that the system is compliant with regulation,” says Katia Hilal, VP marketing & alliances at eServ Global.  “Security is crucial and recent news shows that a vulnerable system can cost operators excessive amounts.” Yet providers of these services need to balance security with usability. The likely solution to this is contextual security. When buying goods and services below a certain threshold, say €15, the NFC swipe will be sufficient. At a higher spending level a separate PIN might be required. Further up again and another layer of authentication could be added.

Security is the first issue that consumers will think about when using a new payment method, but usability must also be addressed.

I teased out this statistic while chairing IIR’s Telecom Cloud Services conference this week. As Müller underscored, M2M data will require plenty of processing power – and is a great opportunity for communication service providers. Many faces in the audience looked confused.

When CSPs think about M2M, it’s mainly about providing connectivity, which represents almost 90% of their M2M revenues today. When it comes to cloud, CSPs think about selling infrastructure as a service – and they’re currently building a quarter of a million square meters of datacenter space to get into that game.

Join the dots

BMW’s Müller had put the pieces together – and many CSPs haven’t. Enterprises need more than data connectivity and storage. Enterprises need help to manipulate and understand what data means and what to do about it. Once the non-sentient world is involved, those data sets will exist in petabytes, exabytes and zettabytes – in networks and datacenters.

Big data and big data analytics is the real opportunity for CSPs. That’s how CSPs will achieve some of their bullish revenue expectations – particularly for M2M.

Bullish expectations

Despite negligible revenues now, CSPs believe that M2M services will generate 5% or more of their revenues by 2015, according to the recent Informa-SAP M2M Communications survey. This equates to an M2M market worth in excess of $65 billion by 2015, based on Informa’s World Telecoms Financial Benchmarks.

CSPs won’t get close to this goal on a connectivity-centric business model. That was a key conclusion of a global study of the M2M ecosystem that I and a team of Informa analysts conducted for SAP.

Go take a look at the results of that study – which included interviews and a survey of more than 250 M2M stakeholders. (It can now be found on SAP’s dedicated M2M microsite hosted by the Economist Intelligence Unit, along with other market intelligence).

Heal thyself

CSPs blame ecosystem fragmentation as a barrier to future M2M success. I suggest they look closer to home. Siloed thinking within their organization must stop. Getting M2M and cloud teams talking to each other is a good place to start.

Sixty percent of CSPs fear they’ll be bit-pipe providers in the M2M market. To avoid that destiny, they must have the ambition to extract intelligence from the bit pipe – instead of simply delivering it from A to B.

The mobile wallet is now emerging as the key point of competition

Solvency aside, it is not difficult for the mature market consumer to pay for goods and services. Cash, cheque, credit and debit card, gift vouchers, loyalty schemes, bank transfer, online payment—there are numerous routes to the exchange of value. Factor in the mobile phone and the options continue to stack up; Premium SMS (PSMS), NFC, carrier billing and the use of the mobile as just another internet terminal. Payment—mobile or otherwise—can be done.

The transaction in itself is no longer the central theme of the mobile financial services (MFS) story, partly because the problem has been solved (if not to the exclusion of further innovation) and partly because the various stakeholders in the MFS sector have wider agendas. Retailers, for example, are more interested in driving footfall to their stores than they are in improving the transaction process. Banks are looking to the mobile channel to drive product sales and cut the cost of customer interaction as well as for alternative and increased transaction revenues. Both are keen to see the back of cash.

For mobile operators the transaction is less central because deriving revenue from it is, for them, extremely challenging. Interchange fees on electronic payments are wafer-thin, with payment schemes, issuing banks and merchant acquirers among the players already taking their cut. With so little per-transaction revenue on offer, existing beneficiaries are highly protective of their shares. “If we’d gone to the banks three years ago and said we were going after interchange, every door would have closed on us,” says Claire Maslen, senior market development manager and programme manager for NFC at O2.

