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Dutch Telcos and Banks Drop Plans for NFC Joint Venture

Jul 20 2012 (All day)

Dutch mobile operators and banks have decided not to form a joint venture to roll out NFC services together, saying “developments in the market” were responsible for ending the deal that was nearly three years in the making.

The telcos, KPN and Vodafone Netherlands; and banks, ING, Rabobank and ABN Amro; in September 2010 announced they would set up the joint venture, which they dubbed Sixpack. T-Mobile Netherlands later dropped out of the group, citing difficulty finding a business case and return on investment.

In an announcement released today, the parties said they would continue to “cooperate for the introduction of mobile-proximity payments” and still plan to launch NFC in 2013, as before with the Sixpack initiative. They said they would “discuss an appropriate governance structure for their cooperation.”

“(The) parties have come to the conclusion that this original plan to build a JV is too complex and requires too much time,” the group said in the statement. “Lately, developments in the market have removed the necessity to establish such a new company.”

UPDATE: W.C. “Wim” Westerhof, Sixpack program manager, told NFC Times that the banks and telcos began having doubts in late 2011 and early 2012 that the joint venture would be feasible, both from a management perspective and being able to satisfy the concerns of regulators.

“What was the difficult part was to get on one line with six partners–what was the strategy and tactics of this company and how the influence of the six individual partners could be managed by the director of this company,” he said. ”What should be the mandate of this director?” 

Concerns about Gaining Regulatory Approval
The Dutch telcos and banks also scrapped the idea for a joint venture in part because of uncertainty in obtaining approval from European Union regulators. 

Even without T-Mobile, the two operators in the planned consortium, KPN and Vodafone, would control nearly two-thirds of the relatively small market in the Netherlands. And together, ABN Amro, ING and Rabobank own 92% of the Dutch banking market, said Westerhof. The Sixpack organizers had insisted that their NFC mobile-commerce platform would be open to other players, but they feared that might not be enough to convince regulators to approve the deal.

“You can understand, the Dutch competiion authority, but also the European Commission (would have questions): How can you think to arrange this new company so it will not be an (excessive) concentration? How will it be possible for other companies to make use of this new infrastructure without any barriers?” he said. END UPDATE.

A spokesman for Sixpack said in April that the group took note of a decision announced by EU regulators to conduct an in-depth investigation of the proposed m-commerce joint venture, nicknamed Project Oscar, by the three largest mobile operators in the UK: Everything Everywhere, Telefónica UK and Vodafone UK.

An in-depth investigation by EU competition authorities is rare, but the European Commission’s competition directorate said it had “potential competition concerns” because of the dominant market share the three UK telcos together would hold. European Commission competition chief Joaquín Almunia is expected to issue his decision on the project in late August.

Despite opposition from a fourth UK telco, Three, and, reportedly, Internet players Google and PayPal, there are unconfirmed reports that Almunia will approve the proposed Oscar venture.

There are other joint ventures planned or already formed among European telcos and other mobile-commerce players, including four telcos in Sweden, which founded their 4T joint venture in June and have launched a mobile wallet. The Swedish telcos, whose lawyers determined they did not need to gain approval from Brussles for the venture, have obtained an e-money license through their joint venture. They plan to add NFC services and their own NFC-based payment application to the wallet platform next year.

Telcos in Germany, Denmark and Hungary, the latter with some other players, also have announced joint venture plans.

U.S. mobile carriers formed a joint venture in 2010 known as Isis. And telcos are leading joint ventures planned in other places, such as Taiwan and New Zealand.

It remains to be seen if the decision by the Dutch to scrap their joint venture plans will cause telcos in other countries to rethink their own plans.

The Sixpack partners had originally thought they only needed approval from domestic competition authorities, but later determined they would have to get approval from EU antitrust authorities for their planned joint venture. This caused the group to move back their projected NFC launch date to early 2013 from an earlier target launch date of 2012. 

Questionable Return on Investment
UPDATE: Westerhof said estimates by the consortium that the return on investment for the Sixpack joint venture could take up to 10 to 12 years did not play a role in the decision by the remaining five members of the group to scrap the plan.

An insufficient return on investment was the reason T-Mobile Netherlands had dropped out of the group, as announced in November of 2011. “They expected profitability sooner and sooner,” Westerhof told NFC Times. “There is a chance the (joint venture) company would not be profitable at all.”

The joint venture had planned to run its own centralized trusted service manager–to handle both the download and provisioning of secure applications and preparation of the secure elements in SIM cards in NFC phones.

The company would be responsible for renting space on the SIMs, as well, and would earn this rental income, and would have to pay the costs of the NFC SIMs the member telcos issued, said Westerhof. The JV would have hired technology partners to help it with the management of the NFC applications.

In terms of revenue, the banks and telcos could have earned money from offering some services individually, although these might not have been tied directly to the NFC platform.

When the parties began discussions over forming a joint venture, in the latter half of 2009, the TSM services available from vendors were not very advanced, said Westerhof. This helped convince the Dutch telcos and banks they would have to create a TSM themselves. But the TSM landscape has changed since then, he said.

The Dutch telcos and banks later named their consortium Travik. Despite T-Mobile Netherlands dropping out, the parties continued to refer to the project itself as Sixpack.

The joint ventures in Europe and beyond generally plan to use the SIM as the secure element to store NFC payment and other secure applications and to hire a centralized trusted service manager to manage secure elements and, in some cases, to download and provision applications for service providers.

The joint ventures also would set other technical specifications and business rules for how NFC payment would be conducted and could offer a one-stop shop to enable merchants and other service providers wanting to put their applications in the NFC wallets the telcos would launch.

French-Style Committee System Likely?
UPATE: Westerhof said the Dutch telcos and banks have not yet decided how to coordinate their NFC plans with the scraping of the joint venture plans.

But they might decide to adopt a less-formal committee system, as French telcos, banks and other players have done. They could set technical standards and business rules for launches of NFC payment, ticketing and other applications this way. In France, telcos and service providers are planning to pursue NFC commercial rollouts individually.

The dominant market share–originally with three major telcos and three banks covering almost the entire Dutch market–had been one of the reasons for the formation of the Sixpack initiative–said backers. It meant Dutch consumers–whatever their operator or bank–would be able to use the NFC services, they said.

Without the joint venture, Dutch operators and service providers, especially banks, will probably make bilateral agreements to roll out NFC services, said Westerhof. This could lead to fragmentation, he acknowledged. END UPDATE.

 

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