Femtocells: the early lessons

Guillermo Fernández Castellanos/Analysys Mason
05 Mar 2009

Femtocells are currently dividing opinion within the mobile industry. While interest is spurred by what some consider to be a market that will reach $9 billion by 2014, others believe operational issues will prevent wide-scale deployment. This article considers some of the challenges that operators deploying femtocells are encountering.

Femtocells are in-home base stations adapted for residential or small business environments, which connect registered handsets and other devices to the mobile network through the broadband network. These devices offer operators a possible solution to indoor coverage problems and the ability to carry traffic from the home at close to zero incremental cost.

So far, Verizon, Sprint and StarHub have launched commercial femtocell propositions, while companies such as Telefónica, Mobilkom and Vodafone are in various stages of trialling the technology.

The inherent flexibility of femtocells enable them to be deployed in a variety of scenarios. While many issues surrounding deployment are unique to individual situations, there are a number of notable common issues.

Installation and pricing must be simple. Providing a simple and reliable experience with plug and play CPE installation is critical to ensuring that users benefit from the purchased service. Additionally, flat tariffs and fixed fees are easy for users to understand and therefore compelling, particularly if combined with multiple handsets.

Avoiding cannibalisation of revenues is a challenge. While it is relatively easy to price a femtocell proposition attractively, minimising revenue loss from other services (e.g. wide-area voice, PSTN) is a major challenge. Pricing strategy and market segmentation must be closely tied to precise market scenarios.

The target customer needs to be clarified. Mobile operators have traditionally sold to individuals. However, as the femtocell is primarily a household proposition and the target customer is likely to be the head of the household, the selling process differs from that of mobile phones. Opportunities to up-sell other products (e.g. higher speed broadband) may well generate significant additional revenues.

Femtocells may aid pro-active customer management. Femtocells can be used by early adopters as an aggressive move to maintain or capture competitors' customer bases, by answering specific needs and increasing brand awareness.

CPE capex may not be a cost barrier. Although many operators are rightly concerned about the levels of capex for wide-scale CPE deployment, in many scenarios it can either be dwarfed by the cost of off-net interconnection calls or offset by savings in planned network capex and opex.

Starting negotiations on regulatory barriers early. Femtocells are typically subjected to existing NRA mobile regulations. Although a number of regulators are working with operators to agree more practical procedures for femtocells, notification requirements for installations pose a major barrier to the adoption of femtocells as a household product.

It is clear from early deployments that planning for femtocell roll out comes with many challenges. The surrounding issues need to be examined carefully and options developed based on specific market circumstances, as the obvious answers are not always the right ones.

With the current growth of mobile broadband and the increase in internet-enabled mobiles, we anticipate that for many operators femtocells will play a major role in delivering the high-quality, low-cost connectivity propositions that users seek.

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