he year ahead will bring great progress in expanding the infrastructure required to enable the transition to wired and wireless broadband at the point of sale (POS). There has been a lot of conversation over the past two years about adopting Internet protocol (IP)-based technologies at the POS for high-speed transmission of payment transactions.

But this year, we transition from evangelism to implementation mode ... from theory to reality ... from discussion to execution.

That's not to say there won't be bumps along the way; in fact, in some areas, there will likely be a fair amount of contention. So without further ado, let's make some observations and then dig into the details for the upcoming year:

• Merchants at the POS will climb onto the broadband bandwagon in increasing numbers as they recognize the value and cost-savings of using this technology over dial-up.
  
  
• Digital wireless broadband will start to catch on, particularly for mobile merchants that want to capitalize on customers' increasing reliance on credit and debit cards. But we can expect a resurrection of the wireless wars of four to five years ago when competing standards slugged it out. However this time, major carriers are competing, not only for select vertical markets, but for a broad market of more than 100 million cell phone subscribers and their need for converged voice and data service.
  
  
• Merchants will readily adopt Wi-Fi for POS as they recognize the advantages of swapping out multiple phone lines for one shared connection. Many merchants already have a cable connection or DSL, so there's no additional telecom cost involved.
  
  
• Restaurant owners will begin to demand pay-at-the-table payment systems as they become aware of the advantages of Wi-Fi and invest in solutions to leverage the increasing consumer reliance on debit cards.

Broadband Connections Proliferate

Let's talk a little bit more about broadband in general. It's always hard to get a firm grasp on what's going on in the small business market because it's so diverse, but according to various surveys, at the beginning of 2004 anywhere from one half to two-thirds of all small businesses in the United States had some type of broadband connection.

According to one survey, more than half of those who still rely on dial consider it too slow to meet their business needs and would consider moving to broadband.

Now consider that the above information is more than a year old, and count up how many people you know who have moved from dial to broadband in the past year compared with how many have dropped broadband to return to dial. There's inevitability in moving to broadband. As one technology writer said several years ago, you'd have to tear his cable modem out of his cold dead hands to get him to give it up. For many merchants, the issue is not over whether to move to broadband, but indecision or confusion over what is the best broadband medium to adopt.

For fixed storefront merchants, DSL or cable is nearly ubiquitous these days. Many of them already have the connection for their back office PC, so it should be a relatively easy sell for an ISO and merchant level salesperson (MLS) to make the business case.

According to a report by the Small Business Administration, firms with zero to four employees face a monthly cost of $82.81 per employee for local and long-distance telecommunications; that's almost four times the relative cost that larger companies pay.

Small businesses have an average of just over four telephone lines, each incurring a monthly fee. Reducing or eliminating some of those costs should put the expense of a new IP-enabled payment solution in a much more favorable light.

The increasing attention to broadband telephone services, otherwise known as voice-over IP (VoIP), is also expected to appeal to small- and medium-sized businesses and create more demand for broadband.

Wireless Wars

A few years back, we had quite a battle among conflicting wireless transmission schemes: Mobitex, Motient and CDPD.

None of these ever attained the level of ubiquity required to generate mass adoption, which drives down the cost. Now we're moving to a new phase, with two flavors of broadband wireless dubbed code division multiple access (CDMA) and general packet radio service (GPRS).

So why should this time around be different than previously failed efforts? What's different now is that the wireless transmissions are based on the same standards used in mobile phones. CDMA and GPRS wireless broadband use the same towers, the same transmission standards, and the same service providers as the mobile phones that now proliferate our society and economy.

By climbing on the back of an already ubiquitous technology, wireless broadband is light years ahead of those older wireless schemes. In addition, the economies of scale are much better positioned for the anticipated success of wireless payments.

Some suppliers in the POS industry will be tempted to pick one or the other of these transmission technologies, quite simply because it's cheaper to do so.

But there's absolutely no chance that either CDMA or GPRS will wipe out the other, so any vendor that backs only one flavor will ultimately lose out on a substantial segment of the market, perhaps 50% of it!

With recent and pending mergers, the wireless industry has split into two gigantic camps with T-Mobile and the recently combined Cingular/AT&T promoting GPRS, and Verizon and the soon to be combined Sprint/Nextel lining up behind CDMA.

Ultimately, we expect that wireless will fully compete with wired POS terminals, once the economics get to the point where merchants do not have to pay a premium.

However, that day is not yet here, so in 2005 expect merchants to primarily employ new CDMA and GPRS terminals for mobile use, such as home delivery, and in locations where the cost of installing telephone lines is prohibitive.

As those numbers increase and manufacturing ramps up, the cost of wireless modems will continue to come down to the point where wireless and wired are on a level playing field for stationary use.

Wi-Fi ... Wi-Not?

It's no secret we at VeriFone have been among the strongest proponents of Wi-Fi for POS. Others in the industry have placed their bets behind an effort to force-fit Bluetooth into a niche for which it was neither designed nor suited.

If you travel often, you increasingly find more hotels, coffee shops, even McDonald's franchises offering Wi-Fi access to their customers.

In fact, you don't have to stray far from home to find burgeoning Wi-Fi availability in many of your local businesses. (How many signs do you see offering Bluetooth access?)

Wi-Fi is an incredible concept. It essentially extends a wired Ethernet connection over the airwaves where it can be offered in a secure or non-secure manner to anyone with appropriately equipped laptops and other wireless devices.

If I were an ISO/MLS, I'd be working right now with one of my best customers to set up a Wi-Fi installation that I could show future and prospective customers.

Pay-at-the-table is another one of those concepts that sounds great, but has yet to really get off the ground. The technology has not yet reached a level where rapid adoption could decrease the price of manufacturing. Now we have Wi-Fi, which without doubt, is experiencing rapid adoption, and we see wireless gateways available for $50 per month or less.

So the technology is here. But more importantly, American consumers' increasing reliance on debit and stored-value cards virtually assures that restaurants will have to begin to adopt pay-at-the-table technology.

Not only is it more profitable for the restaurant, but the early adopters will undoubtedly realize a competitive advantage as diners find locations that make payment more convenient and secure.

Wait ... There's More

There are other areas I would like to address, but I'm out of space. So I'll just quickly offer up a few points, and I'm sure we'll touch on them again throughout the year:

• Savvy ISOs/MLSs will hone-in on the quick serve restaurant (QSR) gold rush as individual franchisees start to catch the broadband bug that their corporate parents succumbed to in 2004.
• Value-added applications will become a more important part of most selling propositions, particularly as more processors and ISOs develop (or purchase) their own branded applications such as gift card and check conversion.
• We'll see more consolidation in the industry. It may not be on the scale of First Data Corp. buying Concord EFS Inc., but it's inevitable that consolidation breeds further consolidation as the larger companies strive to increase market share and economies of scale.

Larry Bleiler is General Manager of VeriFone's North American Financial Group. E-mail him at larry_bleiler@verifone.com or call him at 1-800-VeriFone.