It Isn't Yet Clear How Visa-MasterCard Settlement Affects Mobile Payments

Though it is not a specific issue in the developing mobile payments business, historically hostile retailer relationships with credit card issuers continue to underpin retailer interest in rival methods of processing payments.

The big hope, of course, is that new mobile payment systems will allow retailers to process payments at lower cost than traditionally has been the case. To be sure, friction between participants in any ecosystem can get testy when one participant's revenue stream is another participant's cost.

Relationships between video subscription providers and the programming networks provide one clear example. But that also is the case in the retail payments business. A revenue stream for an issuing bank and a payment network is a direct cost to a merchant. And those costs might be changing.

Visa, MasterCard and their issuing partners have reached a legal settlement with merchants regarding interchange fees (fees charged by issuing banks for use of a credit card), and the implications for mobile payments are not yet completely clear.

Nor are the legal challenges entirely over. The National Association of Convenience Stores, for example, seems intent on continuing the fight against the settlement, even though plaintiffs and Visa and MasterCard have agreed to a settlement.

The lawsuit by merchants claimed Visa and MasterCard were in collusion to keep those rates higher than would otherwise be the case.

To settle the suit, merchants will be compensated in three ways. First, Visa, MasterCard and their issuing partners will make a $6.05 billion cash payment to merchants to compensate them for previous interchange charges.

Second, Visa and MasterCard will lower card acceptance fees by 10 basis points for a period of eight months, providing $1.2 billion in additional relief to merchants.

The third part of the settlement may have the largest impact on consumers' day-to-day shopping experiences, some think. Merchants will now be permitted to charge higher prices on transactions paid for with a credit card, a practice that had been prohibited by the networks' earlier terms.

The mobile payments business could be affected in a number of ways. In most cases, mobile payment transactions are based on payment of such fees. For consumers, there are few immediate effects, since the fees are paid by retailers, not end users directly (though the total cost of operating a retail outlet, including such fees, is built into retail prices).

Lower fees will reduce the mobile payments revenue opportunity, and also make harder the task of creating a value proposition that is easy to understand. Lower revenue might also reduce the incentive for issuing banks, and the payment networks, to spend so much on mobile payment systems.

On the other hand, should the uncertainty be cleared up, it also is possible issuing banks and payment networks could move with more assurance on mobile payments, since they would have greater understanding of the revenue part of the operations.

Less revenue from interchange also will continue to spur thinking about other ways revenue can be earned, and that should help mobile wallet efforts, which are expected to rely on loyalty programs, advertising and promotion revenue streams.

Every Leading Tablet Supplier Will Support Multi-Screen Formats

Leading tablet suppliers are going both smaller and bigger, depending on where they have been positioned in the tablet market, in large part because, as some have suggested, there is room in the market for devices of varying screen sizes.

Most 10-inch devices get used on couches, and many tablets essentially never "leave the house." In other words, a 10-inch tablet is an "untethered" device, not a mobile device. They aren't used when people are really "on the go." There are some exceptions.

Some people do carry their iPads "everywhere." Many business people substitute a tablet for a PC. But most people also carry a smart phone, which suffices for the quick Web and app experiences one typically wants to use when out and about.

Some might argue pricing differentiation is the reason for the "smaller device" demand. In that view, less-costly tablets allow more people to buy them. There certainly is logic to that point of view. It worked really well for Apple's line of iPods.

On the other hand, over time, it is likely that application differentiation also will occur. An iPod shuffle is better suited for listening to music than a full-size iPod, if you are running, for example. In that case, the application setting drives the purchase, not the cost of the device.

Something like that eventually will be true of the tablet market as well.

Most 10-inch devices get used on couches; they are not really "mobile" devices. A greater proportion of seven-inch devices likely are carried in purses, backpacks or pockets, and one might argue that is because a 10-inch device is too big to carry everywhere, or most places.

The other argument might be that, as more people carry a smart phone, there is not such a compelling reason to carry another web-capable device "on the go."

Maybe the "Mobile Payments" Hype is Misplaced; Maybe it is Really Mobile Commerce That is the "Revolution"

Making a mobile device act like a credit card or a wallet, as important as that might be, might not be the "big" change coming to retail commerce. A potential shift from cash or credit or debit card payments would be a key change for many in the ecosystem, to be sure.

But it just is possible that such a change winds up being only part of a broader transformation of retailing. Changing the way a customer pays for purchases is important, don't underestimate that. But it might be the visible, end user tip of a whole series of changes that might ripple through the backend of a retailer's business processes.

