Cell phone traffic may soon be riding on the consumer’s own broadband line, thanks to the advent of the femtocell. This fast-rising technology could revolutionize cellular service, even as it lowers network costs for carriers while delivering flawless service within the four walls of the indoor environment.
The 3C’s–coverage, churn and capacity–are stifling 3G adoption. Third-generation cellular technology suffers from inadequate indoor-signal penetration, leading to poor coverage in the environment where consumers spend two-thirds of their time. Poor coverage diminishes the quality of voice and video applications, and slows down high-speed data services. Dropped calls and time-consuming downloads lead to customer churn as consumers pick up their land line phones or switch to another mobile carrier in hope of an improvement.
Double-edged sword
Churn is a double-edged sword. It costs carriers in both lost revenue from high-paying 3G customers–about $100/month average revenue per user (ARPU)–and in expenditures on new-customer acquisition, about $400 per customer.
To keep customers satisfied, 3G carriers have increased capacity by building additional macrocell sites. This strategy is becoming much less attractive. Site acquisition costs are exorbitant and continue to mount as space on viable towers and buildings fills up, landlords exact high rents and regulators impose onerous permit requirements. Public opposition to the building of large-scale basestations is increasingly common.
Acquiring a site is only half the battle: Sophisticated basestation equipment must then be purchased, installed, insured, operated and maintained. The net present value of a cell site in the U.K. is estimated to be $500,000. Carriers thus face a serious dilemma: improve coverage and avoid top-line revenue hits from churn by adding new cell sites, but then risk bottom-line misses caused by higher capital expenditures and operating expenses.
Because of these challenges, 3G femtocell solutions are finding new spots for the wireless basestation in the consumer’s own home or office. A femtocell is a small box that plugs into the user’s existing broadband Internet connection and works with existing mobile handsets. Femtocells are low-power devices combining Node B and RNC functionality, and are self-configuring to minimize interference. Operating as an extension of the carrier’s existing network, femtocells enable more-comprehensive coverage inside buildings and also at the far edge of the network.
By raising the bar in indoor environments and in far-flung locations, such as the suburbs, femtocell technology enables carriers to enjoy some immediate benefits. One is fixed-mobile substitution, in which consumers stop picking up their land line phones and use more mobile minutes, thereby driving incremental ARPU. Second, satisfied customers tend to stay with their existing provider and are more likely to sign up for new services, which accelerates 3G adoption and high-speed packet access (HSPA) subscription, leading to additional ARPU.
Finally, femtocells create pull for new-customer acquisitions, as carriers will offer bundled “family-based” tariff plans in which all members of the family enjoy unlimited mobile minutes at home for a fixed monthly fee.
“Femtocells allow carriers to price cellular data services in the home aggressively, with the ultimate goal of shaping consumer behavior,” said Stuart Carlaw, principal analyst with ABI Research.
Femtocells produce cost savings for the carriers as well. In essence, the consumer’s home becomes a cell site, eliminating any site acquisition costs. The customers pay for the backhaul by using their existing broadband line. They also pay the electricity bills, a large operating-expenditure item for a cell site.
Femtocells allow the carrier to offload its existing macrocell networks. Macrocellular network resources that otherwise are tied to handling users’ mobile calls, SMS and so on are now freed up, as that traffic is taken over by the femtocell. These distinct advantages on both sides of the ledger make femtocell a compelling technology choice.
Key pieces
Elements supporting the widespread adoption of femtocell tech- nology are falling into place. The femtocell is not new; the concept has been around since the early days of wireless networks. However, what was missing before is now a reality: voice-over-Internet Protocol, which enables the transfer of voice calls over the IP network.
Another separate but equally important factor supporting large-scale femtocell deployment is broadband proliferation. Some 53 percent of U.S households have a broadband connection, and the percentage is higher in other countries; in South Korea, for example, 89 percent of homes are served. Existing broadband connections form the backhaul to carry the mobile traffic efficiently from consumers’ homes to the wireless core network.
Thanks to Moore’s Law, custom integrated silicon for femtocells is now readily available in the market. These parts provide compute, DSP, encryption and other key functions required by a wireless basestation. Use of a single part drives down the bill-of-materials cost for building an economically viable wireless home basestation.
