Questions & Answers

A new analysis of the near field communication (NFC) mobile payments opportunity forecasts that 700 million mobile subscribers globally will have phones equipped with NFC contactless technology by 2013. Where can you see this innovation going, and will it be a success?

George McPherson, Data Select CEO:

It’s a great idea, as all your small purchases can conveniently be purchased with one swipe of your phone. Big security concerns by users and the fiasco that Oyster card experienced with London Underground recently will give many cause for concern, and whilst O2 have championed the technology, will the ‘not invented here’ syndrome result in other networks being reluctant to invest in deploying the technology?

Mobile banking might be great though for networks and airtime usage, account top ups and the like, but how do dealers benefit? Share of airtime revenues? New devices for users? Who knows, but certainly the model needs to offer security and value to the customer and a margin opportunity for dealers if they are to get behind it.

Rod Millar, Brightstar Europe president:

A few years ago no one thought text messaging would take off in such a massive way, and who can say what will and what won’t succeed in the future. One thing we can be certain of is that there will be many more applications and services being made available on smartphones over the next few months and years, and some will succeed, others won’t.

From our perspective and the perspective of mobile dealers, it hardly matters which applications and services catch on, as long as the technology continues to deliver more value to the customer, smartphones and other devices will continue to sell. In this respect, we’re always eager to see new ideas being put forward and if mobile payments take off, that will only be positive news for the industry.

If they don’t, some other technology will undoubtedly come along and deliver something that users do want to use and are prepared to pay for; at the end of the day, that’s what the industry needs to deliver. Right now, the trend is towards increased use of mobile data, email and internet access and that’s driving strong demand for smartphones that can be used both as efficient, cost effective business tools as well as for domestic purposes.

James Browning, 20:20 managing director:

This is a difficult one to gauge. People are fickle and some technologies quickly catch on and become mainstreamed seemingly overnight. Others don’t. But separating the VHS from the Betamax is a tough call. I suppose it’s a question of which add value in making people’s lives easier and whether concerns about security can be overcome.

Technologies that are successfully taken up tend to be useful, relevant and fun. Although mobile payments are set to hit $75 billion globally by 2013, consumers may well opt to keep with payment methods they are comfortable with, at least in the short term. I think a lot will depend on how the credit crunch affects peoples spending habits and whether cultural barriers about using cash can be overcome.

David Hodgson, Cellutel sales and administration manager:

I believe that as with any new technology there will be scepticism and negative comment by consumers, however, as with chip and pin, people will come to accept this new way of paying for items. The possibilities of NFC mobile payments seem endless so why stop at paying for small items? Imagine being able to walk out of a supermarket with a basket full of food without having to unload it all for a cashier to scan it and then have to put it in to bags.

NFC contactless is not just about a new transaction technology, it is going to enhance the shopping experience. We are always looking for devices with features that eliminate the need for many devices so imagine having a mobile phone that could eliminate the need to carry a wallet or purse around with you.

Adrian Williams, Nokia head of business mobility:

The day is coming when we can all go out without the need of a wallet or money in our pocket and we’ll be able to buy the things we need such as food, entertainment or travel through our mobiles.

NFC mobile payments could fundamentally change how people use their mobiles, making plastic cards or paper tickets a thing of the past. NFC offers a new way to pay and also receive information from advertisers and businesses.

But this isn’t something that is new for us at Nokia. We have a strong heritage in this area, as one of the co-founders of the NFC Forum back in 2004. We’ve also been a main partner in the recent O2 Wallet trial in London. This was the UK’s first large scale pilot of NFC technology, where 500 trialists were given a Nokia 6131 NFC handset

installed with the O2 Wallet. Just like a normal wallet, it held various everyday cards, including Oyster and Barclaycard, but in virtual form and with NFC functionality.

When questioned, nine out of ten trialists were happy using NFC technology on a mobile phone and 78% said they would be interested in using contactless services. The results of this trial also indicates how we are moving closer to making this an everyday reality for consumers. What we need now is the infrastructure to support the technology and it is up to handset manufacturers, network operators, the banking system, retailers and developers to move forward and make it a reality.

No doubt, this is a disruptive technology that has the ability to transform how we engage in our lives and NFC has huge potential for consumers and commerce.

Stephen Gibb, Upaid chief information officer:

NFC has long been heralded as the future of mobile payments. As we’ve seen, there have been many NFC trials across the world, including the O2 Wallet trial in London and the Sprint NFC trial in San Francisco.

However, most NFC trials that have taken place have been in a closed environment, run by one mobile operator, certain retailers and one bank. Until these NFC trials become less selective and are not limited to one operator and a single bank, NFC will not be able to successfully become a national payment system.

Also, you’ve got to be able to provide customers with a valid reason to use a mobile phone to make a payment in store rather than use a bank card or cash. What makes swiping a mobile phone against a card reader any easier than swiping a contactless

bank card against one? Convincing customers to replace their bank card and the cash in the pocket with their mobile phone will prove extremely difficult. NFC only addresses physical payments, and is not generally PIN protected, for instance, anyone could swipe the phone. It’s because of this that we think NFC will remain used in isolated areas such as the London Underground and other transport systems but won’t take off globally.