That is a lot less visible, and a lot less sexy, than using a mobile device to pay for a purchase. But it arguably is more important to the way retailers do business, retailing and commerce, than "mobile payments" are.

Not that any of the changes will be especially easy. Changing the way people "pay" will involve investments by retailers and, to some extent, users (they will need new devices), as well as a significant change in behavior.

On the other hand, the "smarter" and contextual value of transactions and behavior that could be gleaned from use of mobile devices could allow major changes to the rest of the retail operations, from marketing to inventory management to channel.

Zuckerberg Says "Mobile First" is Biggest Challenge

Facebook Chief Executive Officer Mark Zuckerberg says his hardest job right now is figuring out how to adapt the world’s largest social network to mobile devices, Bloomberg reports. Zuckerberg said the vast difference in user experience was the big challenge.

That, as much as anything, shows why "mobile first" is a strategic challenge faced by many application providers, and arguably is a challenge faced by many service providers as well, including those who provide access services.

Just how much global wireless revenue exceeds fixed network revenue varies from forecast to forecast, though all forecasts now show that wireless is a majority of revenue, on a global basis.

According to International Telecommunications Union estimates, mobile revenue is about 4.5 times bigger than fixed network revenue, and it has been that way for several years. In a literal sense, the global telecommunications business has become a largely mobile business, with some important fixed line applications and revenue sources, the ITU data suggests.

What Implications for Unified Communications if Today's Teens Don't Use Email, Twitter, IM?

To the extent that communication preferences tend to vary by generation and age, current communication preferences of teenagers might have implications for entirely "unrelated" business communications.

Consider what the implications might be for "unified communications," for example. The basic question might be the amount of "need" for unifying some communication modes that don't get used very much.

One study of U.S. teenager behavior suggests that a majority of them text and check Facebook everyday, but few, only about 11 percent, use Twitter daily.

At a high level, that only suggests that one app using point-to-multipoint or "multicast" communications is preferred, over another.

Clearly, multicast is an established way of sharing information, and getting information, whether Twitter is the preferred medium, or not.

You can draw your own conclusions about why Twitter has such low usage among teenagers.

Some might suggest the usage pattern has something to do with user interest in "news."

The theory is that teenagers actually are little interested in news, and Twitter is a medium ideally suited for news distribution.

In fact, that is the main reason many other users engage with Twitter.


The study also confirms what you already knew, namely that teenagers hate talking on the phone. 


Only four percent of them consider talking on the phone their "favorite" way of talking to friends.

They instead prefer commenting publicly on each other's Facebook profiles or texting.

Email and instant messaging also are not so favored. Oddly enough, that might have at least some implications for unified communications. 

Why unify all tools if email and instant messaging are not preferred or used? Granted, teenagers are, for the most part, not in the workforce as they will be in a decade. But it current habits do not change, they won't prefer to use IM and email when at work. They will text and post, the study might suggest. 

"Bundling" Occurs 2 Ways, at Wholesale and Retail Levels

Lots of consumers doubtlessly would prefer to buy their video content one program at a time, or one "channel" or "network" at a time. It isn't so clear, yet, that either video distributors or programming networks would prefer to sell that way.

In fact, traditionally, programming contracts have carried stipulations about how content could be packaged, and those terms generally prohibit a la carte sales of programs.

Programming networks, in fact, prefer to bundle networks when they sell to distributors, as it allows them to "force" a distributor to buy a new network, or a network with little viewership, because doing so is a requirement for getting rights to air a popular network.

Currently involved in a major contract dispute with Viacom, DirecTV is trying to remind its customers that it, DirecTV, disputes proposed Viacom pricing and bundling because prices would rise.

Email "Overload" Isn't a Myth, But Can't be Replaced, Either

"Email overload," like message overload of any sort, is a problem, but likely is not a truly "solvable" problem, either. Some would say other one-to-many messaging formats work better. If you are on the receiving end of all those messages, you might not agree, though. And that's probably the bigger problem: most people have to do more work, more collaboratively, with more people, much faster.

Email might not be the best medium for all types of messaging, as one-to-many often works better. But not all communications can be handled that way.

According to Dawna Ballard, associate professor in the Department of Communication Studies at UT Austin, “The feedback loops in organizational communication are becoming more compressed, leading to an increase in the quantity of work, which in turn requires faster communication with a greater number of people in the same time frame as before.”

