Vodafone Eyes Femto Service This Year

Vodafone Group plc (NYSE: VOD) confirmed its enthusiasm for home base station technology today by saying it could launch a commercial femtocell service by the end of this year.

Vodafone, which held its Technology Update conference in London today, is aggressively pushing femtocell development because it sees the potential to cut costs in its 3G macro network deployments.

The operator's femtocell RFP, which was completed at the end of last year, was considered to be the most significant in the industry. And last summer, CEO Arun Sarin called on the industry to drive down the price of femtocells below $100. (See Vodafone RFP Fuels Femtocells, Vodafone CEO Seeks Cheap Femtos, and Vodafone Picks Femto Vendors.) Vodafone is testing 3G home base stations from Alcatel-Lucent (NYSE: ALU) and Huawei Technologies Co. Ltd. in Spain. If all goes well with the trials, the operator could start commercial services by the end of the year, said Andy MacLeod, Vodafone's director of group networks, during today's Webcast event. (See Vodafone, O2 Test Femtocells.)

"We expect commercial services to be deployed using this technology within the next nine months," stated MacLeod.

That timescale certainly puts Vodafone among the femtocell frontrunners: It is generally understood that commercial services using the tiny home base stations won't hit the mass market until some time in 2009. (See Femtocells Go Big Time in Barcelona.)

Vodafone's motivation for pursuing femtocells lies purely in the potential for cost savings.

"We intend to use the technology to reduce macro capex spend by up to 20 percent in some areas," said MacLeod.

By having small 3G base stations in customers' homes, a lot of data traffic would be offloaded from the wide area network to the femtocells. That means an operator would, in theory, require comparatively fewer 3G macro base station sites to accommodate increasing data usage.

In addition, 3G traffic sent to an operator's mobile core network from a femtocell runs across the customer's own broadband IP connection, so minimizing the mobile operator's backhaul costs.

Vodafone estimates that of its total network capex spend for full-year 2007/2008, radio access will account for 48 percent, while backhaul will account for 32 percent. Being able to put a dent in those capex costs could be significant for Vodafone.

Vodafone CTO Steve Pusey, speaking at the Technology Update, also stressed the cost saving opportunity that femtocells present, while tempering the outlook for their commercial success.

"We're still studying it," said Pusey. "We've approached [femtocells] from cost savings. It gives us the potential to improve coverage and reduce backhaul costs. It may or may not have commercial opportunities beyond that."

— Michelle Donegan, European Editor, Unstrung

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