Femtocell race heats up "&brkbar; slowly

Steven Hartley/Ovum
16 Oct 2008



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October 2008

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As with all technologies, some operators seek to optimize first-mover advantage and get to market early. Softbank now joins Sprint in this camp. However, in general we would advise operators to hold back on deploying femtocells until standards-based equipment becomes available, unless the need to be particularly disruptive in the market is their overarching market strategy.

Until then Softbank's (and Sprint's) end-user devices will be saddled with uncompetitive pricing without heavy subsidy. Furthermore, the risk of technical implementation issues, and resulting customer problems, remain great for Softbank and other early adopters. For example, despite several attempts this year we are still yet to experience a working demonstration of a femtocell data session.

Technology still immature

The main technical stumbling block causing the limited short-term impact of femtocells is the lack of standardization. Although far from insurmountable, the time needed to iron out required standards is already causing operators to hold back on their plans until the situation is clarified (December 2008 at the earliest). Most operators will refuse to move on femtocells until they have cheap equipment that is easily integrated into their existing network.

This depends on the standards being ratified and equipment based on those standards coming to market in sufficient volumes to be cost effective. This will take time and will not occur until the end of 2009. In the meantime, operators currently trialing the technology will provide unparalleled feedback and help further the technical maturity of femtocells.

However, standards are not the only issues causing delays. Although not purely technical, both quality-of-service guarantees over broadband and the regulatory situation remain unclear. The former is most important to mobile operators without their own fixed broadband offering and will only be solved with commercial agreements. The latter caused Softbank to delay its original, even more aggressive, plans. However, it will undoubtedly materialize elsewhere as more deployments occur after 2010.

The remaining issues link the technical to the commercial. The devices themselves are currently the victims of a chicken and egg situation. The technology and costs are not where they need to be to make them attractive mass-market consumer propositions, but until volume orders are placed the costs cannot fall to make them a mass-market proposition. Until that cycle is broken, femtocells will remain a niche solution.

NEC's investment in Kineto is yet another sign of increased movement by the major players. However, the relative absence of the largest wireless network vendor from this space, Ericsson, suggests that it at least is not convinced that the market is yet ready to take off. Furthermore, specialist vendors are taking a disproportionately large role, suggesting a vacuum yet to be filled by the large players.

All this points to technical immaturity and time needed to progress the situation. Until technical maturity and a critical mass of major vendor support are achieved, the vendor ecosystem will continue to evolve as it is currently - with partnerships and investments eking out interoperability and attempting to carve out the market opportunity.

And this returns to the earlier point: until standardization contributes to technical maturity and guarantees interoperability across the ecosystem, thereby driving down implementation and CPE costs, most operators will not be willing to commit to femtocells. Until operators commit to femtocells, the major vendors won't throw their full weight behind them - which would make it easier for the operators to buy femtocell solutions that easily integrate with their existing networks. And that means that, for now, femtocells will have to remain waiting in the wings for their big moment.

Steven Hartley is senior analyst at Ovum

Steven Hartley/Ovum

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