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Telefónica (O2) UK will not launch NFC this year and will only trial other mobile-wallet services–not launch them commercially–before the end of 2011, a spokesman confirmed to NFC Times.

O2 UK had been gearing up for what was believed to have been an NFC commercial launch, along with other wallet services, for the second half of 2011, featuring its O2 Money application.

An O2 spokesman, however, now says it was never the plan to launch NFC this year or to commercially launch network-based mobile payment or funds transfers before 2012.

“Our strategy for the wallet remains the same,” he said. “We are still on track to launch it to trial customers before the end of the year. The wallet will still have a phased launch, with the initial product focusing on m-commerce and peer-to-peer payments, and NFC functionality coming later into the new year.”

O2 did not elaborate, but an O2 spokeswoman last January told NFC Times the operator expected to launch “commercial mobile NFC services during the second half of the year.”

UK market watchers, including some analysts and consultants, told NFC Times they understood O2 to be planning an NFC launch this year, following rival Orange UK, which launched its Quick Tap mobile-payment service with issuer Barclaycard in May. O2 is preparing to roll out both proximity and network-based payment from its O2 Money division, but the telco appears to have delayed the launch.

“My understanding is that O2 UK was planning to launch an NFC payments service as part of the m-wallet it plans to launch by year end,” Guillermo Escofet, senior analyst for mobile content and applications at UK-based Informa Telecoms & Media, told NFC Times. Though he hadn’t heard of definite delays, there are many reasons why O2 might be putting off the launch of the NFC portion of its planned O2 wallet.

“It could be that O2 wants to wait until there are more NFC handset models out there supporting not only contactless payments but, more importantly, single-wire protocol security for payments–which places control for securing NFC payments in operator hands,” he said. “Or it could just be that it is taking longer than anticipated to sort out all the technical aspects.”

Complexities Contribute to Delays
Tim Jefferson, managing director of the Human Chain consultancy, agrees that the lack of suitable handsets, as well as the complexities of implementing mobile payment by a network operator, has caused a delay in the planned NFC launch.

“It’s the complications–certification, regulations and lack of understanding of mobile network operators of the complexities to bring this to market,” he told NFC Times. “I think that’s what’s happening now.”

O2 has said it would apply for an e-money license enabling it to serve as its own payment service provider, but it’s unclear whether it has actually applied. In May, it announced financial partners for the launch of O2 Money on phones and said it would partner with financial services vendors and processors, Wave Crest, FIS, Intelligent Environments, along with Visa Europe. 

But O2 UK continues to gear up for NFC. In June, it appointed a new head of NFC, Neil Rutter, formerly a director of business services at American Express. He filled the post formerly held by Claire Maslen, who moved to the post of senior market development manager in the telco’s financial services arm, O2 Money.

Much of the planned O2 Wallet will not use NFC technology, but will involve online shopping, ticketing and vouchers along with P2P money transfers.

O2 also plans offers and mobile advertising, through its O2 Media unit and O2 More service. The latter has 6 million customers for its targeted message service. It uses customer preferences, location and browsing and roaming data, with customer opt-in. There will be other location-based offers, as well.

These offers could be redeemed in various ways, such as with bar codes or serial numbers, along with NFC. There will be couponing and offers that also use NFC, as well as ticketing, access control and information from tags, according to O2.

“They think they can drive something from the advertising,” said Jefferson. “They see it as a card wallet, moving them along the mobile advertising roadmap.”

John Devlin, senior practice director for autoID and smart cards in London for U.S.-based ABI Research, believes O2 delayed its earlier planned H2 2011 launch until next year as it waits for more NFC phones and tries to hone its business case for the technology.

Keeping an Eye on Google
He believes the launch by Google of the Google Wallet in the United States only added to questions mobile operators are asking themselves about the sustainability of their revenue models for NFC–many of which is based on charging fees for renting space on their SIM cards to service providers, such as banks. Google is not charging fees from banks to be part of its wallet.

“As a result, they (mobile operators) are all working furiously to identify alternative, i.e., nonpayment, NFC-based services and revenue streams,” Devlin said. He sees mobile operators continuing to hold back from seeding the market with NFC phones before services arrive. Other observers, however, say most operators planning NFC launches are sticking with their SIM-rental models.

Of course, O2 might believe it has time. The Google Wallet rollout in the United States, launched in September, is still small, and it remains to be seen when the Web giant will be able to expand the program to the United Kingdom.  

Quick Tap from rival Orange UK also remains small, with only a couple of low-profile NFC phones available. But O2 risks falling further behind Orange and Orange’s Everything Everywhere joint venture with T-Mobile UK the longer it postpones the O2 Wallet commercial rollout.

O2 had launched the first high-profile NFC project in the United Kingdom four years ago, with its well-received O2 Wallet trial involving Transport for London and Barclaycard.

But Barclaycard partnered with Orange for its NFC commercial launch, and the pair have enjoyed much first-mover publicity with Quick Tap. Orange plans to introduce higher-end smartphones for the service. Meanwhile, the third major mobile operator in the United Kingdom, Vodafone, is gearing up for its own NFC launch, NFC Times has learned.

All three major UK telcos have proposed forming a joint venture to set standards and public information campaigns, but they are expected to promote their own wallets and services.

O2 might be targeting the run-up to next summer’s Olympics in London for the launch of NFC services. It has already said its O2 Money application would support Visa, an Olympics sponsor.

Orange and Barclaycard have already “effectively blazed the trail” for NFC mobile payment in the United Kingdom, said Jefferson.

The question is whether O2 believes it can wait until next summer to follow.