We think that the future of mobile payments is going to be in secure remote transactions and money transfer. Offering customers the ability to make a remote purchase using their mobile phone has huge potential. If the mobile industry can work successfully alongside the financial services sector, the remittance business could dramatically change.

Tanny Price, Avenir managing director:

This innovation could go into supermarkets, bars, pubs, cinemas… the list is pretty endless, although you could also argue that Bluetooth can offer the same communication at a faster rate of transfer, with similar levels of security, and Bluetooth has been tried and tested.

However, NFC is RFID compliant and so this creates an opportunity. The next six months will be the true test to know whether NFC is a success, but it’s a great opportunity.

Distributors in the mobile channel have been busy consolidating over recent months, and more will no doubt
continue the trend going forward. Yet not many of these big businesses are discussing booming sales
and profits, or new initiatives to increase sales. How do you think the mobile distribution sector is doing
right now, and will it survive the financial crunch with flair, or struggle to keep the doors open?

Browning, 20:20:
Our UK consolidation has been driven by the need to rationalise three business units and improve decisionmaking and realise synergies. But the broader challenge for distribution is about how we respond to a maturing market and alter our game to respond. Clearly the days of huge year on year growth are now behind us. But I’m clear that there is a crucial and enduring role for distributors if we can develop a value-adding proposition that asks, from first principles, how we improve the supply chain, add value for our customers, improve the service to end users and generate profits. I think we can do that but it’s a new world where having a clear and genuine proposition is key.

Millar, Brightstar Europe:
We’d anticipate that there will indeed be further consolidation in the distribution sector and Brightstar is very well placed to come through this period strongly. Right now we are experiencing really strong rates of growth and we’re certainly not feeling the squeeze as much as many other players in the market. With the tremendous resources and organisational stability that we have in being part of Tech Data, we are not likely to feel the effects of the credit crunch as much as our competitors.

It’s worth noting that the IT distribution sector went through the same sort of consolidation a few years ago. Tech Data was one of the companies that emerged from this period strongly, having invested significantly in building a state of the art logistics and infrastructure that is second to none. Brightstar Europe is benefiting from that investment now. It enables us to offer high levels of stock and a highly effective delivery service and to maintain our cost effectiveness. Other distributors, that don’t have access to these sort of resources, may struggle to keep their numbers up as average selling prices for handsets continue to fall and more pressure is exerted by suppliers and customers.

Another important factor here is the ability to provide, and to obtain, credit in the market. With the backing we have, Brightstar can offer generous and fair credit terms to dealers and obtain the credit insurance needed to purchase products in significant quantities. But not everyone can do the same as they do not have access to the same level of financial resource.

The crunch is also being felt by the credit insurers and they, in turn, are tightening up their terms and conditions. That is going to make it difficult for some distributors, especially those that are highly geared, to purchase the stock they need to function properly and deliver a useful service to resellers.

In summary, some parts of the mobile distribution sector are doing well enough and are well placed to emerge as stronger businesses from the current downturn, others are looking more vulnerable and will find it harder as the months go by. We will certainly see more consolidation.

Price, Avenir:
There’s no doubt that the distribution market is going through a period of change and to keep one step ahead in the current conditions, it’s vital to look to complementary market opportunities in sectors that are growing at a faster pace, such as IT.

As convergence continues to take a greater hold, both dealers and distributors need to adapt to selling more data and converged solutions to cement their place in the industry and distributors need to ensure that this transition is as easy as possible. By keeping on top of the changing market, looking to potential partnerships with resellers, manufacturers and airtime providers, distributors can guide their dealers to focusing on the opportunities for growth and commercial success.

Whilst the mobile distribution market has previously provided ample opportunity for those distributors looking to make a quick buck, in an evolving market, it is the businesses that have kept a close eye on the long-term future that are reaping the rewards. The move towards convergence has meant that it’s now important to take a new approach, focusing on becoming communications consultants, providing a one stop service for both mobile and data solutions, will enable dealers to meet consumer demand and fully integrate themselves into their customers’ businesses.

Creating a quality, long term customer base is essential and educating dealers and end customers is important. Success in the mobile distribution market is still achievable, provided dealers and their distributors can work together to capitalise on the opportunities that data holds.

McPherson, Data Select:
Distribution has been about low margins but high volumes, yet the economy and a maturing market means that the volume element is no longer what it was. If you have not already revamped your business model into one with higher margin potential, based on value added services and closer working relationships with all your channel partners that you are genuinely offering value for money and innovative services too then you are at serious risk. Distribution will survive we are used to challenge, further consolidation will happen but that is not necessarily a bad thing in the longer term.

Ben Dowd, O2 UK business sales director:

Currently the mobile distribution sector is performing well and resisting the knock on effects of the economic downturn. Year on year handset sales have increased and this year have even outsold analyst predictions. We understand the importance of working with our partners to enhance O2’s distribution reach. Of course, some customers want to buy our services locally so we work with a wide range of distribution partners, both large and small.

At O2 we seen great momentum in both our direct and indirect sales and we believe we have plenty in our toolkit to help our partners become more efficient and continue to strive in these tough economic times. Through programmes like our Centres of Excellence, Professional Services and our Advance Partners we believe we are working with the best partners in the industry and recognise how important they are to our business. In particular, our Advance Distributor Programme is designed to support

the growth of exceptional partners and we work closely with them to help the distribution channel achieve their targets.