Observers: Lack of NFC in Next iPhone Models Won’t Hurt Industry; Though Could Have Boosted Take-Up

Sep 18 2013

Apple’s decision to again pass on NFC technology for its latest iPhones was not unexpected, and the industry will move on, NFC industry sources told NFC Times.

Apple last week announced two new iPhone models, deciding again not to support NFC technology, unlike other major smartphone makers. 

An Apple endorsement of NFC would have helped accelerate the take-up of NFC, said Peter Van Leeuwen, strategy and business development manager at Dutch mobile operator KPN, which is expected to commercially launch NFC services next year. But he believes that Apple is not as influential as it once was in the smartphone market, adding that investors gave the thumbs down to the new iPhones. Apple's shares were down by about 10% since the announcement on mid-day trading today on Nasdaq.

“Will it lead to the end of NFC if Apple doesn’t allow NFC in its handsets? No I don’t think so,” Van Leeuwen told NFC Times. “Apple will not influence that market much. The market share of Apple is decreasing. They really have to do something new.”

It’s not surprising Apple didn’t support NFC in the iPhone 5S and 5C, say industry observers. There was no real buzz about Apple adopting NFC in the run-up to the unveiling Sept. 10, aside from some ill-informed speculation among tech pundits, which had predicted Apple would support NFC in the past, as well.

Apple has filed several patent requests over the years involving NFC and may well adopt the technology in the future. But NFC is not a good fit with its business model, say some observers.

“What new services is Apple going to be able to make revenue with, with NFC in their devices? We struggle to see how NFC currently fits in with Apple’s closed-loop business mentality, and until it does, you won't see it on iPhones or any other Apple devices,” Tim Jefferson, head of UK-based The Human Chain telecom consulting firm, told NFC Times.

The snub of NFC by Apple could give some service providers second thoughts about introducing NFC services, especially in markets where iPhone penetration is high, such as the U.S. If they launched NFC services, they would still have to deal with a set of high-end users that they cannot address with the technology, and instead would have to use QR codes or perhaps NFC add-ons.

But an iPhone without NFC is not the main problem facing NFC backers, who are trying to increase take-up, especially around payments, said Jefferson.

“The iPhone does not matter, until other more major challenges are sorted (out),” he said. “It’s not about the lack of NFC technology or sustainable business models but the lack of customer wow factor that is the issue.” 

Speculation about Apple and Payments…Again
Though Apple made only one reference to payments during its presentation Sept. 10–saying users could make online purchases through iTunes by scanning their fingerprints on the iPhone’s new Touch ID feature instead of entering passwords–that didn’t stop some pundits from again speculating that Apple would get into the payments business using its hundreds of millions of iTunes accountholders.

This time, the speculation involves Apple’s continued support for Bluetooth 4.0, which features Bluetooth low energy, and Apple's enhancements to the technology in its latest mobile operating system, iOS 7.

Bluetooth low energy has mainly been targeted at small devices used to collect and transmit data, such as wearable health or fitness devices, that could run for months or even years on the tiny batteries needed to power the Bluetooth connection.

Apple’s enhancements reportedly allow for better micro-location, which could enable, for example, retailers to send coupons or offers in stores. Apple calls its implementation iBeacon, but did not mention it Sept. 10 and made only scant mention of it during its developers conference last June.

PayPal last week said it would use Bluetooth low energy in its latest effort to expand its e-commerce payments service to the physical point of sale, with what it calls PayPal Beacon, enabling consumers to make hands-free transactions after they enter a store.

At least a few observers have suggested Apple plans to do the same, perhaps adding security with its new fingerprint sensor technology. But unlike PayPal, Apple is a device company that also sells content and software, not a payments company. That is besides questions about whether Bluetooth low energy, which has a range of up to 50 meters, is suitable for payments. It would enable peer-to-peer transactions and would not be considered secure enough for open-loop payment systems, though PayPal and iTunes are not open-loop systems.

“Unless I missed something, the only reference that Apple made to mobile payment was using the fingerprint to validate iTunes purchases,” said Tim Baker, marketing director at France-based NFC marketing company Think&Go NFC. “There was nothing about more general mobile payment either using NFC, their fingerprint sensor or anything else.” But he added that, “we (may) have not yet seen the whole story.”

Predictions on Tag Impact Mixed
Think&Go NFC mainly uses NFC tags for its product offers, including tags embedded in electronic shelf labels for retailers. NFC has been “gathering momentum without Apple and will continue to do so.” Baker told NFC Times. “None of the actors in the NFC market that I know of had plans that were dependent on an NFC iPhone. All the figures still point to a rapid increase of the number of the NFC phones in consumers’ hands.”

U.S.-based NFC tag and tag platform supplier Identive Group also says it is confident. “We have been seeing demand for our NFC products continue to grow as the technology gains ground,” said a spokeswoman, who cited applications like electronic gaming, transit ticketing, and access control. “We don’t believe the lack of NFC in Apple’s latest phones will change this.” 

Others in the industry are more concerned. Mikhail Damiani, CEO of U.S.-based NFC marketing company Blue Bite, which provides tag marketing platforms, predicted the absence of NFC in the next iPhone models would “likely slow down the progress of NFC in the marketplace for all parties involved, from tag manufacturers to NFC-wallet applications.

The iPhone’s worldwide smartphone market share was 14.2% at the end of the second quarter, according to U.S.-based research firm Gartner. Apple’s U.S. smartphone market share is much higher, at roughly 40%.

And Apple’s “mind share” still may be even greater than that, noted some observers. Therefore, some service providers look to Apple as a leader and some won’t consider a technology mainstream until Apple adopts it,” said Damiani.