For these and other reasons, the mobile wallet is now emerging as the key point of competition within the MFS space. In conference presentations, speakers wishing to illustrate the concept are fond of including a picture of their physical wallet, unpacked. Invariably it contains some cash (maybe in a number of currencies), credit and debit cards from a variety of financial service providers, a driving licence, perhaps a contactless public transit card and one or two crumpled loyalty coupons and supermarket points vouchers.

The end game for proponents of the mobile wallet is that this cumbersome collection of physical tokens be dematerialised, digitised and deployable individually and when required from the smartphone—wherever the user might be. While it seems highly unlikely that many governments will allow drivers’ licences to be absorbed into a mobile wallet in the medium term, for the remainder of the standard wallet contents there is no conceptual obstacle.

But there are more questions associated with the mobile wallet than answers. Is all that is required to provision the service a downloadable app, for example? Should essential data be native or in the cloud? Should the SIM, the hardware or the OS house key informational and security components? While opinions vary, the target destination is common across the sector.

Every destination requires a journey, though. And, as with most journeys, this one has a number of milestones that must be passed, more than one potential route and ample opportunity for delays, accidents and wrong turns.

Leadership and navigation are key. Financial services providers see anything to do with consumers’ money as their natural environment, and MNOs take a similar approach whenever ‘mobile’ is used as a prefix. The truth is that no one type of player in the space is better placed because of their existing business to be the supplier-manager of the mobile wallet than any other. But MNOs in many markets have identified it as territory they need to occupy, and are mobilising accordingly.

They have some factors in their favour. In most instances they remain the route by which consumers acquire the handset itself. They are expert in provisioning services at scale. They have the ability to remotely kill a handset should it go missing along with the contents of its mobile wallet. Collectively they have existing financial relationships with almost the entire target market.

Then there is their oft-cited ability to provide an added layer of context. The location and marketing services that some operators are now developing could be used to make the wallet more intelligent and useful to the consumer, and more potentially rewarding for retailers, they say.

Not that these assets are exclusive. In the Philippines, Citibank recently launched a banking app for Android, iOS and Blackberry that includes the capability to redeem rewards points and promotional offers from Citibank on food and shopping.

And in the UK, the Payments Council, established in 2007 to “ ensure that UK payment systems and services meet the need

of payment service providers, users and the wider economy,” is building a database linking bank accounts to mobile phone numbers. The organisation’s aim is to enable P2P mobile payments, and the database will be made available to all UK banks and building societies before the end of 2012. Crucially, the service will enable banks to remotely disable an account.

These are just two examples which illustrate the fact that none of the individual facets that support the MNOs’ bid to lead the mobile wallet charge are impossible to replicate. But the operators argue that, collectively, these assets make a convincing argument for their leadership.

Of course that argument can be challenged. The success of Apple, Google and Android in creating consumer demand and loyalty has shaken the operators’ concept of customer ownership. And the way these players have harnessed a global pool of creativity to innovate in the service layer has at times made the operators look pedestrian and out of touch.

Perhaps because of the range of players with both a stake in the m-wallet and the potential to contend with operators for leadership, the MNOs are combining for strength. In Sweden there is 4T, the JV created by Hi3G, Tele2, Telia and Telenor, partners that also plan to join forces in Norway and Denmark. In the UK, Everything Everywhere, Vodafone and O2 have submitted a proposal to the EC for the creation of Oscar, a mobile advertising and commerce JV, while Mpass is a comparable venture between the same players (less Orange) in Germany.

Japanese operators NTT DoCoMo, KDDI and Softbank established the Japan Mobile NFC consortium last year in a bid to provide harmony between the existing and popular mobile wallet service in their domestic market and other offerings being developed internationally. In the US, AT&T, Verizon and T-Mobile’s NFC-enabled mobile wallet service, Isis, is due for commercial launch in the summer of this year.

Banding together is essential for operators in the m-wallet space because it allows them to claim reach across a far larger share of the target market than any other player. It also ensures freedom of movement for the consumer. Handset and OS vendors are just as keen as operators to generate stickiness but if the mobile wallet is to truly replicate the physical wallet, it must be portable between the systems being used to carry it. Wallets, after all, are designed to fit in the pockets of most trousers and jackets.

