Opportunities and Challenges for Femtocells

Vincent Poulbere, Principal Analyst, Ovum

In past years, mobile operators have largely benefited from fixed-to-mobile substitution, especially in the home. In Europe, 30–40% of the cellular traffic is generated from home. However, competition for home traffic has intensified, especially with the development of ISPs’ attractive VoIP offerings. Mobile operators now need to look at new strategies to encourage further use of wireless in the home. They need to look at ways to:

· improve indoor coverage

· improve the quality and performance of data services at home

· reduce the cost of delivering mobile services at home.

Putting a mini cellular base station in the home, which backhauls traffic via the DSL or cable line, looks like an attractive way to make wireless more competitive in the home. It could enable operators to combine two benefits: being able to introduce more compelling homezone tariffs for wireless voice & data and reducing the costs of the macrocell network, by managing more traffic through femtocells.

Important challenges remain

Femtocell solutions are still in their early development stages. As of early 2007, only femtocell prototypes are being used in lab testing. Operators’ trials in 2007 will have to analyse two key technical issues: firstly, radio interference between the femtocells and the public infrastructure’s macrocells; secondly, the core network integration of femtocells. Should the cellular home gateways be a success, there could be millions of new cellular access points added to cellular networks. There is thus an important scaleability challenge, both in terms of radio management and network architecture.

Large economies of scale are needed

The business case for femtocells requires low-cost customer premises equipment, with target prices around $100 per unit, down from close to $200 per unit today. But even at a $100 price point, the femtocell will add a significant Premium on top of a basic DSL set-top box price, which operators are likely to subsidise in order to encourage adoption by the customers. Achieving large economies of scale should be greatly facilitated if the industry agrees on a standard for femtocells. First commercial solutions, however, are likely to be proprietary developments, based on ad-hoc collaborations between operators and manufacturers.

Market development forecasts

There may be some early commercial launches of femtocells in 2008, but most probably, large volumes of shipments and wide scale availability should become a reality from 2009 only. Based on the assumption that several Europe’s tier-1 operators will introduce femtocells, we forecast 17 million residential femtocells in Western Europe in 2011. The main driver will be mobile operators developing business models that combine a reduction in infrastructure costs with new revenues from homezone offerings.

Ovum’s forecasts of femtocells shipments in Western Europe

Source: Ovum

Getting ready for the commercial launch of femtocells

Finally, beyond the technical challenges of manufacturing and deploying femtocells, operators still need to consider several important issues in relation with the launch of commercial services. We list below some of these:

· The definition of end-user service offerings, which should provide differentiated benefits in comparison with what is already available (e.g. homezone plans, dual-mode offerings),

· The provisioning of the femtocell ‘box’, for which there are some pricing and marketing challenges so that customers understand the benefits, without being worried about health dangers,

· Understand the implications of femtocells on network costs for different customer segments, which could influence which particular customers should be targeted in priority,

· And finally assess the different options for deployment scenarios, such as offer standalone femtocell products versus integrated set-top boxes ; whether the home access point should be open to all customers or restricted to the family members ; whether mobile operators may offer femtocells that plug into any ISP’s set-top box.