2009 - the year of the femtocell?

WirelessWeek

March 1, 2009

by Andrew Berg

A mass deployment of femtocells has been lingering just on the horizon for a while now. Analysts and carriers have trumpeted the possibilities of these handy devices while simultaneously decrying a host of issues preventing a mass implementation. The obstacles between femtocells and the market have been many.

Nevertheless, Verizon Wireless and Sprint Nextel recently made their first, exceptionally quiet moves in what will undoubtedly be a tenuous game of femtocell chess. A recent report by Signals Research Group (SRG) on the state of the femtocell market notes that there may be a reason for the lack of fanfare. "An operator may never go out and actively promote femtocells since unless it is done correctly, it would do nothing more than become an admission that they have poor network coverage," stated the report.

The reality, however, is all operators have customers living and working in dead zones or impenetrable buildings, and femtocells are proving an efficient way to fill in those coverage gaps. As customers cut landlines and fall back on their mobiles for their primary phones, providing wider in-home coverage is becoming a priority for wireless carriers.

CUSTOMERS FOOT THE BILL
Since it first appeared on the industry's radar, the femtocell has been plagued by arguments about who is going to pay for the technology. However unpopular, it looks like the consumer will be footing the bill for now. "It's a tough sell," says Allen Nogee, principal analyst at In-Stat. He adds that beyond the femtocell's basic purpose, which is essentially to boost indoor signals, there's currently very little about the femtocell that consumers are going to find truly inspirational, price tag included.

That's one of the reasons the femtocell conversation inevitably turns to carrier subsidies. Once proven cost-effective, femtocells will be subsidized by carriers, the majority of analysts say. But for that to happen standards have to be in place and prices have to come down. Standardization would allow carriers to deal with multiple manufacturers that produce the same product, thus creating price competition among manufacturers. In a fragmented market, that just wouldn't be the case.

For now, carriers are proceeding cautiously, rolling out small consumer trials. Sprint currently offers the Samsung AIRAVE for $99 per unit with a monthly "AIRAVE Enhanced Coverage Charge" of $4.99, and an additional $10 per month for a single user or $20 per month for multiple users. Customers can purchase a femtocell from Verizon for a one-time purchase price of $250.

DRIVING COMPETITION
Paul Callahan, vice president of corporate development for Airvana, was dismissive of the more traditional reasons for slow acceptance of femtocells. He believes it's all about generating an environment of competition like he's seeing in Asia. "[My customers in Asia] don't give a hoot about standards. It's all about operator head-to-head competition. They watch each other very, very closely," Callahan says. He expects the same to happen in the United States and notes that the big carriers are paying attention to one another's trials with the utmost scrutiny.

But as the economy wanes, carriers demand a certain amount of confidence in the profitability of any given technology. The findings of an SRG study commissioned by the Femtocell Forum may offer that piece of mind. In one representative example from the study - a European household with two subscribers and moderate voice and data usage - the projected lifetime value of a household with a femtocell increased by 56 percent, from €1,600 to €2,500 based on operational savings alone.

The SRG study marks the first relevant tool for developing a solid femtocell business model. Citing a need for "reality checks" in the market, Simon Saunders, chairman of the Femotcell Forum, says the study was needed in order to accurately reflect a carrier's true working environment. "We know that femtocell technology works; now these results show that femtocells can have a very positive impact on an operator's balance sheet," Saunders says.

The study also found that "a European operator wanting to provide a reliable 2.5 Mbps in-building service…could do it for €320 per household if it used a highly subsidized femtocell strategy, whereas providing similar in-home service with the means of a macro cellular network would cost €900."

The study concluded that femtocells should be targeted to specific market segments. "That's what is unique about femtocell technology, you don't have to provide one to all of your customers. You just have to target those that would benefit the most," says SRG CEO Michael Thelander.

INTEGRATION
There's speculation that eventually femtocells will integrate with consumer technologies like set-top boxes or PlayStations. But manufacturing costs would have to come down considerably for the idea to really take hold. Thelander reiterates that right now it's really a matter of targeting the correct markets, with the femtocell acting more as a patch than a mass-marketed tool like Wi-Fi or Bluetooth. "Again, the problem with integrating it is that you assume everyone wants one or needs one," he says. And probably everyone won't want one, especially if they're already getting satisfactory coverage from their provider and are being asked to absorb the extra cost on their PlayStation or set-top box.

Developers hope femtocells eventually will offer a range of capabilities. A host of possible applications may open the market and pave the way to broader appeal. Although some of the more advanced femtocell capabilities may be a few years off, they're definitely in the works.

"If, for example, you have teenage kids, one of the things you want to know is when they get home," Callahan says, adding that a femtocell is up to that task. By picking up a child's phone as he or she walks through the door, a femtocell can send a text to a parent at work or post a notification on a network, he says.

There's also talk that the devices will be able to automatically grab pictures and content off a customer's phone and send them directly to a cloud or display them on a digital picture frame or TV. Perhaps massaging the consumer's imagination, Motorola offered up a femtocell as an integrated digital picture frame at this year's CES.

More advanced features may one day include streaming video, HDTV on the phone, or even monitoring of medical patients, Nogee says. But for now, the drive to expand on femtocell functionality takes a back seat to limited implementation as a patch for those who can't place a cell phone call from inside their home.

THE REALITY TODAY
To be sure, the future of femtocells is anything but certain. A recent study published by Disruptive Analysis forecasts doom and gloom for femtocells unless handset manufacturers start development of femto-aware phones now. "It takes often 2-3 years for changes in handset architecture to reach commercially-sold handsets, and another 2-3 years to reach a broad range of devices and reasonable penetration within the user base," the report states. The inference is handset manufacturers need to start now to be sure their devices can handle a femtocell-dependent network.

But regardless of all the hypothetical scenarios, carriers and customers will have to settle for the relatively pricey, stand-alone signal-boosting femtocell of the present. The improved off-network in-home coverage should be enough to make both carriers and customers smile.