Bill Zhang

Friday, April 07, 2006

PayPal Goes Mobile

The online payment system PayPal officially announced “PayPal Mobile,” the company’s text-based cell phone service, at a wireless convention Thursday.

PayPal’s interest in a cell phone service has been anticipated by industry watchers, as the U.S. wireless industry tests the idea of one day turning the cell phone into an “m-wallet” to replace cash, credit cards, and even apartment keys.

While U.S. consumers and wireless operators have been eyeing the m-wallet and pilot-testing various systems, Japanese wireless operators like NTT DoCoMo have already run successful services that use the phone for a credit card, ATM card, apartment key, and train ticket.

For now, PayPal’s cell phone service is based on text messaging that users can employ to “Text to Buy” products like CDs, DVDs, shoes, and apparel from stores that have signed up for the service.

PayPal, owned by the Internet auction company eBay, has already signed on 20th Century Fox Home Entertainment, Bravo, MTV, and the NBA Store.

Shares of eBay fell $0.03 to $38.50 in recent trading.

San Jose, California-based PayPal will also enable users to “Text to Give” to charities such as Amnesty International, Starlight Starbright, and UNICEF.

PayPal Mobile will also extend PayPal’s current online payment service to the cell phone, leveraging PayPal’s customer base of 100 million accounts.

"With the overwhelming popularity of mobile phones, the time has never been better for the merging of e-commerce and wireless devices," said PayPal President Jeff Jordan in a statement.

PayPal Mobile will face competition from startups such as Obopay, which has raised money from VC backers Redpoint Ventures, Onset Ventures, and Richmond Capital (see Obopay Gets $10M for M-Wallet).

Secure Cell Phones
With the emergence of the cell phone as a wallet, companies will spend significant time and expenses on assuring customers their finances will be safe on mobiles.

Mr. Jordan pointed out that eBay and PayPal’s already established customer relationships would give the company an edge in the mobile payment industry, which relies on the security of a customer’s finances.

“Our customers have already entrusted their personal and financial information to PayPal,” said Mr. Jordan. “Now, making payments is as easy as sending a text message anytime, from anywhere, for the millions of customers that prefer to use PayPal.”

Users register their cell phone numbers with PayPal, and when purchasing items from the PayPal Mobile service, PayPal will call the customer back to confirm the purchase.

PayPal said it will store customer information on secure servers, not on the mobile telephone, so even if the phone is lost or stolen, the user’s PayPal account remains secure.

On Wednesday, NTT DoCoMo CEO Masao Nakamura said in a presentation that 10 million subscribers had mobile-wallet-enabled phones, 30 percent of whom are active users, and 60,000 stores are participating.

Mr. Nakamura dazzled conference goers at CTIA, the largest wireless convention in the United States, with a video of “future service developments.”

The video showed a subscriber paying for apartment utilities in a building lobby with a cell phone, and using a motion-sensor-based wireless network to automatically unlock doors.

“We showed the demo of the [motion sensor] service to Prime Minister Koizumi and he loved it,” said Mr. Nakamura.

NTT DoCoMo shares rose $0.02 to $15.01 in recent trading.

But the U.S. is just starting to test text-based cellular commerce systems like PayPal’s, and so far the infrastructure for a mobile wallet world is far from complete in the U.S.

Such a system needs chips in cell phones, ubiquitous wireless networks, and the cooperation of stores, financial services, customers, and wireless operators.

Companies like semiconductor maker Philips and the financial service company Visa found some success with a trial of a technology called NFC (near field communications) for cell phones.

NFC is a short-range wireless technology of several centimeters, which is already being used with “touchless credit cards.” The cards don’t have to be swiped through a magnetic stripe reader, just placed within centimeters of the scanner.

Philips and Visa said a study based in Atlanta included 20 participants who ordered coffee, Wi-Fi services, and movie tickets with an NFC-embedded cell phone.

Wednesday, April 05, 2006

The Alcatel Effect

There has been a lot of news in recent months on communications equipment, much of about conaolidation. In October, 2005, corporate networking powerhouse Cisco Systems (CSCO) bought set-top box maker Scientific Atlanta. In November, phone giant SBC closed its acquisition of AT&T (T), and within a matter months announced plans to buy BellSouth (T). Then, on Apr. 2, telecom-equipment giant Alcatel (ALA) bought Lucent (LU).