Telefónica Digital Launch "Wanda" for Mobile Payments

Telefónica Digital and Visa Europe have launched what they call "a wide ranging strategic partnership" to drive new business opportunities within mobile commerce across Telefónica's European footprint.  


The deal includes cooperation in areas such as mobile wallet, contactless payments (NFC), acquirer services for mobile point of sale, and merchant offers.

The agreement builds on Telefónica and Visa Europe's existing relationship in markets such as the United Kingdom and Ireland, establishing Visa Europe as Telefónica's preferred partner for the issuance of branded payments cards and the development of related mobile payment services, Visa Europe says.

Separately, MasterCard and Telefónica have a joint venture, called “Wanda,”created to lead the development of mobile financial solutions in 12 markets in Latin America.

Wanda will provide mobile payment solutions to the over 87 million Movistar customers in the 12 markets where it will operate. These mobile payment services will be linked to a mobile wallet or prepaid account that will allow for money transfers, mobile airtime reload, bill payment and retail purchases, among other services.

Mobile commerce is a key focus area of Telefónica's new Digital unit which was formed to drive business opportunities within the digital space. Within Europe, Telefónica has launched a mobile wallet service to customers in the UK and is working to launch mobile wallets across its other operating businesses.


The deal highlights one key aspect of growth strategy for tier-one European mobile service providers. The problem is that, if you are an executive leading a firm earning a score or two billion dollars a year, and you think you might have to replace perhaps half of that revenue over perhaps a decade's time, you really need big new sources to offset the loss of revenue of that magnitude.


And, as it turns out, at the moment there are just a handful of revenue generators theoretically capable of generating billions of dollars worth of incremental revenue each year, for a single service provider. Those opportunities are said to include mobile banking operations, in a broad sense; mobile advertising and machine-to-machine mobile services. 


After that, the potential list of new businesses fall off fairly dramatically, in terms of revenue opportunity. 


That is why Telefónica Digital's joint venture with Visa Europe is so important.

53% of People in 11 African Countries Routinely Send or Receive Money in a Month's Time: Mobile Could Help

One common way of estimating the size of a new market is to look at existing activities and behavior that a new and alternative method could displace. In Sub-Saharan Africa, the need for people to send and receive money from friends and family members, in a single country, seems to be a widespread existing activity, suggesting that a more-convenient and safer method, using mobile phones, could see large uptake.

Some 32 percent of adults in 11 sub-Saharan African countries--about 80 million people--received money from family members or friends living in a different city of their country in the 30 days before being surveyed in 2011, according to a recent Gallup study.

This figure dwarfs the four percent of the total adult population (approximately 10 million people) in the 11 countries who received money from people in other countries in the same time frame. The implication is that money transfers largely are an intra-country activity, not an inter-country activity, for the most part.

Some 20 percent of the total adult population in the countries surveyed (roughly 50 million people) reported having sent domestic remittances to family members or friends living in different parts of the country.

This 20 percent is the total of respondents who only brought money in person (seven percent), only sent money in cash (three percent), only sent money electronically (five percent), and only sent money using informal as well as formal payment channels (six percent).

This compares with one percent (more than two million people) who sent international remittances -- excluding money brought in person -- with the majority of senders transferring money to another African country.

Across the region, only a handful of respondents sent money to another African country or to a country outside of Africa. Residents of Sierra Leone once again stood out with seven percent having sent money to another country in the previous 30 days, while all other countries had two percent or fewer adults sending remittances externally.

The reisk of sending money informally, in cash, is the problem mobile money transfers will solve. It often involves paying a bus driver to carry money in an envelope, or sending money with a friend who happens to be traveling the same direction, methods that can be slow, costly, and unreliable and put money in transit at risk of theft.

Some 53 percent of adults in 11 sub-Saharan countries interviewed in 2011, or about 134.3 million people, made transactions involving distant counterparties in the 30 days before the survey, according to a new Gallup study funded by the Bill & Melinda Gates Foundation.

Despite the large flow of nationwide transactions, few in the countries surveyed used formal payment channels. Some 31 percent of all adults (approximately 79.0 million people) used only informal, cash-based modes such as informal money carriers, sending the money by bus or traveling friends, or simply carrying cash themselves to deliver it in person, to move money across the country.

So the opportunity would seem to be rather significant. Even in South Africa and Kenya, the two countries with the most advanced payment markets, respondents were more likely to report that they only used informal cash payments than to have used only electronic payment methods.

