The budding femtocell market has so far been dominated by specialist start-ups, but as the trials and contracts from major operators pile up, the baton will pass to the major vendors that can deliver the volumes and pricing the cellcos will demand.
The problem for the traditional mobile equipment suppliers is that they are unlikely to be those majors - the femtocell logically fits far better with the business models of consumer and internet product suppliers, like those that have dominated Wi-Fi access points and DSL modems, than with the proprietary, high margin norms of Ericsson and Alcatel-Lucent. So while most of the mobile infrastructure makers have partnered with a femtocell pioneer to be able to provide these devices, the way of the future is pointed far more clearly by a reported AT&T plan to spend $500 million on femtos from the UK's ip.access, significantly backed by Cisco; and by Nokia Siemens' plans to expand its supply chain beyond specialists to the masters of the commodity network equipment markets, the Taiwanese ODMs.
As in Wi-Fi access points, there is likely to be a shake-out among the start-ups as the femtocell market matures and heads for volume and for the $100 price tags the operators are asking for. As in Wi-Fi, and other networking markets, we might just see one pioneer surviving as an independent, and will almost certainly see one bought by Cisco (in the light of the AT&T news, highly likely to be ip.access) and one or more by other majors. However, the big cellco suppliers remain ambivalent about femtocells - a $100 miniature base station, even sold in quantities of multiple millions, is highly threatening to the business assumptions of Ericsson, which remains understandably cagey, even head-in-the-sand, about the femto craze.
Most of the mobile infrastructure vendors are working with partners in order not to be excluded from operator deals, but may see little reason to acquire an operation of their own, since it could be difficult to integrate into their existing structures and would have a negative impact on overall corporate margins. For instance, Alcatel-Lucent is selling devices from Sagem, which for all its recent financial pressures certainly understands how to run a supply chain geared to mass market, low priced products rather than complex, high margin base stations.
Nokia Siemens looks set to take this logic a step further, working with even more efficient deliverers of the price sensitive consumer gadget, the Taiwanese ODMs. According to reports from the island state, NSN is in talks major ODMs Gemtek Technology and Accton Technology for a femtocell venture to reduce the costs of delivering the tiny base stations. NSN has already spread its femtocell favors among several partners - Ubiquisys, directly and via its Netgear deal; Airvana; Thomson, which is also working with Airvana on gateways; and RadioFrame (the latter mainly for picocells). Now NSN is said to be looking to the Taiwanese companies to help it drive down femtocell prices to the operator from about $250 to under $100 in readiness for major contracts that are expected from later this year.
Meanwhile, Motorola is working with Airvana in CDMA and Ubiquisys in its home networks business; NEC is also partnering with UK-based Ubiquisys; ZTE, Huawei and Samsung are currently pursuing their own routes. For Ubiquisys, whose femtocells will be used in one of the first European commercial roll-outs this year, by O2 in the UK, its most significant partnership may yet prove to be Netgear, which has incorporated the company's Zonegate 3G design in a Femtocell Voice Gateway - a residential gateway with integrated ADSL2+ modem, router, 10/100 wired LAN switch, wireless access point, VoIP, firewall and 3G femtocell.