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Analysis The three largest UK network operators have banded together to create a standard platform for NFC applications and a standard way for operators to make money out of the technology.

Network operators have spent the last half decade struggling to see how they could make money from Near Field Communications, despite being asked to pay for it. The obvious route of taking a cut of the proximity-payment business is hard, so a consortium of UK operators has come up with a new plan - to make money pushing advertising into our pockets, and if they do it right we might not even mind.

In most developed markets it’s the network operators who are expected to pay for handsets, and the UK's ultra-competitive market has resulted in very high handset subsidies. Operators expect to make that subsidy back from the customer, and have an (internal) price list which dictates how much subsidy a handset receives: one-click MMS might be worth a few quid, SyncML support another pound or two, and so on depending on what services the operator is trying to push.

This is a problem for NFC, which is very cool but lacks an obvious revenue stream by which operators can make back that subsidy.

The first plan was for operators to run the proximity payment system and thus take revenue from every transaction. But to be viable such a system can't take more than a percent or two, and the bank will want some of that along with the company providing the payment infrastructure (realistically Visa or Mastercard). That leaves slim pickings for the network operator, and little motivation to get involved.

That contrasts with the situation in Japan where DoCoMo has considerable investment in EDY's bitWallet proximity payment system, and was thus motivated to subsidise the FeliCa-capable handsets it requires for phone integration. That cross-industry presence has made phone payments hugely successful in Japan, but is hard to replicate elsewhere.

American operators set up Isis as a joint-owned proximity payment system, but Isis has had to scale back its aspirations to approving other people's payment systems as it becomes increasingly clear that the incumbent players have no intention of letting anyone else into their oligopoly.

NFC isn't just about proximity payments; there's a host of cool things one can do with an induction-powered proximity radio, but the technology still needs a killer application to convince operators its worth the subsidy. That's where the UK operation is hoping mobile advertising fits in.

When we talk about NFC-based advertising we're not talking about text messages demanding your attention, or even targeted alerts popping across your home screen, but instead making use of the secure distribution and identification mechanisms made possible by Near Field Communications.

A good example of this kind of next-generation advertising was a gig that required attendees to be there 30 minutes before the curtain - any who didn't arrive in time saw their tickets passed to locals who'd registered as living within 20 minutes of the stadium. That was done by Orange back in 2005 using barcode tickets from Mobiqa, but would be an ideal application for NFC.

O2 has also made use of Mobiqa's barcode tickets, delivering passes for the operator's Blue Spaces VIP zones at festivals and Twickenham rugby ground: another application that could be well served by NFC.

Advertisers may pay for more innovative ways to use dynamic ticketing, but companies will also pay to have their own proximity systems embedded in the phones. The UK joint venture means companies from Homebase to BA won't have to deal with separate operators* to have their applications available on phones, making the whole thing a lot more attractive without pushing a single advert onto a single phone screen.

In Japan the Mobile Felica system hosts applications holding tickets for cinemas and trains, as well as loyalty points and coupons, and it's that kind of application from which the UK's operators intend to make money - not the cash-replacement services of which European consumers still seem wary.

That sounds like a much better plan than trying to compete with the existing payment processors, though it doesn't preclude operators getting involved there too (as O2 is planning with O2 Money). Innovative advertising should generate enough income to cover the handset subsidy, which is all the operators need to see to make proximity radio a standard feature so we can start doing all the other cool stuff it makes possible. ®

* Except Three, which is unaccountably not involved in the joint venture, though the other operators have condescended to let it use the platform. That's obviously silly: Three will have to be involved at the highest level, and is pretty upset not to have been invited.

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