About 31 percent of South Africans and 22 percent of Kenyans used only informal cash payments in the past 30 days, the study found. Those percentages translate into 10.9 million and 5.2 million potential consumers of financial services, respectively.

The best growth potential in sub-Saharan Africa is likely in Nigeria, the biggest potential market, with an adult population of 90.6 million. An estimated 34.8 million Nigerians are using only informal cash payments.

Sub-Saharan Africans do not generally make use of electronic payments of any sort, including bank, mobile phone, or formal money transfer services such as Western Union), with nine percent of all adults (roughly 22.7 million) saying they made their payments this way.

About 47 percent, about 118.4 million adults, made no payments of any kind. But the larger point is that 53 percent of people in the 11 countries already have a need to transfer money on a regular or frequent basis.


These results come from a new study of 11 sub-Saharan African countries, "Payments and Money Transfer Behavior of Sub-Saharan Africans." w

Aereo Aside, TV Broadcasters Will Go Mobile

Aereo Inc., the streaming television service that captures over the air broadcasts and makes them available to subscribers using iPhones and other Web-connected devices, will expand from New York to other large U.S. cities following a favorable court ruling that Aereo was not infringing broadcaster copyrights, Bloomberg says.

“Within a year and a half, certainly by ’13, we’ll be in most major” markets, said CEO Barry Diller. TV broadcasters are worried about the venture for a couple of reasons. For starters, cable, satellite and telco video service providers currently pay over the air broadcasters for retransmitting their signals.

If Aereo can retransmit without paying a fee, the door is open for cable, satellite and telco video service providers to argue they also should be exempt from such carriage fees. That obviously would hurt broadcaster revenues in two ways, first by slicing the fees they currently are paid, and secondly by sharply reducing their advertising potential.

Whether Aereo survives all the broadcast industry lawsuits, or does not, over the air TV broadcasters will get into mobile video themselves.

The Mobile Content Venture (MCV), a joint venture consisting of 12 major broadcast groups that operate the Dyle mobile TV service, suggests 68 percent of respondents would watch more TV if they we

More than 50 percent of consumers would consider watching mobile TV on smartphones and tablets.

Whether the current "dongle" approach Dyle is using makes sense, long term, is arguably a key 

question, though.

Did Device Subsidy Decision Cost Telefonica, Vodafone 380,000 Customers?

Mobile service providers in Spain lost a quarter of a million clients in May 2012, the fourth consecutive month of subscriber losses, la Comisión del Mercado de las Telecomunicaciones says.

The industry also lost 380,000 customers in April 2012, according to the Spanish telecommunications commission.

Precisely why customers are deserting is the issue. Spain is in what might be called a deep recession, so it is possible customers are dropping their mobile subscriptions to save money.

And it remains true that prepaid service, which offers consumers more control over their spending, continues to gain customers, which might reinforce the notion that economic distress is causing what might be called an unusual negative move in mobile subscriptions.

But some might suspect that the industry's end of subsidies for handsets also has had some negative impact, primarily by shrinking the number of new accounts mobile service providers need to add every month to compensate for departing customers.

Dept. of Justice Skeptical About Verizon-Cable Marketing Deals, Maybe for Wrong Reasons

Though the Federal Communications Commission has cleared a sale of spectrum by major cable operators to Verizon, the Department of Justice apparently is concerned a related marketing deal between the cable operators and Verizon would be anti-competitive.

That deal has Verizon and several cable operators, including Comcast, Time Warner Cable, Cox Communications and Bright House Networks in marketing deals that allow each of the cable partners to sell Verizon products, while Verizon can sell cable products.

The Justice Department therefore is holding up Verizon Wireless's $3.9 billion deal to acquire cable-company airwaves, according to WSJ.com.

Justice Department officials think the marketing deal would be anti-competitive, amounting to an agreement "not to compete" with each other.

The problem, of course, is that there is no "fact base" that would allow anybody to determine whether that fear is justified, or not. There are some markets, including Boston and Baltimore, where Verizon has not already finishing building its FiOS network.

So the fear that Verizon will somehow "not compete" with local cable operators, when it already has spent the money to build a competitive network, is hard to substantiate, with the notable exceptions of Boston and Baltimore.

Some also fear that the cable operators will henceforth not be competitors to Verizon in wireless. Some might point out that cable operators have been buying spectrum, creating ventures and trying to sell service for decades, and never have been able to create an effective mobile operation.

Not everyone will agree, but there is a sense in which the concern, though possibly justified in some respects, misses the larger point. It is no secret that fixed network business models are becoming troubled. It is not a secret that a telco can make more money, and earn more profit, in the wireless realm.