Driving down femtocell costs
Land line connections are on the decline and provide opportunity for fixed-mobile substitution. There are more than 2.5 billion wireless users worldwide; the economy of scale needed to drive down the cost for femtocell is in place. And peeking into the future, 3G LTE network rollouts might start with femtocells first, followed by a macrocellular network buildout.
Femtocells have certain advantages over unlicensed mobile access (UMA) and other dual-mode fixed-mobile convergence solutions. All the necessary components for femtocell deployment are present in many homes and offices today: a standard 3G mobile phone and an IP broadband connection to backhaul traffic to the operator’s network. Unlike with Wi-Fi, the consumer need not upgrade to an expensive, power-hungry, dual-mode handset. With femtocell, any existing 3G handset will work seamlessly.
UMA uses unlicensed spectrum, which makes it prone to interference and can degrade the quality of voice. Femtocells, on the other hand, use licensed spectrum and provide a standard UMTS or cdma2000 interface; they leverage the robust channel structures and deliver good-quality voice with improved coverage. Seamless handoff from the macrocellular network to femtocell and vice versa is already in place as the existing mobile core network is leveraged to deliver this function.
Market trends
The wireless market is growing rapidly. According to the Cellular Telecommunications and Internet Association, there are 243 million mobile users in the United States, representing 81 percent of the population. In the first half of 2007, users logged 1.1 trillion mobile minutes. Revenue from data service topped $10.5 billion and now represents more than 15 percent of all wireless revenue, with a 63 percent year-over-year growth rate.
AT&T has 7 million 3G users, up from 5 million in the second quarter of 2007 and 2.5 million in the first. Conversely, land line is on the decline. Only 50 percent of consumers who move receive land line service in their new residence. Social-networking Web sites and video are further driving demand for mobile broadband. Femtocell provides a cost-effective way to deliver HSPA data rates to consumers and augment the network capacity to meet this rising demand.
The femtocell market opportunity is potentially enormous. One source believes the market could be as high as $8 billion worldwide by 2012, assuming that volume shipments start in 2008 and 3G penetration rises to 65 percent in developed markets. ABI analyst Carlaw believes 102 million femtocell-enabled units will be deployed into networks by 2011.
According to ABI estimates, by 2012 there could be 70 million femtocells installed in homes around the world, serving more than 150 million users.
The industry focus is now turning to femtocell, as illustrated by recent proof-of-concept demonstrations and requests for proposals (RFPs). In June 2007, the Softbank Group acquired a license for an experimental femtocell-based communication system. In collaboration with several big-name telecommunications companies, Softbank aims to verify the stability of the broadband line used as backhaul, assess methods of connection to the mobile-phone core network and examine the radio propagation characteristics of femtocell. Participating companies include Alcatel-Lucent, Motorola Japan, NEC, Nippon Ericsson KK and Samsung.
Vodafone recently issued a femtocell RFP, stating that it was assessing the strategic benefits of femtocells at a group level. “Femtocells could … allow us to develop new propositions for customers which could help to stimulate 3G usage still further,” the company said in a statement.
Operators seeking to solidify their customer base against competitive offerings are driving demand for femtocell solutions. Last September, Sprint launched the first commercial femtocell service under the name “Sprint Airave by Samsung” in select areas of Denver and Indianapolis. Sprint Airave works with any Sprint phone to provide enhanced in-home wireless coverage plus unlimited calling. Currently, the service is priced at $15 per month for individuals and $30/month for families, in addition to the customer’s regular wireless voice plan. The service can support up to three calls simultaneously, and customers can allow other Sprint users to access the femtocell. The Airave unit is available for purchase from area Sprint stores for $50, no doubt a heavily subsidized price.
Elsewhere, Netgear is teaming with Ubiquisys and Thompson is working with Nokia Siemens to deliver femtocells to the home. More than 40 companies have joined the recently created Femto Forum, an independent organization committed to supporting and promoting femtocell technology.
For femtocell, the future is now. The race against competing dual-mode Wi-Fi phone technology is on. Getting to market quickly is more important than ever, and first-mover advantage will be key.