A user will not want to have to remain with Android, Windows Phone or Apple simply because their payment mechanisms are tied to one or other platform. They would equally resent being bound to a mobile operator for the same reason. If the mobile wallet is provided by a joint venture, or if a background collaboration ensures ease of portability, this problem is solved. While operators in many markets were notoriously inert when it came to implementing mobile number portability, there is no such dragging of heels with the mobile wallet initiatives.

In some instances, operators will look to make their own branded wallet offering portable, so that consumers who churn to another network might remain as a customer of that operator’s mobile wallet. In the UK, while the functions of the mobile wallet might be common, if and when the JV is approved, operators will compete on the service level. For the foreseeable future each operator will maintain its own m-wallet database in the hope that consumers will simply download that wallet over their new network if and when they churn.

In other markets, the US and Sweden, for example, the wallet is operated, provided and stored by the JV, with a central database of account details so that users can simply fire up their wallet every time they get a new handset, or shift to a new operator. In the Isis model, according to Jaymee Johnson, the group’s head of marketing, the only difference between the wallet when accessed from the different operators’ handsets, is a brief operator logo in the boot up stage.

But for all the importance of collaboration, there are some rather obvious omissions. In the UK, Hutchison’s 3—by far the smallest of the five operator brands in the market—has had no part in the creation of the Oscar concept, or the submission to the EC. Sprint Nextel, meanwhile, is not a part of Isis at launch, despite being a significantly larger operation than T-Mobile.

There is no doubt that, privately, the exclusions smart. Publicly, Isis is keen to extend partnership opportunities to all other operators, says Johnson, although it is less clear whether there are opportunities for the likes of Sprint and Metro PCS to take equity stakes in the company. “Isis is open to any other carriers, any banks, any payment networks,” he says. “In terms of equity, we do happen to be owned by three carriers, but that is a separate issue form the operating service we provide to them. Additional operators would get the same set of services that we provide to the original three founders.”

In Sweden, Johan Ragnevad, acting managing director at 4T says his JV was founded on the belief that all operators had to be equal partners from the outset. “All the operators in Sweden have been playing around with ideas and they have actually made several attempts [at mobile wallet services] over the last three years,” he says. “Then a little over a year ago all four network operators realised that, if this was going to fly, everyone needed to be in on it.”

What everyone does not need to be in on, according to Ragnevad, is SIM-based NFC as the authentication and connectivity paradigm. SIM-based NFC has the backing of GSMA, which arguably speaks for the largest international operators and wields significant influence over the smaller ones. Nav Bains, business lead for mobile NFC services at GSMA, sets out the organisation’s position: “What [some] operators are doing is providing a common platform—the SIM-based NFC phone—which is secure, complies to international standards, is portable and interoperable. Operators are collaborating to allow any consumer in that market to go to any carrier and use any handset and any operating system.”

The problem with NFC, however, is that there are huge question marks over timelines and penetration of both consumer and merchant devices. David Hodgkinson, a financial services specialist at KPMG, says the firm believes that the hype around NFC is “unprecedented”, and suggests that mass adoption could still be five years away.

Johan Ragnevad says that, while 4T and its owners “believe strongly in NFC, using the SIM card,” they are “very realistic in terms of the time it will take to get into phones and to get those phones into the market. And at the other end it will take time to get the readers into merchant premises.”

He continues: “That is why we say to the Swedish market, with some disappointment, that this will take another two to three years.”

In the US, the Isis project, by contrast, is all about NFC. The group has announced handset support from six handset vendors, although Apple and Nokia are not on board. The Isis app does have an iOS incarnation, but it is operated through an NFC-enabled cover that fits over the phone. What Isis has not yet communicated, however, is which devices will be available to launch the mobile wallet when it launches in its first two markets—Salt Lake City, Utah and Austin, Texas—later this year.

