The emerging market for small in-house cellular radios, also known as home base stations or "femto cells," got a boost yesterday as Japanese carrier SoftBank Mobile Corp. unveiled a deal with Alcatel-Lucent (NYSE: ALU) to upgrade its mobile network to improve indoor coverage and allow users to get better multimedia services such as video conferencing, mobile TV, and high-speed mobile Internet access over 3G UMTS networks.

Although initially likely to focus on pico cell installations in office buildings, residential services are also part of the deployment and could extend to using 3G femto cells. (See Alcatel-Lucent Wins 3G Deal.)

Softbank is known to be one of the carriers most enthusiastic about the potential of IP-based femto cell technology. Up until now carriers have been trialing or testing these devices without actually planning serious deployments. The deal comes on the heels of a new report from Unstrung Insider released this week that examines the development of the home base-station sector. The 22-page report -- "3G Home Base Stations: Femto Cells & FMC for the Masses" -- surveys the major vendors and startups involved in this market; analyzes the technologies involved; and looks at the pricing challenges ahead.

"There are multiple business drivers propelling interest in the femto cell concept," writes the report's author, Unstrung Insider chief analyst Gabriel Brown. "Most obviously, by deploying capacity indoors, where it is most needed, cellular operators gain greater flexibility to introduce disruptive pricing strategies, allowing them to accelerate the capture of wireline voice minutes and grow revenues."

Such devices also provide the opportunity to develop "services that take advantage of low-cost, high-speed Internet access to mobile devices, which could include free video calling or mobile TV from home," Brown adds. "Service innovation could potentially also extend to applications that use handsets to access and control multimedia home networks."

In case you're wondering what exactly a "femto cell" is in the first place, it's essentially a small 3G radio hub intended to provide better cellular coverage and bandwidth indoors. Brown has this to say on the technical details:

"A 3G femto cell is essentially the cellular equivalent of a WLAN access point, except that it uses a radio interface that is purpose-built for mobile handsets and will be more expensive, at least initially. Like a WLAN access point, the femto cell would connect via Ethernet to a home router/modem or corporate network, and traffic would be backhauled over IP to the mobile operator's core network."

These appliances could prove to be a rival to dualmode and WiFi VOIP services in homes and small offices. Some vendors, notably Qualcomm Inc. (Nasdaq: QCOM), however, are already pitching WiFi and femto cell as potentially complementary technologies and talking about combining them both in one box. (See Qualcomm's Home Invasion).

Brown believes that Alcatel-Lucent may have won the Softbank deal in part based on its vision for flat all-IP mobile networks exemplified by the Base Station Router products developed by the ex-Lucent group. "This is probably the most field-ready, IP-based architecture on the market today, and it is well aligned with the desired target architecture of many carriers for femto cell deployments in the longer term," notes the analyst. (See Lucent Unveils Mini 3G Router.)

Among the other established players working in the market are Ericsson AB (Nasdaq: ERIC), NEC Electronics Corp. , and Samsung Corp. . But so far, startups have been the driving force behind femto cells, according to Brown, with companies such as 3Way Networks , AirWalk Communications Inc. , Airvana Inc. , ip.access Ltd. , Picochip , RadioFrame Networks Inc. , and Ubiquisys Ltd. all in the mix.

Startups may not have it all their own way for much longer, however. Brown predicts that a number of other established companies will either develop their own mini-base station programs or partner to enter the market. Unstrung has already heard rumblings that Cisco Systems Inc. (Nasdaq: CSCO) and others are taking an interest in this space. (See Cisco Eyes Home Base.)— Dan Jones, Site Editor, Unstrung

The report, 3G Home Base Stations: Femto Cells & FMC for the Masses, is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.