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present:

NFC: Opportunity Taps

Whitepaper

Published Fourth Quarter, 2012 Version 1.0

iGR 12400 W. Hwy 71 Suite 350 PMB 341 Austin TX 78738

Distribution of this report outside of your company or organization is strictly prohibited. Copyright © 2012 iGillottResearch Inc. 1

Table of Contents

Executive Summary..................................................................................................... 1 Figure A: NFC Strengths & Threats .......................................................................................... 1

Methodology .............................................................................................................. 2

Near Field Communications ........................................................................................ 3 What is NFC? ......................................................................................................................3 Current State of Standards and NFC ....................................................................................3 Who are the Players in NFC? ...............................................................................................4 What is the Current Status of NFC in the Market? ...............................................................5

Table 1: Current & Planned NFC Deployments, U.S. Only ....................................................... 6 Impact on Current Technology ............................................................................................7

Table 2: Potential NFC Use Cases ............................................................................................ 7 NFC SWOT Analysis ............................................................................................................8

Figure 1: NFC SWOT Analysis ................................................................................................... 8

What is the Outlook for NFC? ...................................................................................... 9 Prognosis for the Next 12 to 24 Months ..............................................................................9 Prognosis for the Next 24 to 48 Months ..............................................................................9

Conclusion ................................................................................................................ 11

About iGR ................................................................................................................. 12 Disclaimer ........................................................................................................................ 12

This research is provided as a member benefit for the exclusive use of members of PCIA – The Wireless Infrastructure Association. It is made available by a partnership between PCIA and iGR.

Distribution of this report outside of your company or organization is strictly prohibited. Copyright © 2012 iGillottResearch Inc.

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Executive Summary

Near Field Communications (NFC) is a very promising technology that provides access to many new applications for smartphones. In the short term, a smartphone equipped with an NFC chip or an NFC SIM may become a streamlined alternative to the traditional wallet and its plethora of credit cards, debit cards, frequent flyer cards, and loyalty cards. In the long-term, NFC provides the mobile conduit to a vast array of new systems and applications that will significantly add to the life experience of the mobile end-user.

Figure A: NFC Strengths & Threats

Source: iGR, 2012

NFC will greatly impact the relationship between the smartphone user and the personal and financial information that is important to the productivity of the individual. NFC removes personal and technical barriers to information access and personal transaction processes within the confines of solid standards and robust security tools and encryption mechanisms.

Aside from improving the quality of life of the individual, NFC also presents opportunities for a wide array of business and service organizations to improve their personal and business relationship with their constituents while building a new revenue stream via revenue sharing relationships with other firms involved in the payment process.

NFC standards are defined

Significant interest among variety of players

Improve & enable mobile commerce / payments

Acceptance of the technology by consumers and merchants

Availability of NFC chips for mobile devices

Acceptance of technology by the ecosystem enablers (mobile operators, merchants, etc.)


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Methodology

This report provides an overview of NFC and its potential impact on the U.S. cellular market. The information presented in this report originates from iGR ’s primary and secondary research. Definitions of industry terminology can be found in the Definitions section towards the end of this report.


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Near Field Communications

Near Field Communications (NFC) is a promising technology that provides access to many new applications for smartphones. In the short term, smartphones equipped with an NFC chip or an NFC SIM may become a streamlined alternative to the traditional wallet and its plethora of credit cards, debit cards, frequent flyer cards, and loyalty cards. In the long-term, NFC may well provide the mobile conduit to a vast array of new systems and applications that may significantly add to the life experience of the mobile end-user.

What is NFC?

NFC is a wireless technology that enables the two-way transfer of data (text, numbers, photos, etc.) between two NFC-enabled devices. NFC tags can be located in posters, menus, brochures, or in a designated public place. These tags contain small microchips that store small amounts of information that can be transmitted to an NFC equipped smartphone, on request, by simply touching or being in close proximity to the NFC tag or receiver.

NFC builds on legacy, one-way Radio Frequency Identification (RFID) technology to provide a dependable and secure two-way communications capability between discrete endpoints, while simultaneously providing optional encryption and access key capability, if desired, that protects personal and financial data.

