Post on 12-Jul-2015
Network Research
August 2010
Copyright © 2010 Tolaga Research | Riverside Center, 275 Grove Street, Suite 2-400, Newton, Massachusetts, 02466, USA | www.tolaga.com
Fixing the Follies of Femtocells
Executive Summary
Femtocells are a long time coming… After five years, the number of commercial services
worldwide at the last count has reached only thirteen, and several of these are limited trial
offerings. Network operators have been slow to bring services to market. In the face of
burgeoning mobile broadband, operators have an urgent need for innovation in the network
architecture design to reduce excessive radio network, site and transmission costs. Femtocells
have a unique design philosophy that leverages the customer’s broadband to improve coverage
and provide new economics and reliability in voice and broadband service delivery. We believe
that femtocells offer tremendous opportunities, but operators are blinded by narrowband
connectivity-centric network design philosophies. They fail to appreciate the broader potential
for a femtocell as a smart residential gateway that contributes to optimizing service distribution
and personalization within a mobile broadband network.
Consumer uptake of available commercial femtocell offerings is also lackluster, even when
devices are heavily subsidized or offered for free. Today, consumers are more likely to switch
service providers than consider purchasing a femtocell if they have poor coverage, and are
disinterested in the improved network economics that femtocells afford for broadband services.
In the face of lackluster uptake, service providers are grappling with the femtocell opportunity.
When and where does it make sense to deploy femtocells and what distribution models are
most effective? How should femtocells be priced, promoted and positioned relative to alternative
solutions such as WiFi? Can and when will the costs of deploying femtocells translate into churn
reduction, tangible network efficiencies, upsell opportunities and market share gains?
What is needed to drive market adoption? Current concerns for operators focus on the cost of
the devices (which cannot come down without volume purchases), and technical challenges
such as interference with the macro network and back office requirements like automated
service provisioning and OSS integration. An impressive amount of vendor effort, increasingly
that of traditional network equipment players, is being concentrated on these issues, which are
not insurmountable.
Bottom line: The future prospects of femtocells depend more on strategic marketing than
technology. Even if the technical issues are resolved, femtocells won’t take off until they are
appropriately aligned with the market. In this report we investigate the shortcomings in the
marketing and commercial strategies being adopted for femtocells through the lens of Kotler’s
strategic marketing plan, namely, product, place (channel), promotion and price. We discuss the
status of the femtocell market, growth indicators versus impediments, and how Kotler’s four
marketing Ps can be applied to drive adoption. Briefly, femtocells need to be disassociated from
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network operations, and repositioned as consumer electronics devices. They should be
integrated with WiFi in residential gateways and routers, and marketed and priced by consumer
electronics (CE) vendors. The future of cellular and home interconnectivity is the coexistence of
WiFi and femtocells. Today, femtocells are integrated with xDSL gateways; WiFi is the logical
extension to this integration. Rather than competing with WiFi, femtocells become
complementary in delivering service management, reliability and continuity levels that cannot be
achieved as effectively with unlicensed WiFi systems. Even if operators adopt femtocells, WiFi
will continue to be the preferred lower cost option for mobile device connectivity, but femtocell
capabilities will enable operators to achieve differentiation and superior service continuity.
From a networking perspective, femtocells can be managed as an extension of macro networks
with appropriate operation support systems (OSS) software capabilities. As service providers
drive their mobile broadband agendas, traditional connectivity centric network architectures will
be eclipsed by media centric approaches that heavily leverage the femtocell concept. These
approaches will be complemented by the proliferation of cloud computing and the availability of
low cost memory to give femtocells the opportunity to play an essential role as smart service,
media management and distribution nodes in mobile broadband networks.
Introduction: Femtocell Evolution Drives Need for
Redefinition Radio network capacity and coverage demands are driving innovative network designs. Smaller
cells, whether micro, pico, or femtocells, are inevitable for the evolution of cellular networks. Also
inevitable is the miniaturization and price erosion of the radio equipment. Exhibit 1 differentiates
cell types by performance estimates and illustrates an exponential shift in capacity and coverage
performance between mega, macro, micro, pico and femtocell configurations.
