In just the past few weeks, major mobile operators in the United Kingdom and Denmark have announced joint ventures to roll out NFC services.

That follows JVs telcos have formed in the United States and the Netherlands, the latter with banks. Operators in several more countries are discussing such partnerships, including those in Germany and Taiwan.

French telcos have long had an agreement in place to work together to build an interoperable NFC platform.

I expect competing telcos to come together in similar fashion in other countries. But what is driving these deals?

The telcos have been discussing such arrangements for the past several months and in some cases years in anticipation of a fertile new vein of income from NFC.

And they have concluded that they will reap more revenue by avoiding fragmentation. So, by and large, operators have rejected the idea of rolling out mobile wallets that don’t work with those of rival telcos.

By agreeing to set up a single platform, the telcos will make it possible for banks, transit operators and other service providers to download their applications to NFC phones sold by any operator–provided, of course, the service providers and telcos have business deals in place. And by the same token, subscribers of any telco set up for NFC could access those services

Telcos see revenue opportunities on at least a few fronts.

They believe they can charge banks and other service providers to rent space on the telcos’ SIMs for their applications and to manage the updating and deleting of the applications.

More recently, the operators realize there is also money to be made from charging merchants and other advertisers for delivering their offers to subscribers.

And in some cases, the telcos will try to take a slice of transaction revenue from merchants or to introduce their own payment schemes.

Some telcos might brand their wallets differently, but the rules and specifications underpinning the wallets will be the same.

Urgency in the Air
But while the discussions for the telco JVs have been going on for some time, there is an extra urgency in the air, as Denmark’s largest operator TDC, put it to me. There are new players that want to use NFC technology to capture what the operators believe are their customers.

The “threat stemming from non-SIM based wallets, such as Google has launched” is focusing the minds of operators, said Morten Hother Sørensen, vice president for business development at Denmark’s largest telco, TDC. 

“Basically, there’s continuously a fear from the telco side to being reduced to a bit pipe,” he said.

Google intends to greatly expand on its already lucrative Web advertising business by using NFC to connect the online to offline worlds through its Google Wallet. Other big Web or IT players, such as Microsoft, are working on their own wallets, I’m told. And some device makers, including Research in Motion, have similar ideas, using embedded chips they are ordering for their NFC phones.

But it is Google, which unveiled its wallet May 26 with a number of high-profile partners, that appears to be giving operators the final push, where needed, to close ranks.

“We cannot ignore the over-the-top players–historically, they have the behavior of being able to enter a market very, very quickly and overtake whatever any of us have thought about,” said Claire Maslen, senior market development manager for Telefónica (O2) UK, which announced plans June 16 to form a joint venture with the country’s two other major telcos, Everything Everywhere and Vodafone UK. “They have the power to do that, and they have direct consumer relationships.”

Maslen said the UK telcos believe the JV will give them the “scale to address some of these unusual, non-traditional competitors.”

Fighting Back with SIMs
Operators in some places will go beyond just agreeing to technical specifications for a common wallet platform. They are planning to share sales staffs and to set aside money for joint marketing.

That’s the case in the United States with the Isis joint venture, made up of AT&T, Verizon and T-Mobile USA; as well as in the United Kingdom. 

The operators in both countries will still be responsible for much of their own marketing for their wallets. The UK telcos might brand their phone wallets separately, but they are discussing having a common logo at acceptance points.

Nearly all of the joint ventures that telcos have announced, or which are in the works, would make the SIM cards they issue the required secure element for storing payment and other important applications. Putting the applications there gives the telcos ultimate control over which applications get downloaded and deleted from the NFC phone, enabling them to charge fees to the service providers.

Verizon, which doesn’t issue SIMs for its 3G customers, will still seek to control embedded chips in the NFC phones it sells that could store applications. It would also enable 4G SIMs it issues for NFC.

Osama Bedier, vice president of payments at Google, told me at a conference in London in June that the company realizes it has to work with mobile operators and their SIM cards when it introduces its wallet in Europe, which it plans to do during the first half of 2012. The United Kingdom, with its high penetration of smartphones, is likely a prime target for Google.

But Bedier said Google also needs some management control over the wallet applications on the SIM. That is vital since to enable consumers to pay and redeem coupons with a single tap, both the payment applications and the coupons or other offers have to reside on the secure element, such as the SIM, experts agree.

