Femtocells Reality Check: Business Models, Strategies and Market Trends

ARCchart, January 2009, Pages: 95

Understanding the factors which have led to continual femtocell deployment delays, and analysing femtocell growth to eventual mass market

Although still in its infancy, the market for femtocells has evolved rapidly over the last two years, moving from a compelling concept but one without clear commercial viability to a reality which could fundamentally alter the mobile telecoms landscape. However, despite its prospects, the industry has been slow to embrace and deploy femtocells, and although Sprint in the US and Starhub in Singapore have dipped a toe in the water, most femtocell deployments are still at trial stage.

Nonetheless, the author anticipates the first large-scale femtocell deployments will arrive in Q2 2009, with the market ramping in 2010. With increasing user demand for mobile broadband data, operators will look to femtocells to improve indoor coverage whilst easing capacity requirements and backhaul costs in their marco-network.

Topics of coverage include:

- Understanding the femtocell business case
- How a femtocell works
- The femtocell vendor investment landscape
- Mobile operator strategies
- Femtocell deployments in the enterprise
- Barriers and driver to femtocell adoption
- Technology overview and trends
- Profiles of femtocell equipment vendors
- Interpretability and standardisation
- Femtocell market forecasts

Answers and opinions are provided with respect to the following essential questions:

- Why has the take-up of femtocells been so slow?
- How big will be the femtocell market opportunity?
- How is the femtocell unit price expected to drop over the coming years?
- Who are the femtocell vendors leading the cause?
- What are the likely femtocell deployment strategies to be adopted by fixed and mobile operators?
- How are femtocell expected to be rolled-out across operators and across regions?
- What threat do competing technologies like UMA and VCC pose to the femtocell business case?
- What if ISPs decide to block femtocell traffic?
- How can femtocells help reduce operator churn?
- How will the arrival of WiMAX influence the femtocell market?

A. FEMTOCELLS MARKET OVERVIEW
A.1Drivers for in-building transmitters
Surge in mobile data traffic
Infrastructure cost saving
Defence against disruptive technologies
Increased ARPU through new revenue channels
A.2Negative perceptions and market challenges
A.3How a femtocell works
Communication with the core network
Standardisation efforts
3G indoor performance
A.4Femtocell investment landscape
RadioFrame
Percello
Kineto Wireless
ip.access and Airvana
Investment summary
A.5Fixed Mobile Substitution (FMS)
A.6Fixed Mobile Convergence (FMC)
Fixed-line carriers versus mobile operators
Integrated operators
The benefits femtocells bring to FMC
The rise of mobile broadband
WCDMA and HSPA
HSPA or WiMAX?
WiMAX
LTE
CDMA UMB
A.7Mobile operator strategies
LTE Deployment
LTE femtocells
PC and Laptop based connectivity
Growth of the data card market
Sizing the data card market
A.8Mobile broadband reality check
Embedded Wireless
Qualcomm’s Gobi
Intel’s Echo-Peak
The challenges of embedding
Barriers affecting rollout of embedded products
WiMAX
Intel’s Atom platform
A.9Femtocell deployments in the enterprise
Challenges to enterprise deployments
Handover
Connecting to the core
Signal leakage
Distributed Antenna System (DAS) Deployment

B. BARRIERS & DRIVERS FOR FEMTOCELL ADOPTION
B.1Barriers to femtocell adoption
Handset Customisation
Health fears
Standards issues
Cost of deployment
Lowering costs through semiconductor innovations
DesignArt
picoChip
Cost outlook
Competing technologies
UMA
UMA service models
UMA outlook
VCC
VCC Outlook
Blocking femtocell traffic by DSL providers
Inter-cell interference and frequency planning
picoChip
Improved macro-cellular coverage and capacity
Inappropriate business models
B.2Drivers to femtocell deployment
Adoption of LTE
Increased use of mobile broadband data cards
Poor in-building coverage
Billing consolidation
Anti-churn
Femto 2.0 services
ShoZu and Ubiquisys
Reduced backhaul costs

C. OPERATOR STRATEGIES AND BUSINESS MODELS
C.1First to market strategy
C.2Pure-play mobile operator strategies
C.3Integrated operator strategies
C.4Fixed operator strategies
C.5The private femtocell network
Hay Systems
Outlook
C.6Paying for enhanced coverage
C.7Wi-Fi operator strategies

D. TECHNOLOGY OVERVIEW AND TRENDS
D.1Form factor
Integrated design
D.2Standards
Interoperability standards
Interface standardisation
Handset standards
CPE Standards
D.3Mobile backhaul challenge
D.4The UMA approach
D.5WiMAX deployment opportunities
D.6Location sensitive femtocells
D.7Handover
The Sprint deployment
D.8Home installation
Open and closed access
D.9Scalability and use of concentrators

E. VENDOR STRATEGIES
E.1Infrastructure vendor attitudes
Outlook
E.2Product differentiation among femtocell vendors
E.3Value chain
E.4Vendor profiles
picoChip
Outlook
RadioFrame
Airvana
ip.access
Ubiquisys