NFC-based communications always requires a session initiator and a target (or end-point receiver), with a proximity delimiter of approximately 4 to 5 cm (about 1.5 inches). That is, the NFC-based connection will only occur if the two devices – the active initiator and the passive/active receiver – are within 1.5 inches of one another. The initiator creates an RF field that can transfer simple form factors like tags (contain data and are typically read-only) on posters, stickers, tickets, key fobs, or cards, to smartphones. Note that receivers can either be active or passive depending on the implementation.

Current State of Standards and NFC

There are three standards bodies that provide input into the evolution of NFC: the European Computer Manufacturing Association (ECMA), the European Telecommunications Standard Institute (ETSI), and the International Standards Organization (ISO).

ECMA has evolved over the years to become an international organization that focuses on information and communications systems. ETSI is an independent, non-profit entity that is dedicated to production of current and future telecommunications standards. The ISO consists of the national standards bodies of 157 member countries that generate input into the ISO standards.


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There are numerious other standards bodies involved with NFC, the most notable of which are GSM Association (GSMA) and the Open Mobile Alliance (OMA). The GSMA has recently published the initial suite of SIM-based NFC standards. Lastly, the NFC Forum, an independent organization that focuses on access control, consumer electronics, healthcare, IT, loyalty and coupons, payments, and transport, has emerged to become influential in establishing hardware manufacturing standards.

In summary, NFC standards cover communications protocols and data exchange formats based on RFID and new standards defined by the NFC Forum and GSMA. In 2010, AT&T, Verizon and T-Mobile also launched a joint venture targeted to design and develop a unified NFC-based platform, known as ISIS, which supports NFC-enabled SIM cards and NFC-equipped devices to function like debit/credit cards do in the U.S.

Note that the mobile operators behind ISIS plan to issue NFC SIMs to their subscribers. The operators then charge fees for enabling prepaid, credit/debit applications on those NFC SIM cards. Those fees also include the secure platform deployed by the operators in their networks that make it possible for participating companies to leverage the capabilities of the NFC SIM. Clearly, mobile operators are trying to leverage their direct relationship with consumers and turn themselves into a distribution channel in the burgeoning NFC ecosystem.

However, because of the current lack of NFC chips and NFC SIMs, many new smartphones are equipped to support NFC-compatible micro SD cards which could enable such phones to process payments through credit card firms. However, there are concerns that micro SD cards represent a potential fraud risk.

Who are the Players in NFC?

According to the NFC Forum, the NFC ecosystem contains a wide array of firms, including:

Merchants and Consumers

Financial Institutions

Mobile Operators

Reader Manufacturers

Smart Card Manufacturers

Semiconductor Manufacturers

Consumer Electronics firms

Mobile Device OEMs


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Education, Research, and Government

Test and Certification

Systems Integrators.

iGR believes that NFC provides significant business opportunities for the above vendors and new start-up firms, particularly with regards to payments. For example, consider a typical consumer retail scenario today in which a credit/debit card or cash is the preferred payment method for both the consumer and the merchant. In the not too distant future, making a payment via an NFC-equipped smartphone by tapping an NFC-enabled point-of-sale terminal might come to be the new norm.

In this paradigm, the smartphone would communicate directly with a receiver device to process a payment for a product or service. So, NFC technology augments and may eventually replace the process of card swiping for payments by simply touching a smartphone to a receiver device to complete a financial transaction with merchants utilizing NFC technology.

NFC devices are likely to be utilized by eBay, PayPal, and ISIS, just to cite a few firms. ISIS processes payments via Discover, American Express and MasterCard. There is a revenue sharing relationship between ISIS members (which are the mobile operators) and the merchants.

What is the Current Status of NFC in the Market?

NFC technology has been increasingly deployed in a number of European countries. In addition, that many U.S.-based firms have adopted, or are in the process of adopting NFC capabilities. Among them are: AT&T, Verizon Wireless, T-Mobile, Discover Financial Services, MasterCard, Visa, and Citigroup. In addition, Facebook and Amazon will be key players in this space.