Even as decades-old brands disappear, a new crop of communications-equipment startups is emerging. Within days, Force 10 Networks, a maker of networking switches used by Google (GOOG) and other Net high-fliers, is expected to file documents announcing its intention to sell shares to the public, sources say. Riverbed Technology, which makes gear to speed data between corporate locations around the world, is also on the verge of filing its so-called S-1, say industry sources. Neither company would comment for this story.

If they pan out, the IPOs would be the first among communications-equipment makers since 2001, analysts say. Others probably won't be far behind. Take Shoretel, which makes new-fangled Net-based phone systems that are catching on with the corporate set due to their sound clarity and extra features. "Shoretel customers talk about their office phones the way people talk about their iPods!" notes JMP Securities analyst Sam Wilson. That enthusiasm could eventually translate to a winning IPO.

NO 1999. Something else that makes these fledglings stand out: They aren't really startups. Many were founded before the telecom crash, but survived -- and now boast impressive customer lists, proven technologies, and solid customer-support operations. "You now have a whole crew of companies that are ready to go, and who have VCs that want to start paying the mortgage," says Wilson.

Shoretel was founded in 1998, while Force 10 and BigBand Networks, another fast-growing supplier of broadband gear, came along in 1999. "We'll see another round of IPOs, but it won't be like the 1999 era," says Hassan Ahmed, CEO of Sonus Networks, a seller of voice over Internet protocol (VoIP) gear to phone carriers. "These are companies that have been working for six or seven years, and have established real footholds."

Some of the small fry could get snapped up before they get a chance to go public, as bigger suppliers look to fill out their product portfolios. On Mar. 22, Lucent paid $207 million in an auction to buy the remaining assets of struggling Riverstone Technologies, a vestige of former networking highflier Cabletron Systems.

PHONE SQUEEZE. Healthier outfits can also expect more phone calls. Last December, Alcatel bought a 25% stake in 2Wire, which makes home networking gear. Indeed, rumors are swirling that public companies such as Redback Networks (RBAK), Foundry Networks (FDRY), and even Juniper Networks (JNPR) could be bought (see BW Online, 3/27/06, "What's Next for Nortel"). Within two years, predicts one top investment banker, "Juniper won't be a public company."

Even if they don't find themselves in the crosshairs of a buyer, some companies are likely to land lucrative distribution deals. Mature suppliers may give up trying to push internally-developed products in favor of more innovative fare. "The rate of discussions has gone way up for us, because all of the big guys have holes they need to fill," says Hammerhead Systems founder Rob Keil. "Everything is moving in the right direction for companies like us, who have customers and revenue."

Not all the dealmaking among big telecom bodes well for smaller players. A buying spree by Verizon (VZ) and SBC (which has since taken the name of its former parent, AT&T) means fewer phone companies to sell to, and probably less spending on gear as these behemoths focus on cutting costs. The "service-provider market will be even more unattractive than it has been in the last few years -- and it was already pretty unattractive," says Rick Tinsley, CEO of two-year-old tech startup Silver Peak Systems.

SIEMENS FOR SALE? And more consolidation among the big boys may be on the way. For example, BusinessWeek Online has learned that Siemens (SI) is actively shopping what is left of its communications division. It has already sold off a mobile phone business to Taiwan-based BenQ Corporation. One source says Siemens has been working with consultants from Booz-Allen on its strategic alternatives. While the company has hinted it wanted to keep promising pieces of the business, sources say it is now leaning towards selling off all of the $13.2 billion business -- most likely in chunks, since it's unlikely to find a buyer for the whole thing.

By buying Lucent, Alcatel solidified its position in high-end phone switches, particularly in the U.S. As a result, "Siemens has to decide whether to get bigger or smaller -- and the proponents of getting smaller are winning," says one industry insider who has been approached about buying parts of the unit.

Analysts say Siemens, like Nortel, has struggled to maintain leadership in the most important markets. The Munich-based giant recently saw Deutsche Telecom (DTE) grant a big contract to deliver Net-based TV services to Paris-based Alcatel, for example.

INTERESTED PARTIES. Who might the buyers be? Insiders say big wireless players such as Ericsson (ERICY) or Motorola (MOT) might want the Siemens unit that sells basic phone switches to phone companies. So might Cisco, though the company says it has no plans for another merger along the lines of Scientific Atlanta.

Others, including Avaya (AV), might want the Siemens unit that sells to corporations. If that doesn't pan out, there may be other options. "I've heard of some private equity interest" in some or all of the Siemens units, says Tom Nolle, president of consulting firm CIMI Corp.

However Siemens and the other established players fare, there's no shortage of entrepreneurs stepping up with dreams of becoming the Old Guard of tomorrow.