That means Google would need agreements with telcos to gain access to their NFC-enabled SIM cards. Some telcos might be happy to grant that access for a price.

But this clashes with the telcos’ plans for their own wallets.

It remains to be seen how much the telcos will cooperate with the search giant as it embarks on its plan to roll out the Google Wallet globally.

“Yes, they (Google) are a threat,” said O2 UK’s Maslen. “It’s unclear exactly what they will do. (And) it’s unclear how we will help facilitate that.”

Google-Sprint Partnership Expected to Continue
Not all telcos are wary of Google’s wallet plans. No. 3 U.S. telco Sprint, which had originally been part of the carrier consortium that formed Isis, before dropping out, plans to continue to work with Google. Sprint will introduce a handful of additional smartphones supporting the wallet by the end of this year, with more models planned next year, not all of them necessarily Android phones, I’m told. The only phone expected to support the wallet when it launches this summer is Google’s Nexus S 4G, sold in concert with Sprint.

But with only about 16% of the U.S. cellular market, Sprint does not provide anywhere near the almost ubiquitous access that Google users are accustomed to.

Though a representative of Isis has told me the JV could work with Google, it’s difficult to imagine a Google Wallet and Isis wallet residing on the same phone–especially if they are anchored to the same secure element.

Google’s SIM Alternatives
While Google controls the embedded chip in its Nexus S, it would have to cut deals with either telcos or handset makers to gain access to the secure elements in other NFC phones. Many NFC phones are expected to support multiple secure chips, including chips embedded in the phones themselves. The SIMs would always be controlled by operators, but the purchase agreements between telcos and handset makers will determine which party owns the embedded chips.

Credible sources have told me that Google is considering using contactless microSD cards to expand the number of phones that can support its wallet and give the company sufficient control over the wallet applications.

While contactless microSDs, which sport their own secure elements, technically could be made to integrate with the antenna built into NFC phones, more likely Google would use microSDs that come with their own antennas.

The search giant is interested in other bridge technologies, as well.

Google’s vice president of commerce, Stephanie Tilenius, said recently that phones not supporting NFC could use an “NFC sticker that can be put on the back of the phone that works with the wallet.”

These passive stickers and the wallet applications they would store, however, don’t have a direct connection to the phone processor–or its screen or keypad. So the user experience would be much less compelling. MicroSDs do offer this interface, but don’t work on all phones. And their range is far shorter than that of contactless cards or full NFC phones without the help of boosters or other add-ons.

Google’s Bedier, speaking at the NFC Payments Europe conference in London June 13, said he wanted to see multiple secure elements in every NFC phone.

“From an OEM (handset maker) perspective, I get this all the time; should I go the SIM route, should I go the embedded route?” he said. “My personal opinion, why can’t we throw out a standard, in which both exist and just move the industry forward? Let’s figure out both in every phone because with scale, it actually doesn’t matter anymore, and the consumer gets to choose.”

Bedier might have been talking about a standard to enable two or more secure elements to remain active and run wallet applications. No standard exists at present, and if a consumer approaches a point-of-sale terminal with an NFC phone packing two active secure elements, the terminal wouldn’t know which one to address.

But operators and Google are not the only ones planning mobile wallets. Some banks could introduce them as well, perhaps on microSD cards. The banks face their own serious threats from new players entering their market–including operators themselves and eBay’s PayPal unit, which is expected to use NFC to try to expand its e-commerce payments scheme to the physical point of sale­.

U.S. banks could align with more established wallet providers, such as Google, Isis or Visa, the latter having unveiled its own digital wallet to enable both online and offline transactions.

Wallet War Coming
All of this portends the coming of a wallet war, and with it, fragmentation.

Mobile operators would tell you their joint ventures are meant to avoid such fragmentation, which could frustrate consumers and service providers alike. But, in fact, the telco JVs are really meant to help the operators avoid the same kind of frustration with NFC as they’ve suffered from having been almost entirely cut out of the business of providing smartphone apps.

Now along comes Google, and the telcos see competition for what they had thought was going to be their own domain, the NFC mobile wallet. How many other competitors are waiting in the wings to launch wallets?

“This is one of the reasons we have chosen to stand together,” Søren Abildgaard, CEO of TeliaSonera Denmark, one of four telcos announcing a JV recently, told me. “If you want to grab part of the market, you’ve got to be part of the first movers. (This) puts pressure on us.”