The firm’s efforts have been more recently focused on alignment at the retail end. Isis has enlisted the four largest point of sale terminal manufacturers in the US, all of which are now including support for the Isis application in their terminals at the point of manufacture. While refreshment cycles for PoS terminals vary depending on the retailer, Isis’ Jaymee Johnson argues that upgrading is, for merchants, “a relatively trivial investment”.

Just as Isis’ technology strategy is in line with GSMA’s position, so is its business model. Nav Bains again: “The business model that GSMA advocates is one of SIM rental. An NFC SIM card can be partitioned into several secure domains, and the operators can charge a fee to each financial service provider to have their app running in the SIM card. The MNOs don’t take a single penny out of the transaction itself, which is a big relief for the bank.”

This is exactly the model that Isis has adopted. “The banks,” says Jaymee Johnson “are our customers.” There will be three financial service providers onboard at launch, Chase, Capital One and Barclaycard and the Isis mobile wallet will serve “as an extension of the existing cardholder relationship,” Johnson says. A second revenue stream will see Isis offering the wallet as a marketing channel for retailers, “much more like a direct response advertising model.”

This is a model carefully crafted to keep the banks onside, and deter them from moving into the affiliate marketing model that many operators are now looking to exploit. But not all players are going about things in quite such a sensitive way.

In Sweden, while 4T will offer consumers the ability to attach their mobile wallet to an existing bank, it will also be offering a credit facility that will see users billed on a monthly basis for anything they buy using their WyWallet (the 4T consumer brand). This credit fee is one revenue stream. Another will be a commission from merchants on payments made over the mobile wallet.

“We will give customers the choice to use their phone as an extension of their bank account,” says Johan Ragnevad. “But we are not blind, we see there is a substitution or conflict situation coming up. And I am really positive about our ability to affect the ecosystem and make payments more cost-effective.”

Because no element of the 4T service will sit on the SIM card, a range of payment options will be available. In Sweden PSMS has very high penetration, so this payment method will be central to the service. Standard internet payment scenarios will also be supported and a merchant offering will be available during the next year (the service is set to launch in June), says Ragnevad, although on which technology it is not yet clear.

“One idea is to have NFC stickers on the devices, another is to look at different QR code processing,” Ragnevad says. “Premium SMS could offer more for merchants, as well. There are optical readers on the way that are quite cheap that can read an SMS and verify authenticity,” he says. The 4T service will launch before a decision on an interim solution for retailers has been made.

The only service that 4T will offer that will carry a per transaction charge is peer to peer payment. This is not something that will be part of the Isis offering, but is essential in Sweden, Ragnevad says. For each transaction there will be a charge of one Swedish Krona, around e0.11.

In the UK, O2’s Claire Maslen says she believes there will be a three-phased approach to the mobile wallet. “The first phase will be pre-NFC, using a stored value account from which users can spend online, or person to person. The next will see that stored value account linked to NFC and being used for low value transactions in the high street,” she says. “But ultimately the end game is that we completely replace the wallet, do away with the stored value account and link directly to the user’s bank account.”

O2 plans to derive the vast majority of its m-wallet revenues from marketing solutions. “It’s not about transactions for us, it’s about closing the transaction loop,” she says. “It’s about being able to deliver a targeted campaign to consumers that drives footfall into the retailer and encourages them to redeem a voucher or coupon and make a payment. We can collect all that data and start to target users more effectively. Marketing is a really strong piece of it.”

This contrasts directly with the Isis approach, as the US JV will have no visibility of where its customers are spending their mobile money, or what products they are buying.

O2 will also levy a charge on users who seek to convert money stored in their mobile wallet into cash, something that Maslen says is “the same as what it costs us; it’s not a margin generator. It’s designed to keep consumers spending their money elsewhere in the ecosystem.” There are regulatory limits on what amounts of money users will be able to spend from their mobile wallets, depending on what means of transfer is used, and how much information the operator has on the customer.

When NFC comes online they will be restricted to transactions below £15. Maslen suggests that users will be comfortable spending up to the “low hundreds” from their pre-NFC stored value mobile wallet.

