Reference no: EM131847091

Say "Charge It" with Your Cell Phone Wireless operators, credit card companies, and retailers are working on a technology that allows customers to purchase items by using their cell phones. For example, a customer could purchase a can of soda by dialing a telephone number on the dispensing machine and have the charge for the soda show up on the customer's cell phone bill. Working prototypes are currently in use in South Korea, Japan, and Europe.

The ability to charge items to a cell phone has significant business potential because credit cards are not nearly as popular in other countries as they are in the United States. In Japan and China, for example, people are much more likely to have a cell phone than a credit card. Japanese consumers use credit cards for only 5.6 percent of their personal spending compared with 33 percent of U.S. consumer spending.

The payoff for credit card companies and cell phone operators from this technology could be enormous. By associating a credit card with a cell phone, banks and credit card companies hope to persuade consumers to buy products, such as soda, with their cell phones instead of pocket change. Of course, they will reap transaction fees for each transaction. Mobile phone operators see the technology as a way to increase traffic on their networks as well as to position cell phones as an even more useful and, thus, essential device for consumers.

Retailers envision easier transactions also leading to more sales. MasterCard International and Nokia are currently testing a cell phone credit card for the U.S. market. The phones have a special chip programmed with the user's credit card information and a radio frequency transmitting circuit. Consumers can simply tap their phone on a special device at a checkout counter equipped with a receiving device that costs the retailer about $80.

Betsy Foran-Owens, vice president for Product Services at MasterCard International, commented that with this technology, "You don't even have to get off your phone to pay. You can just tap this thing down at the register." She also noted, "If you're not going to carry cash around, what are you going to carry? Your mobile phone." The only players who might not look favorably on the technology are the traditional telephone companies, who must certainly view the technology as just one more threat to their traditional telephone business

Questions

1. Do you view this technology as a potential threat to traditional telephone companies? If so, what counterstrategies could traditional telephone companies adopt to prepare for this technology?

2. Using Porter's Five Forces describe the barriers to entry and switching costs for this new technology.

3. Which of Porter's three generic strategies is this new technology following?

4. Describe the value chain of using cell phones as a payment method.

5. What types of regulatory issues might occur due to this type of technology?