The recent launch of femtocells by AT&T in the US follows the early entry of Vodafone in the UK into the femtocell market. In Asia, Softbank in Japan and StarHub in Singapore have both launched, while DoCoMo and others are going to launch shortly.
Discussion of femtocells can sometimes be complicated by the fact that femtocells solve a variety of problems for a variety of operators, and are going to drive the mobile industry in the foreseeable future. As mobiles increasingly replace landlines in customers' minds as their main phone, it is no surprise that both operators and customers welcome femtocells as a simple means of improving voice coverage as well as network capacity and enable new services.
Most of the discussion has focused on the opportunities for incumbent operators and straightforward benefits, but as the femtocell services are rolled out, we begin to see hints of more novel business models. One example is HSL, a UK-based provider of direct-to-consumer 2G femtocells; another is Wi-Fi community operator FON, which has announced a deal with femtocell company Ubiquisys. It looks likely that a number of interesting models will emerge as players appreciate the variety of ways femtocells create value and deliver unique capabilities. To explore those we should consider the four areas for benefit from a femtocell.
Coverage and capacity concerns
First is voice coverage. Well documented as a significant problem in the developed markets of the West, and surprisingly so in several parts of Asia, it's nevertheless often overlooked. If one carrier has good coverage in a village then residents switch to that player and forget the other failed carriers - which of course means lost revenue for those failures. If you cannot serve a customer, you'll lose their business.
So in different parts of Asia we can expect to see voice-coverage femtocells - either free or fee-based, depending on factors such as value of customer, seasonality and so on - to form a baseline part of any operator's femtocell offering.
The second area of revenue is data coverage. In the last decade, carriers have spent billions of dollars on 3G licenses and networks. That investment is predicated on selling data services to consumers. With the explosion of wireless data in Asia, femtocells are the heaven-sent opportunity for operators to provide good data coverage indoors. So there is a clear business case for femtocells from data. This is especially true in China, where 3G has only become recently available. It is likely that enterprise femtocells, which look set to emerge soon, will tap into the desire for better data coverage within an office space or campus.
A third area of revenue from femtocells is data capacity. This has been an issue in Asia for awhile. Quite simply, cells are getting full up. Even before the iPhone came along, users in Asia have been using mobiles for data access, but the iPhone has helped place unprecedented strains on 3G networks. Portio Research forecasts that there will be 5.8 billion mobile subscribers worldwide in 2013, of which almost 44% will be in Asia-Pacific. In many of these countries people already use handsets as data access devices and that is only going to accelerate.
Moreover, while the amount of data is doubling every year, base station capacity is almost stagnant (See chart). Increases like HSPA+ are important but not sufficient. The only real way to increase capacity is to add more base stations, but it is impractical, if not impossible, to add more macrocells. So it is no surprise that operators are turning to femtocells.