As stated in iGR’s January 2012 NFC report, NFC provides significant benefits that are difficult to ignore, most notably:

Simplicity and ease of use

Flexibility and direct control of information dissemination

Standards based devices

Proximity security – it is very difficult to intercept transaction information

Interoperability with existing payments infrastructure.

iGR believes that the strict enactment of standards-based NFC solutions should allay these concerns about security and privacy. In addition, it’s difficult to obtain data from NFC devices as a result of the protection provided by encryption, access keys, and the physical proximity.


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The following table delineates the NFC trials that are planned or currently under way in the U.S.

Table 1: Current & Planned NFC Deployments, U.S. Only

What is the Application? How Does it Work? Who is Deploying NFC Trials?

Electronic business cards NFC marketers form global alliance

Facebook distributes Bling Nation payment tags to employees

NFC tags for digital receipts 3GTV adds NFC to grocery store shelves

PayPal begins move into retail store payments with Bling Nation pilot

NFC parking meters in San Francisco

TNT promotes TV series with NFCenabled New York storefront

McDonalds, Arby’s, Qdoba, Dairy Queen and Dunkin’ Donuts testing NFC

Google Wallet Hotels.com and New York Times back NFC tags advertising venture

Starbucks launches own NFC mobile payment service

Coca Cola testing NFC vending machines

Google launches Las Vegas NFC service as ‘ultimate tourist guide’

Dairy Queen tests stickers for targeted mobile coupon campaigns

Old Navy tests NFC ads in Miami

Google expands NFC Hotpot marketing service to Austin, Texas

US tradeshows collect visitor information with NFC tags in mobile phones

Google Wallet SingleTap payments and offers now available at eight US merchants

Google launches first NFC marketing service

Google Wallet poised for growth

ATI uses NFC to check temperature of foods and pharmaceuticals

Bling Nation adds mobile rewards and Facebook pursuing integration to merchants

Facebook views NFC as large priority

Source: NFCTags Technology, 2012


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Impact on Current Technology

iGR believes that NFC may have a profound influence on the daily lives of mobile users because of the following capabilities, as outlined below in the following table.

Table 2: Potential NFC Use Cases

Business Entity New NFC Device Capability

Railroad Station/Airport Purchase Ticket

Enter train or airplane with electronic ticket

Get info from Smart Poster

Get info from Kiosk

Submit mileage vouchers/discounts/Frequent Flyers

Moving Vehicles Pay toll fees

Pay traffic tickets/ parking tickets

Offices Enter Building/Office

Exchange electronic business cards

Log on to PC

Stores/Restaurants Pay by credit/debit card

Obtain/redeem electronic discount coupons

Transfer coupons/discounts to friends

Read Facebook/Twitter info provided by store

Theater/Stadium Purchase ticket

Enter theater

Obtain event information

Hospitals Hospital entry

Patient identification

Insurance coverage

Medication

Pin authorization for medical provider

Elimination of forms/paperwork

Advanced support for HIPPA

Source: iGR, 2012


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The major benefits provided by NFC are as follows:

Elimination of costly manual processes

Reduction in error quotient as compared to manual transactions

Provision of an audit trail of transactions

Simplification of daytoday life processes

Elimination of duplicate or redundant processes

Improved security vs. manual transactions

Reduction in fraud opportunities

NFC SWOT Analysis

The following figure outlines the internal strengths and weaknesses of NFC and the external opportunities and threats for NFC from the mobile operator’s perspective.

Figure 1: NFC SWOT Analysis

Source: iGR, 2012

Strengths

• NFC standards are defined

• Protection of NFC data via PIN / AUC

• Proximity protects data

• Much simpler than WiFi / Bluetooth

• Enable the wireless wallet / mobile commerce

• Improved mobile playments

• Impede identity theft

Weaknesses •May be new information security issues •Protection of data via encryption •Timeliness of manufacturer 's adoption of

standards •Acceptance of new tech. by customers •Availability of NFC chips for mobile devices

Opportunities •Emergence of new firms •Many new applications •Mobile payments explode •Good foundation for future growth for many

vendors •Globalization of NFC

Threats

• Accepatnce of standards by HIPAA and

finanical institutions • Acceptance of end users

• Device certification compliance

• Potential vulnerability to eavesdropping

• Threat of RFID jamming / data modification

• Short-term vulnernability to spyware / viruses

NFC


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What is the Outlook for NFC?

