CardTechnology.com

And the trials continue: A growing number of telcos, banks, transit operators and retailers are handing out mobile phones complying with Near Field Communication technology to a sampling of their customers and allowing them to tap the devices to make purchases, pass through metro gates and enter stadiums.

The trials are launching in Europe, Asia and North America, sometimes several per month. Over the past two years, there have been more than 100 pilots begun, either accompanied by press releases or quietly launched internally, say observers. They test NFC technology and its potential applications.

But there have been no real rollouts of NFC to date and little prospect for any happening this year, many agree.

“There is so much interest and excitement around this, and yet you can’t go into a shop and buy an NFC handset,” notes David Birch, a director for UK-based Consult Hyperion, which counts payment organizations and telcos among its clients. “That tells you something interesting going on here.”

While Birch sees the numerous trials as a sign of faith that NFC phones will hit store shelves sometime soon, others wonder just when those phones will arrive.

Even the announcement in January by the world’s leading handset maker, Nokia, a strong backer of NFC, that its long-awaited new NFC phone model would be commercially available by the end of the first quarter, didn’t dispel the doubts.

“You can’t call it commercial if no one is queuing up to buy it,” says Jonathan Collins, senior analyst in the United Kingdom for U.S.-based ABI Research. “It’s a prototype. There are issues to work through before they can be commercially available.”

Chief among those issues is whether mobile network operators will become convinced there is a business case for NFC. The operators hold most of the cards when it comes to NFC’s future in mobile phones.

“The mobile operators are the customers, really,” Collins says. “If the equipment and specifications aren’t to their liking, they’re not going to be ordering phones with NFC, and that’s where we’ve been for the last couple of years.”

ABI last fall revised its projection for penetration of NFC phones downward, to a still optimistic 23% of total handsets shipped in 2010–or 350 million phones. That all depends on operators establishing a business case.

A number of operators have expressed real interest in the technology. But they have a few conditions for their support. Most important is that the NFC chip embedded in the phones have a standardized connection to the SIM card the operators issue to subscribers. They want payment, ticketing and other applications to be stored on the SIM to ensure they get their fair share of the NFC revenue. This would also make it more difficult for subscribers to move to competing operators

Members of the Europeans Telecommunications Standards Institute are expected to adopt that connection in May or June, following a minor battle between competing technology options. That has given some NFC backers among operators hope the contactless phones could be ready for volume orders by mid-2008, if not earlier.

One of those operators is France-based Orange, which, like other mobile telcos in France, has been involved in both payment and transit-ticketing trials, among other NFC services.

“What we’ve needed are standards and a business model,” Mung-ki Woo, vice president for payment and contactless at France Télécom-Orange Group, tells Card Technology. “We at Orange are confident we’re quite close. Things are not fully defined. (But) we’ve made great strides in the right direction.”

The operator, one of Europe’s largest groups, sees a business case taking shape in the form of fees it could charge banks, transit operators, retailers and other service providers for downloads of the applications to the SIM and renting space on the card. Banks and other service providers, however, would have complete control over the keys to their applications and the data related to them, says Woo. And the downloads and management of the applications could be performed by a third party trusted by the operator and various service providers.

Orange also could earn significant revenue from additional data traffic, such as from monthly downloads of transit passes to the phones, he says. This would not be attractive to telcos that charge flat rates for data service.

Other operators high on NFC are South Korea’s two largest mobile telcos, SK Telecom and Korea Telecom Freetel. Both plan to launch contactless mobile-payment projects this spring or summer, storing the applications on the UICC or 3G SIM cards they will issue to subscribers for the Wideband-CDMA service they are rolling out this year. Neither will be able to launch the payment services with NFC, however, because no standard phones are available supporting the SIM. So, they will use dual-interface SIMs inserted into handsets equipped with radio-frequency antennas, similar to the services they now offer with contactless payment applications stored on miniature dual-interface credit cards inserted into phones.

KTF is trying to spread NFC-based payment worldwide, and is the lead operator in a global mobile-payment initiative announced last month by the GSM Association. “We are trying to propose this so other operators see the value,” Byung-ki Oh, head of KTF’s global strategy team, tells Card Technology. That could make standardized NFC handsets supporting the SIM available sooner, and at lower prices, he says.

Nokia’s new NFC phone, the 6131, does not support SIM-based applications, so many give it little chance of making it past trials. Instead, it comes with a separate embedded secure chip to store applications, just like the handset maker’s NFC-trial workhorse, the 3220.

Nokia’s head of NFC market development, Gerhard Romen, agrees that, “going forward,” the SIM will be the secure chip in NFC handsets, holding the applications. “But it needs standardization for the SIM; there is no SIM card standard (yet) available,” he tells Card Technology.

A standard appears likely to be adopted by this summer, after the GSM Association, which represents 700 mobile operators worldwide, threw its support behind one of the technology options proposed for connecting the SIM and NFC chips in handsets. This proposal, the “single-wire protocol,” from SIM vendor Gemalto was up against an alternative from Netherlands-based NXP Semiconductors, co-creator of NFC. NXP, however, had dropped its challenge to the single-wire protocol weeks earlier, after failing to see support from operators materialize, Card Technology earlier reported.

Romen at last month’s 3GSM World Congress in Barcelona confirmed the handset maker will support the SIM in its future NFC phones. But the company is cool to the single-wire protocol. Nokia had offered its own proposal to connect the SIM with the NFC chip. “So the whole industry is jumping on something when we haven’t had 1,000 users show that it works?” Romen says of the single-wire protocol.”

But the SWP appears destined to become the standard, thanks to the GSM association endorsement. The association last month issued a white paper spelling out its vision for NFC and its support for the SIM as the secure chip in the phones, which was supported by 19 operators, representing about 45% of GSM subscribers worldwide–including Vodafone, Orange, Telefónica Móviles of Spain, Japan’s NTT DoCoMo, South Korea’s SK Telecom and KTF and China Mobile.

Nav Bains, manager of the NFC Project at the GSM Association and manager of the association’s new mobile-payment initiative, say he agrees that with a new standard this spring, NFC handsets supporting the SIM are on the horizon.

“From our experience, it takes several months between the adoption of a standard to the commercial availability of devices,” Bains tells Card Technology. “Now we have a clear direction and can expect SIM-based NFC devices in the second quarter (of) 2008.”

Romen says Nokia could meet that target, although it would have to introduce a successor to the 6131–likely before it had planned to.

But some NFC backers doubt there will be many NFC handsets to speak of even in 2008. One service provider, which wants to launch a global payment application that would piggyback on the infrastructure of readers expected to be deployed for bank-issued contactless credit and debit cards, is likely to postpone planned NFC trials this year because of the lack of handsets.

The service provider, which asked not to be identified, figures a substantial number of phones won’t be in the market until 2009. ETSI’s smart card committee still must adopt a standard and write specifications, and those specs must be implemented by handset makers.

Others say the first commercial service, either in Asia or, perhaps, France, could launch before the end of the year. Second-tier France-based handset maker Sagem says it could produce NFC phones in volume supporting the single-wire protocol by then. Others, such as Samsung, are rumored gearing up.