F. FEMTOCELL MARKET FORECASTS
F.1Regional analysis
Europe
Asia
North America
F.2Technology
F.3Revenues

List of Figures

Figure A-1: Typical femtocell network deployment
Figure A-2: Femtocell investment landscape
Figure A-3: Forecast LTE subscriber growth, 2010 - 2015
Figure A-4: Forecast LTE subscriber growth by region, 2010 - 2015
Figure A-5: Mobile broadband USB dongle sales for Western Europe
Table B-1: Summary of barriers to femtocell deployment
Figure B-1Price per femtocell unit forecast,
Table B-2: Summary of drivers for femtocell deployment
Figure D-1: Ubiquisys 3G Femtocell
Figure D-2: Motorola’s picture frame femtocell (VIDEO)
Figure D-3: 3GPP femto home Node B architecture
Figure D-4: Decoupling of cellular operator network traffic and revenue
Figure D-5: 3GPP UMA/GAM Interface
Figure E-1: Femtocell Value Chain
Figure E-2: RadioFrame’s Omnicell@Home femtocell
Figure E-3: Airvana’s HubBub CDMA Network Architecture
Figure E-4: Overview of the NEC/Ubiquisys IMS femtocell solution
Figure F-1: Global femtocell unit shipment forecast, 2008 - 2013
Figure F-2: Regional breakdown femtocell unit shipment forecast, 2008 - 2013
Figure F-3: N. America, W. Europe & Developed Asia femtocell unit shipment forecast, 2008 - 2013
Figure F-4: Technology breakdown femtocell unit shipment forecast, 2008 - 2013
Figure F-5: Global femtocell revenues

Although still in its infancy, the market for femtocells has evolved rapidly over the last two years, moving from a compelling concept but one without clear commercial viability to a reality which could fundamentally alter the mobile telecoms landscape. However, despite its prospects, the industry has been slow to embrace and deploy femtocells, and although Sprint in the US and Starhub in Singapore have dipped a toe in the water, most femtocell deployments are still at trial stage. Nonetheless, the author anticipates the first large-scale femtocell deployments will arrive in Q2 2009, with the market ramping in 2010. With increasing user demand for mobile broadband data, operators will look to femtocells to improve indoor coverage whilst easing capacity requirements and backhaul costs in their marco-network.

There are several reasons for the femtocell’s slow market birth, ranging from the technical to the commercial and strategic. Despite initial technical problems and the slow introduction of femtocell-related standards, it is true to say that most of these issues have been overcome. Through the efforts of the Femto Forum, the acceptance of the Iu-h interface by all the main femtocell vendors has ensured uniformity. Interference has been dealt with and handoff is largely solved.

The remaining femtocell challenges are primarily commercial and strategic. Most femtocell vendors – Ubiquisys, RadioFrame, ip.access and Airvana – are medium-sized, VC backed businesses who are stepping into the new territory of large-scale consumer deployments. The large network equipment providers such as Nokia Siemens Networks, Ericsson and Motorola have chosen not to enter the market directly, working instead with the femtocell vendors through OEM and reseller arrangements. Although this scenario is not that unusual in a new market it means that the specialist femtocell vendors lack the capital to exploit the mass market potential of femtocells and have a credibility gap to close in order to reach acceptance by Tier 1 operators. This gives rise to the classic catch-22: without the capital to subsidise a large-scale femtocell rollout, vendors are unable to prove the viability of femtocells, but without this proof of concept many operators will wait on the sidelines.

This brings into play another crucial strategic issue: there is little first mover advantage for mobile operators looking to deploy femtocells. With the unit cost of a femtocell currently at around $200 and with the considerable investment required to roll-out a service to consumers, femtocell deployment is a high cost, high risk endeavour. By being first to market the operator accrues none of the mass production cost advantages of the follower and takes all the risk with technical issues that will be ironed out at later stages.

The femtocell vendors counter these challenges with the indisputable operational benefits of femtocells. Coverage in the home is improved, which is vital if data services on 3G/3.5G are to take off, and the backhaul is taken care of by the consumers own broadband connection thus taking pressure off the transmission network. Furthermore, femtocells allow operators to offer homezone type services with reduced tariffs within the home environment but without the need for special dual-mode handsets. Churn can be reduced and whole families could be tied into one network since they will all be using the same femtocell. Finally, so-called femto 2.0 services could help increase ARPU by offering media sharing and social networking features when the consumer is in the home-zone.

The author anticipates the first large-scale femtocells deployments to arrive in Q2 2009 but with less than 500,000 units shipped during the year. Instead, 2010 will be the year when shipments start to flow as the business case becomes clearer. The following three years are expected to see rapid growth as the price of the femtocell unit drops and the need for better in-building coverage grows. This will be driven by a combination of market factors including the need to backhaul high bandwidth mobile data; the growing use of data cards; greater integration of the femtocell with CPE; and the threat from fixed-line operators entering the mobile domain through dual-mode Wi-Fi solutions. Finally, as LTE arrives in many advanced markets there will be increased need to ship LTE femtocells around the 2013 timeframe and some believe the first LTE deployments will be via femtocells.

- 3
- Aglient
- Airvana
- Airwalk
- Alcatel-Lucent
- Alpha Networks
- AT&T
- AT4 Wireless
- Atlas Ventures
- Bouygues Telecom
- BT
- Cable & Wireless
- China Mobile
- Cisco
- Clearwire
- Dell
- DesignArt
- Deutsche Telekom
- Ericsson
- Femto Forum
- Fujitsu
- Goolge
- Hay Systems
- Hitachi
- HP
- Huawei
- Intel
- Inventel
- ip.access
- Kineto Wireless
- Lenovo
- Linksys
- mimoON
- MobileOne
- Mobilkom
- Motorola
- NEC
- NETGEAR
- NextPoint
- Nokia Siemens Networks
- NTT DoCoMo
- O2
- Option
- Orange
- Percello
- picoChip
- Qualcomm
- RadioFrame
- Scottish Equity Partners
- Sequans
- SFR
- ShoZu
- Sierra Wireless
- SK Telecom
- Softbank
- Sprint Nextel
- StarHub
- Telecom Italia
- Telefonica
- Telstra
- Tesco
- Thomson
- T-Mobile
- Toshiba
- Ubiquisys
- Verizon
- Vodafone
- Willtek
- Xinwei
- Xohm
- ZTE
- Zyxel

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