Femtocells Set for Major 3G, 4G Breakthrough

By Tara Seals

Femtocells, those mini-base stations that plug into a broadband router or a carriers metro Ethernet feed in order to bolster wireless capacity, are on the brink of getting large. In fact, 2010 could be the year that the term cell-splitting becomes household lingo, translating into unique opportunities for channel partners.

There are currently 16 service commitments for femtos in place around the world, including 13 confirmed commercial launches and several ongoing trials, while completed trials are now progressing into deployment plans for several mobile operators, many of them Tier 1s, says research firm Informa Telecoms & Media. The numbers point to a snowball effect: there were just eight femtocell service commitments and six commercial launches as of November 2009.

And no wonder: The mobile broadband spike being driven by smartphones and 3G-embedded netbooks have operators in a mad scramble to improve coverage and capacity to avoid congestion of the type that AT&T Inc. famously experiences due to the iPhone.

The problem is that upgrades take money, and unfortunately data revenues have not matched the data traffic increases. That means service providers are looking for cheaper alternatives to big network build-outs, and femtocells fit the bill. Cisco Systems Inc. estimates mobile data to be growing at an annual rate of 108 percent; Informa estimates that 81 percent of this data originates from homes and offices where it could easily be offloaded on to local broadband connections. The small home-router-sized femtos do just that, plugging into a users home broadband network, and offer users a home zone calling area with various service bundles as well as extra throughput over 3G, taking it to Wi-Fi speeds in some cases. Femtocells thus can significantly improve subscriber satisfaction and lead many households to consolidate home and mobile broadband with a single operator.

Channel partners take note: When it comes to the domestic market, it turns out that consumers are ready and willing to sign on for a femtocell and its benefits. Parks Associates in a survey found that more than half of U.S. broadband households with mobile phones are interested in femtos, a device that a dealer or channel partner can sell for upfront revenue just as she would a handset.

Education is still a hurdle: fewer than 10 percent of consumers surveyed were familiar with femtocells. Butand its a big but upon exposure to a description of the femtocell and its benefits, 56 percent of respondents found femtocells appealing. Thats important because a full 72 percent of those were very interested in at least one advanced femtocell service. Examples of such services include virtual home number, which rings every cell phone in the home, or family alerts, which warn when a subscriber has left or returned home. Furthermore, half of these respondents indicated a willingness to pay $4.99 per month for their single favorite service or $9.99 per month for a bundle of their favorite three services, illustrating a new revenue opportunity for dealers and other channel partners looking to pump up ARPU and improve stickiness.

“The clear message from this research is that femtocells have widespread appeal and consumers are willing to pay for them, said Harry Wang, director of mobile product research, Parks Associates. There is a major opportunity for operators to gain new subscribers by taking over the contracts of whole families, and by better retaining their existing subscribers. However, operators need to build their business models on market share gains and new service revenues rather than on upfront device purchase revenues alone.”

Channel partners should have growing opportunities to get a piece of the pie. Informa expects the femtocell market to experience significant growth over the next few years, reaching just under 49 million femtocell access points (FAP) in the market by 2014 and 114 million mobile users accessing mobile networks through femtocells during that year. Healthy growth is anticipated throughout the forecast period with femtocell unit sales reaching 25 million in 2014 alone.

Earlier this year, AT&T became the first U.S. operator to announce a nationwide 3G femtocell rollout, but the momentum is global and demonstrates a number of models. Softbank in Japan has become the first operator to offer both free femtocells and free DSL backhaul. Vodafone Spain and KDDI also have commercially launched femtocell services; Vodafones decision to rollout femtocells in a second European market illustrates the success of their UK Sure Signal service, which has been heavily promoted.

Ignore the trend at ones peril: the thirst for femtos is likely to only increase as 4G networks roll out. The femtocell market is experiencing maturity with many of the largest operators in Asia, North America and Europe now offering services, said Dimitris Mavrakis, senior analyst at Informa. Global operator demand for femtocells is undeniable, and recent femtocell standards milestones can only enhance this situation further. As mobile data traffic continues to rocket, femtocells look set to become a vital component of next-generation mobile broadband deployments and this is reflected in the increasing interest in enterprise, metropolitan and LTE models.