The use of stored value accounts is interesting from a usability perspective. O2 is using it as a means of getting to market before the ideal solution will be ready. Isis will be offering its own-branded stored value account for two reasons; first because only three banks are partnering at launch, and it enables the company to hit a wider market and second because it can be preloaded with value to encourage users to try the service.

But having to move money into a separate account just so you can spend it in a new way sounds to some like a discouragement to the behaviour that is being sought. “This is the point about hype,” says KPMG’s David Hodgkinson: “We just assume people will want to do these things because we’ve built it and we’re excited about it. Stored value is really not that attractive. Why do I want to start putting money on a prepaid debit card? It’s a real barrier to adoption.”

This poses the wider question of whether mobile wallets are fundamentally appealing to end users. Hodgkinson cites a recent YouGov survey of UK consumers that revealed only 23 per cent showing an interest in mobile payment, and only ten per cent showing likelihood of using such services in the future. Rather than flocking to the services when launched, he argues consumers will have to be enticed onto the service through giveaways.

Others disagree. Nokia’s Gerhard Romen says that the NFC-enabled mobile wallet will tap into the human enthusiasm for touching and pointing at things that we want. Jaymee Johnson says that, at the end of the Isis user trials they had difficulty getting consumers to return the handsets.

The concern is that the mobile wallet becomes over complicated as operators and financial service providers look to manage a wealth of technology- and business models. Everyone agrees on the risk posed by other players, chief among them Apple. With more than 200 million financial data sets through its iTunes service, Apple’s appearance in this space is a matter of when, not if. NFC is on the firm’s roadmap and it has a knack for putting simplicity at the heart of its products and services. This is not necessarily something at which the banks and mobile operators can claim to excel.

Not bad for a company that started out as an online bookstore.

Amazon’s cloud is so vast that it now accounts for around one per cent of all internet traffic, according to estimates released this week. This data underpins the importance of cloud services for service delivery and underscores the opportunities for those with the necessary infrastructure.

Telecoms.com often writes about the impact of internet companies on the telecoms landscape and when we did a big focus on cloud services in 2011, Amazon was identified as one of the pioneers of the concept, having developed the technology when building up its own internal infrastructure.

Now major internet services like DropBox, Netflix, and Instagram leverage AWS for all or major portions of their infrastructure, even we at telecoms.com use it for delivering video content. Not bad for a company that started out as an online bookstore.

The key point is that companies like Amazon – the ‘traditional’ internet firms, continue to dominate the cloud computing market, yet there are many that would argue that network operators have competitive advantages over these players in terms of the information about customer preferences and billing platforms for charging customers based on usage.

But research released this week by Deepfield Networks, a startup that specialises in cloud resource management, found that around one per cent of all internet traffic is coming or going to Amazon managed infrastructure.

“This is a huge number given that Amazon, unlike, say Google, does not typically host massive video content. Instead, this one per cent represents the broad reach of Amazon infrastructure across hundreds of client companies,” Deepfield said. “By comparison, we found all of Google’s sprawling YouTube infrastructure contributed six per cent of internet traffic in 2010.”

To give another view, Deepfield estimates that around one third of all internet users will visit a web site based on Amazon infrastructure every day. To this end, Amazon ranks as the world’s fourth largest CDN by traffic volume, trailing behind Akamai, Limelight and Level3.

Amazon doesn’t deliver that much video. So what does it deliver? Deepfield mapped Amazon’s top 40 cloud customers, and interestingly, some of the biggest names in there are in advertising or analytics – displaying millions of ads in an unpredictable, spiky environment to which cloud is well suited.

“Although most consumers remain blissfully unaware, almost every web page they visit is tracked, analyzed and scored by dozens of analytics and marketing companies (a large number of them using Amazon infrastructure),” Deepfield said. “But the war for cloud dominance is just beginning. Companies like Rackspace, CSC, Microsoft and Google are investing billions in datacenters and software to compete,” the company added.