These organizations could continue to try to serve their customers with QR codes, or perhaps NFC-enabled add-ons.

Some observers say that the impact of Apple’s announcement on NFC deployment is likely to vary depending on how strong a foothold the iPhone has or how well-established the NFC infrastructure is in a given market. European markets, especially in countries with a higher penetration of contactless point-of-sale terminals and where several rollouts are imminent, are expected to see less impact than in the U.S., where the iPhone remains more influential.

Mark Fraser, CEO of UK-based NFC marketing company Zappit told NFC Times that his company expects the impact on European markets to be “minimal,” but he said, “the U.S. market is Apple-centric, and therefore the decision to exclude NFC from the iPhone might affect investment in the space.”

IPhone Add-on–Long-Term Plan for Isis
Isis, the mobile-payment joint venture among telcos Verizon Wireless, AT&T Mobility and T-Mobile USA is expected to roll out its NFC-based mobile wallet nationwide by the end of 2013, and the venture has said that it will offer NFC-capable cases for the iPhone 4, 4S, and 5 at the time of launch. During the two-city trial in Austin, Texas, and Salt Lake City, Utah, Isis has only been available on certain Android smartphones.

The case uses technology from U.S.-based DeviceFidelity and is being manufactured by one of its licensees, smartphone case and accessories maker Incipio. Incipio’s Cashwrap 4 covers the iPhone 4 and 4S, and its Cashwrap 5 will cover the iPhone 5. Both cases had received its final certification from payment schemes and Apple’s MFi approval August 2013.

Incipio was to start shipping the Cashwrap 4 and 5 in September, and Verizon and AT&T are expected to launch the product in October, a source close to the project told NFC Times. T-Mobile has expressed less interest than the other two telcos but may eventually stock the iPhone cases, as well.

UPDATE: DeviceFidelity CEO Deepak Jain told NFC Times that the company's iPhone 5 case should work “seamlessly” with the iPhone 5S, “although we will provide final confirmation of this support next week after testing with the actual iPhone 5S device.” He said DeviceFidelity plans to introduce a product for iPhone 5C, too. END UPDATE.

One likely impact of Apple’s announcement is the continued relevance of QR codes, SMS, and bar codes. 

“There needs to be another option for iPhone users,” said Damiani of Blue Bite. “QR represents a viable alternative and will continue to have relevance as long as the iPhone does not support NFC or an alternate technology that is more frictionless than QR.”

Blue Bite, like many companies that offer tag marketing platforms, including Zappit and Identive, said it is technology agnostic and includes QR codes in its offerings to clients.

Little Effect on Telcos
In general, mobile operators have little, if any, control over features Apple puts in its iPhone models. So, even if Apple were supporting NFC and included support for secure applications in its new iPhone models, it would likely have kept tight control over the secure element, which would have almost certainly been an embedded chip. It probably would not have even supported a single-wire protocol connection to the SIM card.

Mobile networks operators have a “very complex feeling” about Apple, Joseph Kuo, managing director, value-added services, at Taiwan’s largest mobile operator, Chunghwa Telecom, told NFC Times. Concerning the iPhone 5S, “from the operator point of view, they’re (telcos) not too excited. They (Apple) have their own business model, and operators won’t be part of it.”

He added, however, that any decision by Apple to support NFC would have represented an immediate boom for the NFC industry. “They are very important to the NFC ecosystem.”

If Not Now, When?
Some industry observers indicated that Apple’s reasons for continued exclusion of NFC are mostly based on the company’s desire to control the ecosystem.

“Apple’s desire to incrementally build its own platform ecosystem rather than integrate with others comes through loud and clear with the iPhone 5S,” said Miles Quitmann, managing director of UK-based Proxama, a provider of NFC-enabled marketing platforms, wallets and applications. He cited the “end-to-end” experience associated with the iPhone’s camera, along with the decision not to include NFC.

However, many think that Apple adoption of NFC is just a matter of time. Quitmann added in his statement to NFC Times that after the introduction of fingerprint authentication to the iPhone 5S, the path is clear for it (Apple) to adopt NFC.”

Zappit’s Fraser said, “we believe Apple will monitor mobile payment uptake and integrate NFC once demand is truly there. The risk they run is entering the game late and losing a percentage of customers; however, this is obviously a risk they are willing to take.”

“Eventually, there will be NFC in the iPhone,” said KPN’s Van Leeuwen. He believes that Apple might be using an old architecture for its latest iPhones, which could change in next year’s version, expected to be called the iPhone 6, possibly leading to the inclusion of NFC.

“While they have filed for a few NFC patents over the past year, which suggests that they are thinking about NFC, we figured that NFC would not be present in the phone until a more complete redesign of the form factor,” Blue Bite’s Damiani said.

Negative Investor Reaction
Following the Sept. 10 announcement, Apple’s shares dropped 5.4% on the Nasdaq the same day. Apple introduced two new models, the iPhone 5C and the iPhone 5S.

The iPhone 5C, with a plastic body rather than Apple’s usual aluminum, supposedly targets the Chinese market, where the iPhone currently holds just 5% market share. However, the new model reportedly carries a 4,488 yuan (US$730) price tag, more than twice what midrange smartphones cost in China. Investors criticized the iPhone 5C as too expensive to attract the new market for which Apple was aiming.

The iPhone 5S drew investors’ criticism for a lack of new features. Apple introduced fingerprint scanning technology, with which iPhone users can unlock the phone and validate iTunes purchases, but Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott, told Reuters, “This was less than expected from a company that has a reputation for surprising with a killer product or strategy.”

 

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