Although NFC represents a promising opportunity for mobile operators, vendors, and end users, the full deployment and acceptance of the technology will evolve slowly over the next four years. iGR believes that the mobile industry standards will evolve quickly due to the market influence of the major players.

For example, Google has already introduced Google Wallet to be used with certified Android phones and Samsung has already begun to introduce devices with NFC chips. Note that Apple has yet to state any definitive NFC-related plans, but it is widely expected to be including NFC in the next iPhone which is widely expected to debut in late third quarter or early fourth quarter 2012.

The mobile operators are very motivated to launch NFC because of the fees (associated with the ISIS joint venture) and potential revenue sharing potential between merchants and the mobile operator.

Prognosis for the Next 12 to 24 Months

iGR believes that this period will be characterized by coexistence and initial transition from traditional payment methods. However, merchants are likely to readily adopt NFC because of benefits related to improving margins, lowering of transactions fees, and minimization of cash management problems. Customers will begin to accept NFC technology because of ease of use, simplification of the payment process, reduction in financial errors, and improved transaction speeds versus traditional payment methods.

During this period, however, there are a number of challenges for NFC acceptance, such as the availability of NFC chips, speed of merchant acceptance, and consumer acceptance of privacy and security capabilities of NFC.

Prognosis for the Next 24 to 48 Months

iGR believes that this period is likely to see the acceptance of mobile micropayments and a growing interest in cloud-based wallet solutions that can be accessed by smartphones. iGR also believes that this period will also witness a growing value proposition that includes larger interactive financial transactions and more location based and directed advertising, all of which generate revenue.

iGR believes that traditional advertising in newspapers, printed media, television, radio, and billboards will be supplemented by less expensive and more directed NFC tag advertising. Aside from advertising, iGR also believes that this period will experience growth in the following areas:


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Loyalty & Rewards: NFC transactions mapped to a point of sale location can provide information regarding use of frequent usage benefits, for example, based on volumes that generate awards for the end user

Augmented Reality: NFC enables direct or indirect view of a video that may be augmented by computer generated video graphics of GPS data

Health-related NFC: An app on a smartphone might read a smart tag on a product which contains the ingredients in that product, allergy information, and calories, etc.

Social Media: Integration with Twitter and Facebook, or specific blogs as Wordpress, Tumblr, and Blogspot, that might provide loyalty-based promotions.

In summary, there will be many opportunities for new applications using NFC.


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Conclusion

NFC will greatly impact the relationship between the smartphone user and the personal and financial information that is important to the productivity of the individual. NFC removes personal and technical barriers to information access and personal transaction processes within the confines of solid standards and robust security tools and encryption mechanisms.

Aside from improving the quality of life of the individual, NFC also presents opportunities for a wide array of business and service organizations to improve their personal and business relationship with their constituents while building a new revenue stream via revenue sharing relationships with other firms involved in the payment process.

NFC represents a win-win scenario for all parties where there is a close personal relationship with the individual and the information he/she needs.


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About iGR

iGR is a market strategy consultancy focused on the wireless and mobile communications industry. Founded by Iain Gillott, one of the wireless industry’s leading analysts, we research and analyze the impact new wireless and mobile technologies will have on the industry, on vendors’ competitive positioning, and on our clients’ strategic business plans.

Our clients typically include service providers, equipment vendors, mobile Internet software providers, wireless ASPs, mobile commerce vendors, and billing, provisioning, and back office solution providers. We offer a range of services to help companies improve their position in the marketplace, clearly define their future direction, and, ultimately, improve their bottom line.

Note that Iain Gillott currently serves as an independent director for Wmode, Inc.

A more complete profile of the company can be found at http://www.iGR -inc.com/.

Disclaimer

The opinions expressed in this white paper are those of iGR and do not reflect the opinions of the companies or organizations referenced in this paper. All research was conducted exclusively and independently by iGR .

http://www.igr-inc.com/

http://www.igr-inc.com/

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