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Sony Tries to Take Your Wallet


New smartphone seeks to make cash obsolete.

Japan's "wallet phone" doesn't mean we'll be saying sayonara to the iPhone (AAPL) anytime soon, but it may scramble the smartphone market in the United States.

Japan's cell phones deliver high-speed Internet, video downloads and digital TV broadcasts, making them among the world's most sophisticated. Next up: The wallet phone and cashless payments.

The wallet phone relies on a semiconductor called FeliCa that communicates with readers at stores, movie theaters and vending machines that enable cashless payments.

It's a nifty idea, but it may not take off in the United States.

First, there are few such readers at US stores or train stations. Getting enough new ones in place to support widespread use of the wallet phone may be a classic chicken-or-the-egg problem: There aren't enough readers in place to support the new technology, and demand for the new technology won't take off until there are enough readers in place.

Second, credit cards are a huge industry in the States, but use of plastic isn't as widespread in Japan. Third, ATMs are everywhere in the US, and many people may decide to avoid the wallet phone's potential security risks by using cash.

Some American credit card companies are pushing a "tap-and-go" smart card for instant payment at stores or transit systems. This could limit demand for the wallet phone.

Are the new cards secure? The entrepreneurial class -- the innovative high-tech thugs who brought us skimmers -- will let us know. Assuming there's an easy way to steal the account number from a tap-and-go card, it shouldn't be that much harder to crack a wallet phone. Plus, more than a few people have been known to lose their cell phones.

Japan's government and business leaders will team up to push the wallet phone in the United States. Expect the pitch to be similar to the iPhone: golly-gee-wow, it's utterly fantastic and you've got to have one regardless of price.

Sony (SNE) developed FeliCa and hopes to have a hand in combining smart-card technology with cell phones. Wallet phones have been available in Japan since 2004 and the feature is now common.

It isn't difficult to imagine a competitor going after Apple and AT&T (T), exclusive carrier for the iPhone, with a new gizmo like the wallet phone. The ads would pitch voice, text, photos, Internet, blah, blah, blah - and you can leave your cash at home! Such a deal.

Japan now has about 104 million third-generation cell phone users, or about 90% of the nation's wireless customers. Japan also plans to push Global System for Mobile Communications, or GSM, which would allow the same cell phone to be used in most countries.

But Japan's government and industry team have had mixed results in pushing new technologies.

Japan invested heavily in HDTV - and they got the easy part right. There was a market for improved television images, but developers in Japan bet on a hybrid analog-digital system that consumed buckets of money and went nowhere.

Part of the problem was being first to market with a pioneering idea. Japan developed its version of HDTV in the early 1990s, or several years before Europe and the United States selected technical standards. If Japanese industry thought it could force its standard on the world, it turned into a multi-billion yen goof because all-digital technology was better.

Digging deeper into the primeval ooze of consumer electronics, archaeologists will soon come across the Betamax. The videocassette recorder changed home entertainment, but was eclipsed by VHS after a fierce war for market share.

There's no reason to think the current wallet phone technology won't be eclipsed - and, while it may be a good idea, it doesn't look like a life-changing technology on this side of the Pacific. Japan's orderly promotion may not be a match for the latest idea to bubble out of the cauldron known as Silicon Valley.
No positions in stocks mentioned.
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