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It has generated buzz as a means for tracking everything from cattle and pets to those cumbersome pallets of product clogging up warehouses, but RFID — or radio frequency identification — is getting attention from service providers for its ability to make much smaller connections.

RFID is a short-range wireless communication that lives in a chip no bigger than a sunflower seed. The chip houses information that can be deciphered by a separate reader. Take RFID a step further and combine the tag and reader into one component, house it in a wireless device, and that advanced technology is known as NFC, or near-field communications. This is the version of RFID gaining interest with the service provider set.

“[NFC is] the area where operators are starting to get involved,” said Erik Michielsen, director of RFID and ubiquitous networks for ABI Research.

By equipping mobile phones and consumer electronic devices with NFC, carriers can offer their customers a means of currency-free payments and beamed information, all the while bulking up on air time and data usage.

Communication giants Nokia, Royal Philips Electronics and Sony kick-started the NFC movement by forming the NFC Forum, a trade organization intent on making wireless communication between consumer electronics devices, mobile phones and PCs more ubiquitous. The forum counts among its members operators France Telecom Orange and Vodafone.

“There is a lot of interest, especially from network providers, for NFC technology,” said Felix Marx, director of marketing, MST Contactless & Embedded Security for Philips Semiconductors. “NFC provides a lot of benefits for their business: It encourages mobile service usage (access to service, content to service) and increases air time [and] average revenue per user.”

Operating in the 13.56 MHz frequency range, NFC can deliver data rates of 106 kb/s and 212 kb/s over a distance of a few centimeters, according to the forum. The technology boasts three main capabilities: reader function, which enables information access; contactless smart card function; and peer-to-peer wireless communication. Because of their ability to support secure payment, the first two appeal to operators. The data-transfer aspect of the last capability appeals to device manufacturers, say forum members.

“The device can interrogate other tags to acquire information and also sit in sleep mode, not drawing any power until interrogated by another reader,” said Michielsen, adding that security measures can ensure the access isn't compromised.

Sure, it's been talked about for years in wireless presentations at trade shows everywhere, but the trend of using a mobile phone to make financial and information transactions is finally starting to happen, said Allen Nogee, principal analyst of wireless technology at In-Stat, a research firm. It will soon be possible to use an NFC-enabled mobile device to pay for a meal at a fast food joint, or to get promotional and marketing information about a movie by waving it in front of a movie poster, and buying tickets to that movie, he said.

First up at bat is Asia, said Nogee, who points to NTT DoCoMo and a handful of carriers in Korea as being aggressive on the NFC roll-out front.

The hurdles for NFC, and, down the road, RFID chips inside phones include interoperability, implementation issues and privacy concerns. There's also the sticky bit of figuring out the revenue splits of the commerce partners along the chain. But “the biggest challenge is still cost,” said Nogee.

Nonetheless, NFC trials are in the works. Later this year, a trial will take place in Hanau, Germany, using Nokia 3220 cell phones equipped with an NFC chip from Philips, said a spokesperson for the electronics company. And potential partner companies to service providers, such as McDonald's, Mastercard, CVS and Rite Aid, are all looking at similar wireless payment mechanisms, said Michielsen. “This year you'll see trials,” he said.

Meanwhile, retailers — most notably Wal-Mart — are plugging ahead with incorporating RFID into their supply chains by mandating that their consumer goods suppliers include RFID on their packaging. When RFID tags are attached to pallets of inventory, then the information gleaned from those products — say place of destination, or expiration date — can be communicated to a general database, making the bar code obsolete.

Other retailers and government agencies, such as the Department of Defense, have also required suppliers to embrace RFID. The process is expected to ramp up when a second generation chip, Gen 2, is made available at the end of this year. Once that is ratified, the chip will create a global-capable tag, and more semiconductor manufacturers will churn out the chips in greater volumes, causing their prices to dip from today's 25- to 45-cent threshold to the coveted 5-cent mark, said Dennis Gaughan, research director for AMR Research.

For consumer packaged goods companies today, however, tracking products through the supply chain and at the shelf is more about fulfilling mandates set forth by gorilla customers than about applying the technology to improve their own business processes, said Gaughan. Consumer product manufacturers are spending an average of $1 to $3 million to comply with the mandates. Those seemingly paltry figures will rise as more retailers jump on Wal-Mart and DOD's bandwagon and as more suppliers figure out the “what's in it for me,” take on RFID implementation, he said.

“RFID will allow manufacturers, retailers and suppliers to efficiently collect, manage, distribute and store information on inventory, business processes and security controls,” said Dan Caprio, deputy assistant secretary for technology policy and chief privacy officer for the US Department of Commerce.

Companies — like leader in the pack Verisign — are seeing a market niche for building up networks that connect different RFID sites together, making the infrastructure more stable. All the while, more NFC-enabling chips in mobile phones and consumer devices will let users conduct more wireless transactions and glean more information from an increasing list of sources to take advantage of those networks.

During a recent RFID workshop held by the Department of Commerce, the findings pointed to RFID becoming part of a larger wireless communications system. As it matures, it will become a ubiquitous networked utility rather than just a tag/reader technology and push data to become available at the outer edges of the system, not just at a central point, Caprio said. “Both these have exciting implications for service providers and future users.”

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Wal-Mart and the Department of Defense have spoken, and suppliers have no choice but to listen. Mandates by these giants are the best incentive for businesses to implement RFID in the short term, but experts at Supercomm see the technology's long-term business prospects as well.

“Interest in RFID continues to heat up,” said Norm Dumbroff, CEO at WAV Inc., a wireless products distributor and Supercomm exhibitor. He adds that while there is some confusion concerning applications and direction of applications from the VAR community, and that suppliers meeting mandates of Wal-Mart and DoD are still taking relatively small steps, progress is being made on the RFID implementation front.

“I do think that once the software systems have fully integrated the use and the benefits that can be derived from RFID, we will see a broader implementation of the technology,” he said.

For RFID solution providers, the biggest challenge is the substantial investment required — not only for equipment, but in education, like making sure a tag is attached to a carton correctly. It's also crucial that service providers setting up solutions for companies inform their customers about having reasonable expectations from RFID.

“Although RFID is an extremely powerful tool, the customer needs to understand that this is an evolution,” said Dumbroff. “As more manufacturers tag their pallets and products, the entire supply chain will realize added benefit from this technology.”
— Meg McGinity