December 1, 2008

Femtocell Forecast

The Complex Business Case

By Neeraj Sinha, Motorola

Femtocells have been one of the most talked-about communications subjects of 2008. They have their own industry forum. They have been in the media spotlight. And they are currently at play in carrier soft launches or market trials.

Indeed, 2009 could well be the year of the femtocell, with attractive consumer plans and proliferation of applications designed to enhance the consumer's connectivity experience. However, all this must be built around a solid operator business model, with technology providers and operators working together at today's price points.

Business model

A successful business model considers revenue impact, cost savings and cost-related aspects of a femtocell rollout. (See Figure 1.) In this case, we've taken a look at a deployment over a five-year operational period. During this time, the price points drop, and upgrade enticements such as handset subsidies become available to increase subscription rates and spur mass consumer adoption.

FIGURE 1: Sample femtocell business model

Because femtocells use licensed spectrum supplied and managed by operators, widespread availability is almost solely dependent on service providers and the establishment of a business case that suits their needs. This situation can be influenced by a variety of factors including:

• The operator's overall goals and strategy
• An attractive market-specific consumer proposition
• Alternative services and associated service pricing available in the same timeframe
• The ability to easily communicate the offer to everyday consumers
• The cost of the femtocell and supporting infrastructure
• The effectiveness of the solution in reducing operational and support costs

Even with all these factors, the sheer number of mobile subscribers, which is predicted to hit 4 billion by 2011 according to research by Mobile Industry Outlook, will ultimately be one of the biggest drivers of femtocell adoption. Quality and flexibility of coverage inside the home will continue to be a strong case for femtocell proliferation. But how do you initially convince consumers that they need femtocells, a new technology with high starting price points?

Enticing the consumer

Carriers today are calling out price points in the $200+ range, which would halt the idea of femtocells meeting analyst expectations. If, however, subsidies such as a 100 percent customer premises equipment (CPE) subsidy and a 50 percent handset subsidy were put in place, the prospect of mass adoption becomes more promising.

In addition, driving consumer awareness of the attractive list of benefits associated with the technology can spur demand. Some of these benefits include:

• High-quality coverage: Once consumers enter their homes, their devices will seamlessly connect to the femtocell network. This is especially convenient for consumers who suffer from poor or no service within their homes and are constantly having to battle with bad cell phone reception.

• Low-cost voice and data calls: Consumers no longer have to worry about running over their monthly allowance of minutes or switching to the fixed phone to save money.

• Plug and play: Femtocell installation is easier with self-configuration and remote device management.

• Media sharing: Femtocells give consumers the ability to transport their media all around the home among mobile, PC, TV set and other devices, creating a truly connected home environment.

Likely strategies

The business model for femtocells is different for triple- and quad-play operators and cellular-only carriers. One factor is consistent, however: At today's femtocell price points, it takes a complex business plan to translate femtocells into a profitable business in 18 months. While coverage improvement may be a primary driver, macro capacity offload, fixed mobile substitution, mobile virtual network operator (MVNO) cost reduction and value-added sales, or some combination of these may be the drivers for other operators.

Triple- and quad-play

Motorola recently conducted research into consumer attitudes toward femtocell services in Europe. In the research, more than 60 percent of consumers said they would prefer to buy a femtocell-enabled service from their broadband/fixed service provider. So operators will likely use femtocells to strengthen their position in the residential market by combining a femtocell-enabled mobile service, with fixed phone, broadband and perhaps Internet protocol TV (IPTV) in a service bundle.

Improved customer retention is a key part of the business case, with femtocells adding value through integrated services beyond just pricing. Such operators will require femtocells integrated into residential broadband gateways.

Looking forward, new femtocell-enabled applications will also strengthen the proposition. Femtocells enable the mobile handset to become part of the home network, and data can be transferred to and from the handset to devices in the home without loading the core network. Femtocells allow applications to identify when the femtocell is part of the home network and modify services; for example, a call to the fixed number could cause all the family mobiles in the home to ring.

Cellular-only

Femtocells are a different paradigm for wireless operators. Some mobile-only operators may focus on coverage and offer femtocells as part of existing mobile services for customers experiencing reception problems. While it is possible to operate a femtocell independent of the broadband services, most operators will prefer to have the assurance of end-to-end quality of service (QoS). So we will likely see mobile-only operators forming alliances with Internet service providers (ISPs) and using femtocell services to offer differentiated residential broadband services.

Since femtocells offload traffic from the macro network, operators who are experiencing a dramatic increase in data traffic from flat-rate pricing on 3G data cards can see a financial benefit in avoiding upgrades to the macro network. According to a recent Informa report, femtocells could help operators offload up to 8 percent of the total mobile traffic to the femtocell network by 2013.

As we close out 2008, the market is looking for a cost reduction curve that is unprecedented at this early stage in a technology's lifecycle, but often the game-changing technologies are the ones that deliver on the "unprecedented," the "revolutionary." Between the efforts of the industry, and the undeniable end-user benefits, femtocell technology could revolutionize the in-home wireless experience.

Neeraj Sinha is director of business development, home and networks mobility, for Motorola. Reach him at Neeraj.Sinha@motorola.com.

Sidebar: Femtocell Defined

Femtocells are small, low-cost wireless access points that connect through broadband (such as cable or DSL) to provide enhanced wireless signals within the home or small business. With femtocells, subscribers can leverage their existing home broadband connections for seamless communications using their wireless mobile devices while indoors. In addition, consumers have enhanced flexibility and convenience with reduced in-home call charges and consolidated billing for voice and data services, all using existing handsets.

Allowing subscribers at home to connect to a wireless operator's mobile network over existing broadband infrastructure enables operators to provide high-quality, mobile, wireless voice and full-rate data services in the home, while reducing operational costs by offloading call traffic from its existing cellular macro networks to a femtocell network. This also allows operators to "fill" coverage gaps, reducing the number of dropped calls when subscribers move from outdoors to indoors, without deploying expensive macrocellular equipment. Femtocells enable integrated fixed and mobile operators to add mobile services to triple/quad play home service packages to create long-term bonds with subscribers that minimize churn and provide new revenue opportunities.