Beyond that, some of us would argue that it appears the financial return Verizon expected from FiOS has not proven to be as robust as its executives had hoped. The total return from incremental revenue seems to be lower than hoped, while operating cost savings seem also to be less than hoped. In other words, fiber to the home might not have been the best use of capital, after all.

In the abstract, it is fine to hope for robust facilities-based fixed network competition. As a practical matter, it is no longer so easy a decision to defend. European service providers, for example, face investments of perhaps Eur 270 billion to build fiber to home networks.

And it is absolutely no secret that executives question whether there is a financial return to be had, not to mention the higher returns from other uses of that capital.

So the Dept. of Justice might be rightly concerned about competition, but possibly for the wrong reasons. One might make the argument that, in the coming market, it might be imprudent for most service providers to invest heavily in fiber to the home.

Local Commerce Enabled by Mobile Devices Might Reach $17 Billion in 2015

But the business will be highly fragmented. Perhaps the single biggest segment will be mobile payments, assuming about 1.75 percent of gross retail volume as the revenue for transaction processors. But the "new" point of sale terminal segment, loyalty and daily deals segments will contribute revenues of single-digit billions.

66% of New Devices Purchased in U.S. are Smart Phones

Some 66 percent of U.S. consumers who bought a new mobile phone in the second quarter of 2012 bought a smart phone, Nielsen reports.

The installed base of U.S. devices now includes  54.9 percent smart phones at the end of June 2012.

Android continues to lead the smart phone market in the U.S., with 51.8 percent of people using an Android OS handset. Some 34.3 percent of smart phone owners use an Apple iPhone.

In Competitive Markets, Lowest-Cost Provider Wins

In a competitive market, the provider with the lowest operating costs wins, one might argue. And if there is one statement that virtually all contestants might agree upon, it is that, as a rule, the tier one telecom service providers have the highest costs.

Cable companies virtually always have lower overall costs, in both capital and operating areas. Contestants that base their businesses on wholesale access, either mobile or fixed, tend to have lower costs than the companies from which they buy that wholesale access.

Internet-only firms have lower costs than all the above. Of course, that is the easy part. Telecom executives are anything but dumb. They know their cost structures, and those of their competitors.

The practical issues are how to continue wringing costs out of their operations. And that means identifying cost drivers.

European service providers have, for example, been attacking operating costs since at least 1996. And though you might think converting increasingly to IP-based services would wring out cost, in some cases, it might increase operating costs, at least in the customer service area, contrary to expectations.

So where can telcos look for savings? According to researchers at Deloitte, telco operating costs can be classified into three categories. As a figure of merit, “non-process costs” account for 25 to 30 percent of the cost base (35 to 40 percent for wireless carriers).

That includes interconnection fees, taxes, customer premises equipment and uncollectible items. Deloitte researchers think it will be difficult to cut those costs very significantly.

Support processes typically account for 20 to 25 percent of the cost base (15 to 25 percent for wireless carriers), and include marketing, HR, IT, finance and other administrative costs. While savings opportunities may exist in support process areas, most telcos have done a better job of controlling these costs, so far.

Operational processes typically represent about 50 to 55 percent of the cost base (40 to 45 percent for wireless carriers). Those  process costs include customer service, sales, billing, and network-related processes.

It is these costs that carriers are challenged to control as the market changes, and this is where carriers should first focus on finding efficiencies and savings, Deloitte argues.

Network-related process costs (installation and repair, operations, and design) can typically account for 60 to 75 percent of operating expenses. Deloitte argues that 18 percent to 29 percent in savings in two main areas, including reducing dispatches and improving productivity of installation and repair technicians.

Reducing dispatches can save five to eight percent of total network operating expense,
achieved through better screening of tickets to reduce “no-trouble-found” dispatches, improved scheduling to reduce “no-access” dispatches, better management policies to reduce “non-demand” dispatches, and an increase in fi rst-pass resolution of tickets.

Deloitte also has  seen savings of 12 to 18 percent of total network operating expense achieved by increasing the use of “Good Jobs in Eight” (a metric that measures the number of good jobs in eight hours per technician), and moving to a pay-for-performance model.

But it is non-network operations which  can account for 35 to 45 percent of operating expense,
and Deloitte has seen changes in those areas yield 28 to 44 percent in costs. Telcos should focus on non-network operational process areas, such as call centers, field sales, retail stores, and the “order to cash” processes to get savings in those areas.