GSMA’s Latest NFC Announcement Directed at ‘Over-the-Top’ Players?
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The announcement Wednesday by the big mobile operator trade group, the GSM Association, proclaiming increased “momentum” for SIM-based NFC services is, in fact, largely a defensive move.
The GSMA, which also noted it was publishing new specs for NFC handsets and SIMs, continues to be concerned about big smartphone platform players, such as Google, Research in Motion and, soon, Microsoft, along with some large handset makers. It fears these so-called over-the-top players, as well as some device makers, will use embedded secure chips in their NFC phones to store revenue-producing applications–applications that the telcos would like to see running on their SIMs.
It wants to get the word out that telcos are firmly behind the SIM as the de facto secure element in forthcoming commercial rollouts of NFC services.
The GSMA made its announcement around last week’s Mobile Asia Congress in Hong Kong, declaring that 45 leading mobile operators had committed to support and implement SIM-based NFC services, including giant China Mobile and No. 2 China Unicom, as well as the two largest U.S. telcos, Verizon Wireless and AT&T. The latter are part of the Isis NFC joint venture.
But besides support from Verizon, which formerly did not issue SIM cards, and the Isis JV, there is little new in the fact that major telcos are supporting SIM-based NFC.
In fact, three years earlier, around the same event, the Mobile Asia Congress, the GSMA listed exactly 45 operators backing SIM-based NFC payment in an announcement that called on handset makers to put NFC chips and a standard single-wire protocol connection to the SIM in their new phones starting from mid-2009.
And the GSMA used the same word, “momentum” in the headline of its press release in April of 2007 to describe building interest in the association’s Pay-Buy Mobile initiative, just as it did in last week’s announcement. The Pay-Buy Mobile program coordinates SIM-based mobile-payment projects using NFC phones. In 2007, the GSMA mentioned that both China Mobile and AT&T, among 24 telcos, were backing the initiative.
The SIM-centric approach of mobile operators goes back even further than that. And most big telcos worldwide continue to strongly back it. Ironically, however, China Mobile, which was featured in the latest GSMA announcement, is not necessarily one of them.
The big telco has made serious inquiries to vendors this year–including NFC chip market leader NXP Semiconductors–about the feasibility of controlling its own embedded chips in NFC phones.
China Mobile, while last year giving up its nonstandard RF-SIM technology, which uses a different radio frequency than NFC, still harbors ambitions of getting into the mobile-payment market. It retains a 20% stake in Shanghai Pudong Development Bank.
A GSMA spokeswoman contends that China Mobile now backs SIM-based NFC. And the earlier GSMA announcements around the Pay-Buy Mobile initiative related mainly to pilots, she said. “We are now at the point where many mobile network operators are getting ready to launch commercial SIM-based NFC services, and the recent PR shows the momentum that has built up for this,” she said.
Defending Against OTT (Over-the-Top) Players
Of course, handset makers ignored the GSMA’s call for NFC-enabled handsets three years ago. But most major device makers have since embraced the technology. There are at least 90 models in the pipeline using NFC chips from NXP Semiconductors alone, mostly smartphones, but also some tablets.
But the device makers are not rolling out NFC in quite the way that mobile operators had hoped. Sure, many, if not most, of the phones will support a single-wire protocol connection, enabling telcos to host secure applications on their SIMs. But lots of the phones will also sport embedded secure elements. And standards makers are working on specifications that will enable microSD cards with secure elements onboard to also use a single-wire protocol, or SWP, connection to the NFC chip and to the phone’s built-in contactless antenna.
These embedded chips, as well as possibly SWP-enabled microSDs, could interfere with the well-laid NFC revenue models of the telcos. These models are anchored by the SIM.
Google Wallet, which represents the first commercial launch of NFC in the United States, uses an embedded chip in the Nexus S 4G. And fast-growing China UnionPay, which owns a monopoly on domestic payment card transactions in China, is planning to roll out SWP-enabled microSDs. It has already introduced an NFC phone that supports the flash-memory cards, which it commissioned from handset maker HTC.
