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Telefónica O2 launches its first commercial NFC service — and sets out strategy for future deployments

The mobile network operator is starting small with a limited rollout in the Czech city of Pilsen but a business strategy is now in place and commercial launches in the UK and Spain could be next.

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TELEFONICA: Commercial launches in the UK and Spain will follow soon

Telefónica O2 Czech Republic has put a limited number of NFC phones, pre-loaded with the local Plzeň transport and city services card, on sale in the Czech city of Pilsen.

The launch of the new service marks the first time that Telefónica, which offers mobile services in sixteen countries in Europe and Latin America, has offered NFC phones on a commercial basis to its subscribers. For the launch, Telefónica O2 subscribers can obtain a Nokia 6212 Classic NFC phone on a contract for 495 crowns (US$24), or without a contract for 4495 crowns (US$216), from any of the operator’s six stores in Pilsen.

The Plzeň card is issued by the city’s regional transport operator PMDP and allows local residents to pay for public transport, purchase tickets to local events, make payments in local stores and receive special cardholder-only discounts. Some 230,000 local residents currently hold a Plzeň card.

“Now anyone can buy a mobile phone that supports NFC and start benefiting from this service,” says Michael Kraus, CEO at PMDP. “I know of no other city in Europe where [there is] NFC technology in commercial operation.”


At Telefónica’s head office in Madrid, meanwhile, preparations are gathering pace for the introduction of larger scale commercial deployments in the near future.

Technical development work in now complete, Michiel Van Eldik, Telefónica’s group director for new business and innovation, has told NFC World, and a business strategy for NFC services is now in place. Key to that strategy, says Van Eldik, is an understanding that “money will go mobile” and that “the biggest favour we could do ourselves as an industry is to recognise that there is money to be made for all of us.”

“The biggest favour we could do ourselves as an industry is to recognise that there is money to be made for all of us”

“It has to be based on partnerships,” he added, explaining that his experience working on Telefónica’s mobile health initiatives has taught him the value of each party being responsible for its own area of expertise. So, while Telefónica has a banking license in some countries, cooperation with other service providers will be the way ahead, Van Eldik says. “We could try and become doctors, but that would be the biggest mistake we could make,” he explains.

Telefónica’s strategy, therefore, is multi-layered, involving a number of different business and consumer propositions with the aim of providing solutions that work for all. Currently, they include:

  • Co-branded products. Telefónica has signed a deal with Visa Europe that will see the introduction of services similar to the UK’s existing O2 Money product across all the European countries in which Telefónica currently operates. Here, the operator will partner with a Visa card-issuing bank in each country and, in exchange for its business, will receive a share of transaction revenues or, as Van Eldik neatly puts it, “we will take a slice of the dice.” A similar deal is also set to be signed with either Visa or MasterCard for the Latin American market in the near future.
  • Existing card products. A number of pricing models are under consideration to enable banks and other card issuers to add their products to Telefónica subscribers’ NFC phones, although the operator currently favours a straight rental fee.
  • B2B customers. For merchants and other service providers, Telefónica will offer a range of products and services “that work out-of-the-box” and will also offer tools for developers, including APIs and toolkits.

Before any large scale launches can take place, however, phones must pass the scrutiny of Telefónica’s consumer focus groups. Since its phones are subsidised, Van Eldik explains, decisions over which handsets the operator should offer are only made after in-depth customer research has been conducted — and “they must see a clear advantage” before a device can be offered to subscribers.

That said, in volume, the operator is now expecting to pay a premium of just US$5 to have NFC functionality built into its phones. That means, Van Eldik says, that if a sufficiently strong case can be made for being able to generate revenues from NFC service provision, it is possible that this premium would not be passed on to the customer.

Performance issues

The need for reliable handsets is also still a potential stumbling block. Performance issues with the Samsung S5230 NFC phone became apparent during the NFC trial conducted at the Mobile World Congress in February. Telefónica plans to use the same phone for the pre-commercial pilot it will be running in Sitges, Spain from June this year and, says Van Eldik, the operator has been working very closely with Samsung and with its NFC SIM supplier Giesecke & Devrient since February to ensure the phone meets its performance requirements in time for the launch.

A large scale trial is also due to begin in Peru soon, which will see commuters in the city of Lima able to use NFC phones to purchase bus tickets and, says Van Eldik, we are “running a few trials with stickers” and “we are looking at some other solutions too”.

Where will the first major commercial launches take place? Spain, the UK and the Czech Republic are the furthest ahead of the countries in which Telefónica operates, says Van Eldik, with each having the potential for expansion in late 2010 or early 2011. “In these countries, we are seeing more and more evidence of market readiness and we at Telefónica are most advanced in our developments,” he concludes.

Meanwhile, Pablo Montesano, Telefónica’s director for new businesses, told delegates attending the Mobile Money Summit in Rio de Janeiro this week that the operator estimates that it could ultimately generate US$1.5 billion from mobile financial services.

“The last 18 months have been important to our understanding,” he explained. “We consider financial services one of the biggest opportunities within the group.” Montesano also confirmed the operator’s commitment to a partnership model, the GSMA’s Mobile Business Briefing reports:

“Telefonica is looking at an open model whereby it could share the spoils with several partners, he said. And Telefonica does not believe in ‘the silo approach’ and is prepared to work with other mobile operators to see services become successful. Montesano has had to convince colleagues internally that co-operation rather than competition is the way to go.

Mobile money is also a rare opportunity to create value both for shareholders and the wider society, said Montesano: “Even a one percent inclusion of the unbanked creates a significant improvement in reducing inequality.”

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One comment on this article

  1. There’s no doubt we’re going to see NFC rolling out at an ever quickening pace over the next 6 months… all very exciting!

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