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Richard Vester is the Executive Head of Vodacom Business Services and will be a speaker on Day 1 at the Cloud Africa Com at the Sandton Sun Hotel in Johannesburg on 23-24 May. In this interview he shares his views on the future of cloud services in Africa.

How would you describe existing ‘’cloud services’’ in Africa?

Cloud Services in Africa can be broken down into a few different areas. Firstly let’s look at private cloud which is fairly mature in South Africa but a lot less developed in the rest of Africa. We are seeing a lot more focus from global software vendors in extending their virtualization technologies into African markets. Several corporate companies have adopted at least virtualization in their own data centres. Most of the virtualization services are aimed at the infrastructure consolidation layer and not in the software space.

Public cloud is fairly immature in Africa. There are one or two players which have been able to build a true elastic cloud service, but this has traditionally been focused on the South Africa market with future African expansion the next logical step.

What would you say is the level of awareness about cloud in your region’s ICT market?

There is a lot of awareness and talk in the market about cloud services. The challenge is not so much in awareness but more in the adoption. Many companies love the idea of cloud and they can confidently say that they need to adopt it in some form or fashion; however the starting point for moving to the cloud is the biggest challenge. Change seems to be the biggest stumbling block.

Which ‘type’ of cloud would be your choice – public or private?

My first choice would actually be a hybrid approach specifically in the corporate / enterprise segment. The reason for this is that there are many companies that have adopted virtualization in their own data centres and are content not to move their information into the public cloud, yet the biggest challenge they have would be the need for rapid scale of infrastructure for growth. This could have a large capex burden on the company. The converse of that is many companies don’t wish to move all their confidential data into the public cloud, but wish to enjoy an opex based service with less capacity issues. The hybrid approach allows for companies to manage their own infrastructure and the public cloud infrastructure through a single pane of glass. When they need to scale quickly then leverage off the public cloud for rapid deployment and when you have greater timelines for internal projects, plan and implement your own private cloud.

Smaller companies without their own data centres should look to move to public cloud as the benefits are exponential.

How rapidly do you think the adoption of cloud will reduce capital and operational expenditure for enterprises in Africa?

Adoption of cloud would see the immediate reduction in capital costs with a slightly smaller operational expenditure. There is a perception that cloud will replace the requirement for IT staff. Operational work will still be required, however the time to deploy and the tools available to make the IT department more efficient would result in more time to focus on other parts of the business.

What do you think is needed to drive improved and cheaper bandwidth in Africa for cloud?

Bandwidth costs and availability will improve over the next few years. A lot of large telco’s are on a drive to deliver fibre to the door. This will increase the capacity and force the market to drop its pricing for service. Other important factors are things such as the additional cable systems from Europe and Asia. The more capacity we can land in the country the more affordable it becomes. Satellite is also an important factor as infrastructure can be a problem throughout Africa.

Have you seen an increase in IT spend (in your business/country/region), and if yes, has it included investment in cloud?

I have seen an increase in company’s spending money on cloud based services however, this has actually decreased the total revenue spend. Cloud services are proving to be a great vehicle for companies to increase service levels, increase productivity and decrease costs to service providers. All though service providers make less revenue on the service its self, they also save in space and utilities and therefore improve on their profit.

What do you think is preventing enterprises in Africa from implementing cloud?

Knowledge, the ability to experience it and the correct exposure to case studies. So often companies want to get to know more about how cloud can benefit their business but unfortunately a lot of providers talk about cloud and don’t deliver on its promise. More providers need to invest in infrastructure through Africa to help companies on their journey to the cloud.

Which key message do you want to highlight during your participation at Cloud Africa in Johannesburg later this year?

The message that I would like to deliver is that cloud services are really there to benefit companies, whether in a private, public or hybrid state. It doesn’t matter what size your business is, there is always an advantage to you as an organisation to adopt cloud infrastructure, software or security. Although the service delivery may be lacking across Africa for true cloud services, the capability is available and companies don’t have to always leverage off cloud in their own country it could be at the end of a rainbow.

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