Analyst Angle: Femtocells: Business model issues will continue to be major constraint to deployments

What is it with carriers? Every time there is a ‘new’ infrastructure technology, it takes years for the actual deployment to take place. My rule of thumb is now a decade or longer between when a vendor starts promoting a totally new concept to when it gets wide-scale deployment by carriers globally.
Take femtocells as an example. As far as I know, the concept of a self-optimising home-based cell site was first announced in 1999 by Alcatel. Alcatel wanted to bring a GSM base station which would be compatible with existing standard GSM phones to the home and planned to launch their product in 2000. They also forecasted capturing 50% of the market, which they estimated would be 120 million units the following year!
Of course, the technology was not ready yet. While the demonstration units worked on a standard POTS phone line, equipment costs were high and other alternatives existed, such as the UMA standard which used Wi-Fi. At the same time, pesky business model issues such as customer take-up of data-intensive mobile applications, rapidly declining broadband pricing by fixed operators, pricing of the home base station, and a sound value proposition to carriers got in the way of femtocell take-up at the carrier level.
Have things changed since 2005, when the term ‘femtocell’ was first adopted? Sure they have. According to the Femto Forum, as of January 2010, there are currently nine commercial deployments by major carriers worldwide. These include AT&T, China Unicom, NTT DoCoMo, SFR, Softbank Mobile, Sprint-Nextel, StarHub, Verizon Wireless, and Vodafone with many advanced trials expected to lead to further deployments later this year.
At the same time, many of the business model issues that have affected femtocell take-up by carriers remain the same.
Better coverage and lower churn. But at what price?
Clearly, all of the deployments mentioned above are focusing more on boosting coverage rather than increasing network capacity. These coverage improvements are especially relevant in North America where poor network density leads to poor indoor coverage of voice and data. But the key questions remain: how can carriers expect a customer to pay for “better coverage” when a carrier should be providing said coverage in the first place? What about the presence of alternative indoor access technologies such as Wi-Fi to short-circuit the coverage issue?
I think it is the issue of pricing “better coverage” that is tripping most operators. A case in point is Vodafone. In January 2010, Vodafone, the first carrier in Europe to commercially launch a femtocell product, announced that it was rebranding its femtocell offering and drastically reducing its price points. Launched in the UK in July 2009 with a fixed price tag of