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Amazon, eBay and Google to monopolize eCommerce?

Feb. 27, 2011

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The National Broadband Network (NBN) is still very much at the top of his priority list for Optus CEO Paul O’Sullivan. But yet he is still very concerned how, in a more-connected world, content monopolies can be just as restrictive as network monopolies. And now some observers are asking will Google, Amazon and eBay try to monopolize the eCommerce segment of the Internet any time soon?

Speaking to the Media Connect Kickstart Conference in Queensland, O’Sullivan said that while he is worried about some risks to eCommerce retail competition on the NBN, he can also foresee much greater risks in the longer term – content and application monopolies.

Over the past few years, successful Internet companies such as Amazon, eBay and Google have demonstrated more or less a winner-takes-all attitude in eCmmerce related activities. O'Sullivan said that for any company wanting to enter a market against a company the size of Amazon, eBay or Google found itself facing a pretty large obstacle.

The gist of O’Sullivan’s argument is that physical monopolies are regulated by access regimes. For example, these include access to Telstra’s network in Australia, retailer access to electricity networks, etc. O’Sullivan believes that monopoly control of specific content is a challenge that needs to be debated and addressed as soon as possible.

“We need to think about content access in the Internet world in the same way as we provide it in the physical world,” O’Sullivan said. He proposes that Australia needs to consider whether the world of content needs access seeker mechanisms, as exist for physical networks.

O'Sullivan admitted that the mechanisms for this haven’t yet been considered, but said the reason such a debate is necessary is partly so that mechanisms can be created and worked with in the first place.

O’Sullivan strayed into the world of the obvious by agreeing with NBN CEO Mike Quigley’s assertion that those who advocate wireless networks as an exclusive alternative for fibre don’t understand the technology. “The physics of the mobile network are such that we can never really carry the same speed on wireless as on fibre,” he said.

Verizon Wireless, AT&T Mobility and T-Mobile USA have now created a mobile payment system designed to help wireless users easily pay for certain items at physical stores using their mobile phones and MIDs (mobile Internet devices), the three wireless carriers have said earlier today.

Dubbed 'Isis', the three companies are building the new payment network with the initial goal of setting up a system in which people can use smartphones to easily pay for products or services directly at a retailer, known as PoS (point-of-sale) purchases. A similar system has already been in place for the past two years in many Asian countries.

The new solution will use a technology called NFC (near-field communication), which provides short-range and encrypted wireless communications between different mobile devices. The three carriers say the system will include strong security and privacy protection.

Isis is expected to be available around April or May 2012, the three have said. In Japan, China and other Asian countries, a similar system has been in place for about two years now. It was only a question of time before a similar payment solution would be implemented in North America, some wireless industry observers have said.

In fact some are asking what's taking carriers so long in implementing a working and secure solution, and why will it take them another 18 months for it to be completed.

On Tuesday, Google CEO Eric Schmidt presented an upcoming Android smartphone with a near-field communication chip. Some say it could be the Nexus S, but it's still too early to tell at this time. More is expected from Google in the next few weeks, however.

Isis has already recruited two major financial players to participate in the new joint project. Discover Financial Services will work with Isis to develop the overall infrastructure for the mobile payment network, while Barclay Card U.S., a Barclays Bank subsidiary, will be the first credit issuer on the network.

Meanwhile, Isis is leaving the door open to other banks, financial institutions and other wireless carriers that want to be part of the new venture, and that wish to commit their own expertise and invest in the project.

Additionally, former GE Capital executive Michael Abbott has been hired as Isis CEO. The decision was well received in the wireless community, since Abbott has a lot of experience in the field of corporate finance and related topics.

And beyond the large amount of work that Isis is initially planning, Abbott has sublime goals for the new payment system.

"Through various relationships with merchants, our new mobile commerce network will provide an enhanced, more convenient, more personalized shopping experience for for wireless users. While mobile payments will be at the core of our offering, it's only the start. We plan to create a 'mobile wallet' that ultimately eliminates the need for consumers to carry cash, credit and debit cards, reward cards, coupons, tickets, transit passes, etc, etc," said Abbott in a prepared statement.

Isis marks the first time AT&T and Verizon have worked on a joint venture since the breakup of the AT&T monopoly in 1984, according to a Verizon spokeswoman.

The initiative will change the way people buy products and services. Consumers will no longer have to carry around multiple credit cards in a bulging wallet if they can use a smartphone instead. And since most people have smartphones today, it won't be a problem for most of them.

"Consumers are looking to do more and more with respect to simplifying their lives," said Ryan Hughes, vice president of new business development for Verizon Wireless and a member of Isis’ steering committee.

"What we’re trying to do is, as we’ve seen in many industries that go from analog to digital, is lead the transition from plastic to mobile and simplify the way you shop and pay for the product."

To make a purchase, all a shopper needs to do is to log in to a secure, password-protected application on an Isis-ready phone and hold the phone near an electronic reader at the checkout counter. The microchip allows the customer to transfer encrypted information to a bank or credit card company. Consumers would sign for the amount and receive a bill much like a traditional credit card each month.

Account holders would sign up for these digital credit, debit or prepaid cards through Barclays. Wireless handset makers will create cell phone microchips that consumers will need for wireless payments, and to build point-of-sale phone readers for stores.

Isis purchases will run through Discover’s payment network. A Verizon Wireless spokeswoman declined to comment on whether Discover would charge merchants less per transaction under the program. But merchants have been complaining for many years about the high fees they have been charged by credit card companies, and they are now hoping that Isis will help them pay lower fees on each sale.

In October, Visa and MasterCard settled a U.S. antitrust suit that alleged the companies’ contracts unfairly prevent retailers from steering customers to other cards.

Source: Optus LLC.

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