There’s a fair amount of chatter in the wireless industry about a developing technology that promises to add capacity to cellular networks wherever needed. This new technology is referred to as femtocells and one day could come to life as small base stations for residential use. In short, femtocell base stations are being designed to use a DSL or cable connection to access a cellular network. The kicker is that users won’t have to live within the coverage footprint of a cellular network to access the network, they need only have a DSL line or cable connection.
Disruptive Analysis Ltd. analyst Dean Bubley said femtocell business models are still being developed and potential markets are beginning to emerge. So far, Bubley has identified at least two market scenarios-in dense urban areas, femtocell base stations can add capacity for in-building cellular coverage, and in rural areas with poor or no cellular coverage, femtocell technology could boost or finally provide access to cellular networks.
Bubley put the technology in context, pointing out that femtocells can be thought of as the little brother or sister of picocell base stations, which are used primarily for commercial or specialized cellular networks, such as small islands, cruise ships and high-traffic areas within an existing network. Picocells support macro applications, whereas femtocells support micro.
In addition, Bubley noted that femtocells are different from distributed antenna systems, which stretch network coverage into buildings by means of the DAS. Femtocell base stations actually add capacity to cellular networks, which DAS systems don’t do.
The most logical business models are those involving wireless carriers, according to Bubley. Femtocell technology could help carriers expand coverage into rural areas without the expense of a traditional network buildout, whereas within their existing networks, they could boost in-building coverage, which could drive up average revenue per unit by enabling subscribers to use their cell phones indoors, where they are more likely to make use of multimedia services. Current Analysis’ Peter Jarich noted that carriers with cable company partners, such as Sprint Nextel Corp., seem the likeliest candidates for an early launch of femtocell base stations. For certain, femtocell technology could open the door to a whole lot of convergence.
However, several factors need to be worked out before femtocell base stations can make a big splash in the residential marketplace.
First up, carriers will have to sit down with DSL and cable providers to determine whether there will be charges assessed for using their connections to access a cellular network. After all, these connections effectively help cellular carriers offload traffic from their network, but DSL and cable providers are not likely to take the traffic for free.
Second, carriers have to figure out how to charge users for accessing their network via femtocell base stations. Customers will be billed for airtime.
Third, there will be regulatory hurdles since femtocell base stations operate in licensed spectrum. The potential for interference among femtocell base stations hasn’t been determined and likely won’t be until products come out of labs and get put to use in field trials. Once interference levels are exposed, technology developers will probably tweak the base stations to reduce interference to the lowest points possible, but regulations will probably become part of the ecosystem as carriers get closer to offering femtocell base stations. Bubley said he expects regulators to insist that interference mitigation technology be included in the base stations.
Pricing decisions
And finally, equipment vendors and carriers will need to settle on pricing issues. Bubley said femtocell base stations are likely to cost about $200 or less, though it’s still not clear whether that’s too high for the average user in the carrier’s target femtocell markets. As is the case with most cell phones sold in the United States, subscribers are used to large portions of their handset costs being subsidized by carriers in exchange for the steady business of a 2-year contract for wireless service. But the rise of residential Wi-Fi proved that consumers are willing to pay for wireless gear that they deem as convenient or useful.
That said, it’s important to understand the basic technical parameters of femtocell technology, which have been outlined by Jarich of Current Analysis. He points out that femtocells operate over licensed spectrum using standard mobile wireless air-interface and protocol technologies, such as GSM, UMTS, EV-DO and even WiMAX. Though femtocell base stations could be designed to handoff to Wi-Fi networks and vice-versa, it’s important to note that Wi-Fi access points make use of unlicensed spectrum as opposed to femtocell access points, which operate in licensed spectrum.
Regarding capacity, Jarich said in-home use is projected to be around five users per household. And power output can be kept very low, no more than what is necessary with a 2.4 GHz Wi-Fi product with a range of roughly 500 feet, the same range femtocell base stations are expected to have.
As for where the base stations will be launched, Jarich said mature markets in the United States, Canada and Asia are the first stops.
So when and to what degree will femtocell base stations hit the market? The latest research from ABI Research’s Stuart Carlaw indicates that by 2011, the worldwide market for femtocell products is expected to reach nearly 19 million units per year. Jarich said he believes carriers will trial femtocell base stations next year and they will be available sometime in 2008.
But, Jarich stressed that the key to success wherever and whenever femtocells are launched is handset diversity.
“People tend to focus too much on cost and availability of handsets,” he said. “But it’s really the diversity of handsets that’s most important. Even if the handsets are cheap, you can’t really hope to make anything a mass-market success, if you only have three or four, even five handsets. You have to have a broad spectrum of phones for all the demographics, that’s probably biggest driver of femtocell usage. Diversity is much more important than price.”
