Femtocells Brace for Big 2008

This year will be critical for femtocells. Field trials are well underway and commercial soft launches are expected by the end of the year, but operators still have many unanswered questions about the business case for deploying the home base stations. (See 2007 Top Ten: Technologies to Watch.)

Of all the operators trialing 3G femtocells -- including Vodafone Group plc (NYSE: VOD), Orange France , and Telefónica SA (NYSE: TEF) -- Japan's SoftBank Corp. has set the most aggressive timeline for deployment and aims for a commercial launch of a 3G femtocell in the fourth quarter this year. (See Softbank Trials Femtocell, Ukrainians Fancy Femtocells, Orange Builds on FMC Base, Vodafone Picks Femto Vendors, IP.access, Orascom Team, Vodafone CEO Seeks Cheap Femtos, Is AT&T Putting Out Femto Feelers?, Vodafone RFP Fuels Femtocells, FT Preps Femtocell RFP, and BT Eyes Femtocells.) Sprint Nextel was the first out of the blocks with a 2G femtocell when it launched the Samsung Corp. Airave CDMA device in September last year. Unstrung has learned that Verizon Wireless may follow Sprint's lead and deploy the same 2G femto as well. (See Sprint Goes Femto and Verizon Goes Femto?)

Sprint may have been first to market with a femtocell, but one analyst is not convinced that Sprint has the right femto strategy with the Airave product. "I think they got that wrong," says Stuart Carlaw, wireless research director at ABI Research . He thinks the box is overpriced and the main selling point is simply better indoor coverage.

Sprint's 2G femtocell is heavily subsidized. The home base station retails for $50, which leaves Sprint with about a subsidization cost of $250 per device, according to Carlaw.

One European operator, which did not want to be named and is about to launch a femto field trial, tells Unstrung that this year is key for working out the business case for the home base stations and it's looking beyond simply providing better indoor coverage. But the operator is uncertain about how easy femtocells will be for consumers to install and use, which could greatly affect the cost of deploying the service. (See Femtocells & Me and 3G & WiMax Femtocells: The Operator View.)

Operators are wary of launching home devices that could jack up costs from too many customers phoning their call centers because they can't hook up the equipment.

The operator also finds that a business case based on cost savings alone will not succeed. By deploying femtocells, operators can expand 3G network coverage without deploying expensive macro network base stations. But these cost savings alone are not enough to make the case for femtocells, and operators are on the lookout for the new applications and services that will make home base stations compelling for consumers.

Getting the business case right is especially important because operators won't make any money on the new service for at least three years, according to ABI. The research firm estimates that an operator that began a trial at the end of 2007 will not get a return on its investment until 2011.

"The real money earner will come from how you can change usage patterns, behavior patterns, and use of the product," says Carlaw. "There is an endless number of possibilities... [like] bundled packages that integrate interesting home network [services]. Google is working hard on this." (See UbiquiSys Gets Google Boost and Femtocell Startup Pockets $25M.)

Content sharing between home devices and mobile phones is just one example of a home networking application that femtocells can facilitate.

That's why we can expect to see a lot of femtocells live and working at the Mobile World Congress show (which most of us are still calling 3GSM) in Barcelona next month. Ubiquisys Ltd. , ip.access Ltd. , and NEC Corp. (Tokyo: 6701), just to name a few, will all demo their femtos at the show.

Vendors will be showing not just that the femtos work, but what operators can do with them, and how they can fit into a home networking environment. Ubiquisys, for example, will have a mock front room on their stand. Hopefully, we'll also see some early results from the tie-ups between femtocell vendors and home gateway providers. (See Femto Players Gun for Gateways, CES: Cisco's 'Human Network' Has Bones, Netgear, Ubiquisys Team, Thomson, NSN Team, and NEC Teams With Tatara.)

And while mobile operators sort out their business plans for femtocells this year, the home base stations may capture the imagination of some cable operators as well.

Cable operators are looking at femtocells in Europe and in the U.S., according to Carlaw. "Expect something to happen in 2008," he says, which could be a tie-up between a femto vendor and a cable modem supplier, or confirmed activity from a cable operator.

— Michelle Donegan, European Editor, Unstrung

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