With more and more people using mobiles for their primary phone services, and with the emergence of 3G wireless data, the requirement for fast, reliable indoor cellular coverage is greater than ever.

On the voice side, Orange France, for example, says 57 percent of all its calls have an indoor component, while 3 Italy puts the figure at 60 percent. On the 3G data side, indoor users "suck" capacity from the expensive, outdoor, macro network and reduce its efficiency. No wonder customers demand ubiquitous access and operators want cost-effective indoor coverage systems.

Given these dynamics, the market for in-building cellular infrastructure is set for solid growth in the coming years, finds the latest Unstrung Insider report "In-building Cellular: Selling the Great Indoors."

One big challenge from the operator perspective is the requirement to simultaneously confront and embrace the threat of 802.11 wireless LAN, which has a clear first-mover advantage indoors, but has yet to conquer issues of power consumption, security, mobility, quality of service, or handset availability.

The expectation is that, ultimately, 2G and 3G cellular will exist alongside wireless LAN in a hybrid in-building wireless environment. This means in-building cellular systems must stack-up economically and performance-wise against low-cost unlicensed networks. Here’s how dedicated in-building cellular coverage systems are evolving to meet these market requirements:

Distributed Antenna Systems: Passive, single-carrier DAS systems based on coaxial cable are on the wane, as carrier consolidation, the requirement for dual 2G/3G support, and (gasp!) the carrier’s greater willingness to share in-building infrastructure drive demand for active, multi-carrier systems based on hybrid fiber and coax/CAT5 cable.

Vendors here include ADC (Nasdaq: ADCT), Andrew , EMS Wireless , LGC Wireless , MobileAccess Networks , Powerwave Technologies Inc. (Nasdaq: PWAV), NEC Corp. (Tokyo: 6701), and even startups such as Zinwave Ltd.

RF Repeaters: The never-fashionable repeater segment is also showing signs of life and innovation. Vendors such as Spotwave Wireless Inc. are producing devices designed for self-installation, providing dual-band support, and using adaptive software technologies to adapt signal gain according to changes in demand for capacity while reducing interference with the macro network.

IP-based Pico Cells: After years of being dogged by the high cost of T1/E1 backhaul – and, yes, inferior economics to wireless LAN – 2G and 3G pico cells backhauled over enterprise Ethernet or residential cable/DSL connections are hot again.

In the GSM/EDGE segment, for example, ip.access Ltd. is building momentum and looks set for a further uplift if international regulators follow the recent U.K. example and license GSM guard-band frequencies for low-power networks. Startup RadioFrame Networks Inc. straddles the 2G and 3G markets and recently revealed an OEM relationship with Nokia Corp. (NYSE: NOK), further underlining market requirements.

In the pure 3G segment, vendors such as Andrew Corp. are providing unbranded products for the major mobile infrastructure providers, while newcomers such as Ubiquisys Ltd. are pushing low-cost residential devices. Off-the-shelf reference designs from providers such as Picochip are also set to force the pace of innovation and competition in the pico base station segment. Other new products such as Lucent Technologies Inc. (NYSE: LU)'s Base Station Router design (applicable to pico and micro base stations) and Motorola Inc. (NYSE: MOT)’s enterprise-focused AXPT access point, are pushing a "flatter" 3G network architecture by integrating multiple network nodes into a single unit.

For all that, the business case for in-building systems must make sense. Vendors battling for business realize the services component is vital. Alcatel (NYSE: ALA; Paris: CGEP:PA), for example, has a strategy to integrate PBX and other communications applications with its soup-to-nuts in-building infrastructure offer.

Interviewed for the report, Denis Stelatos, Senior Real Estate Manager at Telus Corp. (NYSE: TU; Toronto: T) in Canada said of the carrier’s installation in the 72-floor multi-tenant First Canadian Office Building in Toronto that: "We got some traction from improved cell coverage, but that is still not enough to justify a DAS." Key to the success of the project, he said, is to use the in-building system as "a building block for delivery of telco services" on which to generate an uplift in sales.

— Gabriel Brown, Chief Analyst, Unstrung Insider

The report, In-Building Cellular: Selling the Great Indoors, is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,350. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.