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Exploring Femtocells: The Pot of Gold at the End of a Problematic Rainbow for Carriers
By Stuart Carlaw, Principal Analyst, Wireless Connectivity, ABI Research
There is no doubt that femtocells offer carriers substantial benefits that no other technology can match. But the femtocell equation is evenly balanced: there is a significant advantage to be had from adopting a fixed-mobile convergence (FMC) approach centered on the femtocell, but there are also a number of gating factors and barriers that need to be addressed before the technology can make the transition from a promising possibility to a valuable reality.
So what are the big incentives? These can broadly be broken down into two major categories, “efficiency” and “attractiveness”. On the efficiency side, carriers are always looking to capture more wallet and speed up the rate of fixed-mobile substitution. To date, these goals are largely being achieved through pure pricing alone. Offering cheap “at home” tariffs does indeed stimulate substitution, but it has some significant downsides in terms of carrier margins. Carriers still need to accommodate the traffic on their networks, backhaul the content and actively manage more subscribers using more minutes on the same network elements.
Femtocells enable carriers to route traffic through the IP network and significantly reduce the OPEX requirements for backhaul. The IP network connection also reduces the load on the RNC or BSC, which are the most common and susceptible failure points in any carrier's network. The biggest overhead that femtocells reduce is the overhead in 3G networks associated with soft handovers. Carriers and OEMs estimate that this accounts for nearly 30% of all RNC overheads. Removing it allows for carriers to significantly enhance the ratio of Node B to RNC and reduce the CAPEX requirements that will be associated with rapid uptake of 3G data services.
From a radio planning aspect, one of the key challenges that carriers face with 3G is providing adequate in-building coverage. HSDPA in particular suffers from poor building penetration. A femtocell implementation negates this effect without the need for costly and complex network enhancements or increased power consumption caused by carriers just ratcheting up the power levels to combat dissipation.
The final efficiency is found in the devices. 3G handsets are already too expensive for most consumers to buy without subsidies, and carriers are becoming increasingly loath to subsidize handsets heavily because data revenues are insufficient to cover the cost of acquisition and the OPEX associated with carrying the subscriber. The addition of a technology such as Wi-Fi to handsets only exacerbates this.
These factors provide a definitive answer as to why carriers should look to femtocells as an alternative to Wi-Fi based FMC. There are some other factors in the “attractiveness” category that further enhance this proposition. First, femtocells allow carriers to establish behavioral patterns in subscribers' mobile data usage habits. They can price data very aggressively in the home, get subscribers “hooked” on certain applications, and then transfer the experience into the mobile environment where premium prices will be charged.
The thought of a whole family subscribing to a single carrier's service bundled together on one femtocell is very enticing. What is even more attractive is that it provides carriers with an opportunity to reduce handset subsidization through the “giveaway” of what is seen as a high value femtocell as incentive to adopt the package. More cunning still is that the “cost” of the femtocell can easily be recouped by carriers in the form of the subscription fee required to take advantage of the service.
What about the not-so-obvious benefits of femtocells? These are varied and include some compelling reasons for their adoption. First, they allow multiple lines to be added to a location without the need for costly hardwiring. Femtocells will also bring carriers revenues that are otherwise being siphoned off to fixed line competitors. Cellular carriers can begin to take a chunk of the termination fees which are almost always being gobbled up by the fixed line carriers today.
ABI Research believes that all of these are persuasive arguments for the adoption of femtocells, but the real sweet spot for them is revealed when looking at the long-term big picture. Cellular carriers have no footprint in the average household, where some kind of presence is a fundamental prerequisite for delivering triple and quadruple-play services. Femtocells will provide carriers with the most cost-effective way of getting boxes into homes, allowing them to build a very compelling converged service bundle.
We have clearly established that there is a very large pot of gold, but what about the problematic rainbow? The barriers that face the growth of the femtocell market can be grouped as technological and market issues.
The technological issues include the following:
ABI Research takes the view that in any market it is inevitably the technical problems that raise their heads first. But in general terms, where there's a will, there's a way, and these issues disappear when the financial motivation to go with a particular technology outweighs the real problems with realizing services. If it makes money, it will be done!
It is a fundamental fact that femtocells face a far more formidable barrier in the form of market issues than from a technological standpoint. The biggest of these is that OEMs and carriers have invested so much into the development of Wi-Fi based FMC services that they will be loath to demote that approach.
That is closely followed by the notion that femtocell adoption is highly dependant upon the state of individual carriers' businesses. For some that have a well developed Wi-Fi hotspot network, such as T-Mobile in the US, it makes sense to go with a Wi-Fi-based service. Some carriers just do not aspire to offer converged services, and play heavily in the delivery of prepaid services to the lower end of the subscriber base. However, there are some carriers that see value in pursuing the converged service offering and some of these will move to femtocells as the delivery method of choice. The real gating factor for high volumes of shipments will be how long it takes carriers to get to a position where they are ready to deliver fully on the converged play. For some it will be a matter of months, for others it will be years.
In summary, ABI Research believes that the potential rewards from femtocells will outweigh the barriers facing uptake and there will be a slow and steady adoption of services, the timing of which will be dictated by the readiness of carriers to address FMC. Femtocells will not displace Wi-Fi based services but will be employed alongside them. The mix of the two technologies will be dictated by individual carriers' technology choices, which will in turn be driven by the need to find the best technological approach to subscriber and business conditions.
Founded in 1990 and headquartered in New York, ABI Research maintains global operations supporting annual research programs, intelligence services and market reports in broadband and multimedia, RFID & contactless, M2M, wireless connectivity, mobile wireless, transportation and emerging technologies. For information visit www.abiresearch.com, or call +1.516.624.2500.
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