“They (telcos) believe that they can maintain and exploit their position in the new, emerging value chains of mobile payment, advertising, offers, vouchers, access control, etc., by focusing on the UICC (SIM) as the only secure element, ignoring other secure elements that are already coming to market in handsets,” Tim Jefferson, managing director of the UK-based Human Chain consultancy, told me. “They are also being defensive to OTT (over-the-top) players, such as Google with its wallet and increasing influence through Android handset OS penetration; PayPal with its increasing mobile and ‘alternative’ payment offerings; and handset-OS vendors, such as Apple and RIM (Research in Motion).”
GSMA’s SIM-Centric Specs
So, given the threat from the over-the-top players, it can’t hurt to trot out the names of big operators planning SIM-based NFC launches in coming years, as GSMA did in last week's announcement. Besides the two largest telcos in China and the United States, respectively, the press release trumpets support from among all of the major Europe-based telco groups, Vodafone, Telefónica, Orange and Deutsche Telekom, along with Latin American giant América Móvil and the largest operators in Russia and India that issue SIMs.
It’s also the reason the GSMA announced in the same press release that it had published version 2.0 of its NFC handset requirements, which it would like to see operators incorporate in their procurement documents when ordering handsets.
Among the requirements are that phones supporting multiple secure elements, such as SIMs and embedded chips, that only one secure element should be active at a time. This is necessary at present so as not to confuse contactless readers. But the GSMA specifications go on to say that the SIM card should be the default secure element made active.
If implemented, these requirements would mean, for example, that if a payment application from a telco's mobile wallet is stored on a SIM card and a separate payment application in a competing NFC wallet is stored on an embedded chip, the application on the SIM would automatically be active. The consumer or other authorized party would have to consciously deactivate the SIM and activate the embedded chip to use the payment application stored on the embedded secure element.
The GSMA specs also state that all phones would have to support the single-wire protocol–the physical connection between the SIM and NFC chip, as well as the host-controller interface, or HCI, which is software that controls how the SIM talks to the NFC chip.
The HCI theoretically gives the SIM card a say in all communication the NFC chip has with all the other secure elements of the phone, and some believe operators could use this software to block applications from being downloaded to other secure elements in NFC phones besides the SIM.
The specs also include an option for operators to mandate that devices support the SIM to the exclusion of all other secure elements.
There are other requirements in these GSMA phone and companion NFC SIM standards, which the association says is necessary for interoperability of NFC-enabled SIMs and phones.
In reality, the Human Chain’s Jefferson says he believes that while mobile operators may subsidize handsets in some markets and control the distribution channels, they are subject to market demands for compelling new handsets. In other words, the “major customer-facing brands, such as Google, Amazon and Apple, will have to be accommodated in some manner in this new world of mobile commerce.” Customers will expect it.
Given that backdrop, it’s interesting to note that Isis declines to say whether its members will support the Google Wallet on their SIM cards or other secure elements in the NFC phones they distribute. Verizon is not expected to offer the Google Wallet when it introduces Google’s Galaxy Nexus Android phone, likely starting next month.
More Joint Ventures
The telcos are also forming joint ventures or planning to do so in such countries as the United States, United Kingdom, Germany and the Netherlands. Four telcos in Sweden were the latest to announce they had formed a separate company to help them roll out mobile payment. The operators say they are forming the groupings to promote interoperability of services, anchored by a common technology platform.
That is true, but the JVs also could serve to help the operators ward off competition from the likes of Google and other new m-commerce players. The telcos have admitted as much.
It will be interesting to see whether antitrust officials raise any objections to these telco tie-ups. The planned JV by the big three UK operators is still reportedly awaiting approval from regulators.
All of the telcos forming JVs stress that their platforms will be open to all legitimate m-commerce players. Still, there’s little doubt that the operators are girding for competition from such new platform players as Google.
And they will attempt to use their control of SIM cards to avoid being cut out of revenue from NFC services the way they’ve largely missed out on the proceeds from the large and growing smartphone app stores.