Macrocells are predominantly used for narrowband mobile networks because of their balanced
performance in terms of achieving wide area coverage and capacity. With heightened network
performance expectations and growing capacity demands, service providers have increasingly
deployed micro and pico-cells to localized areas within their networks. With an exponential shift in
capacity and coverage parameters for micro and pico-cells, service providers tend to place
significantly more attention to serving market demand with macro-cells than they do with micro
and pico-cells. Femtocells have emerged with the aim of further extending the evolution towards
smaller cell sites. Unlike their larger cell predecessors, femtocells are distributed to and deployed
by the end users, and leverage the end user’s broadband connection. This disrupts traditional
network design and management philosophies, which are accustomed to a high degree of control.
The femtocells approach is more akin to those being adopted with unlicensed WiFi systems.
Industry players are divided in terms of the technical positioning and performance of femtocells.
PicoChip claims that tests have demonstrated a contrast of as much as 8:1 between femtocell
and macro performance. Ericsson, on the other hand, says the signal to noise ratio could shrink
cell size and effectively reduce throughput to the customer. The aim of deploying femtocells in
the network is to increase capacity but that may not be the case because of the adhoc nature in
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which femtocells are deployed. Mapping the specific location of each femtocell to avoid this,
adds cost to the equation, but according to Ericsson is essential. Ericsson advises its operator
customers to increase the overlying capacity of the macro cells instead of deploying femtocells.
We believe that the true impact of femtocells on capacity performance lies somewhere between
the claims of PicoChip and Ericsson, depending on the extent that integration and management
functionality can be automated.
Wireless and wireline switching vendor Tauqua has proposed a new platform that integrates
traditional cellular topologies with picocells, outdoor femtocells and WiFi hotspots. Rather than
replace the backhaul network for traditional network architectures, the platform acts as a last-
mile extension, linking remote sites.
Exhibit 1. Cell Types by estimated cell site coverage and capacity performance
Source: Tolaga Research, 2010.
Cell Type
Mega-cell
Macro-cell
Micro-cell
Pico-cell
Femto-cell
Deployment Scenario
Coverage Area (sq. miles)
Estimated Capacity* (bit/sec/Hz/sq. mile)
Unit Cost
On mountain top
On towers or rooftops 50-200ft
On street poles20-30 feet
In-building with distributed antennas
In-building with single low power
antenna
3-sector site.001-.0025
* The capacity of the site will vary depending on its configuration and the radio technology used. For the sake of illustration we have assumed that each cell site sector achieves one bit/sec/Hz, and full frequency reuse amongst sectors
2000-3000
10-30
.005-.01
.001-.005
<.0002
3-sector site.10-.25
1-sector site100-200
6-sector site1000-5000
1-sector site5000-20000
~$300-500k
~$100-300k
~$10-30k
~$50-200k
~$50-200
Ecosystem Evolution creates Opportunities in the Face of Disruption
Disruptive deployment strategies focus around small cell architectures and provide new
opportunities to improve the economics of mobile networks with hierarchical architectures. As
demonstrated in Exhibit 2, small cells become an essential element of these hierarchical networks
rather than being used to supplement macro coverage after the network is built out. For operators
who have an existing umbrella macro-network (or can wholesale access from another provider), a
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new inside-out network design begins with femtocells, deployed in residential and enterprise
indoor locations, evolves to picos in outdoor local environments and finally to macros over the
wide area. Small cells allow operators to build in line with demand, which for data services is
primarily in local area environments such as the home, airport, café or office, matching network
investment with revenue while also reducing capital expenditure.
Femtocells are capable of providing higher capacity, greater data throughput and indoor
coverage than traditional macros. However as the networks evolve from merely being “pipes” to
having intelligent service distribution capabilities, the role of femtocells will broaden to provide
media storage and management capabilities, and to orchestrate the discovery, personalization
and distribution of services and applications across mobile devices. Unlike traditional femtocell
architecture which focuses primarily on its role as a radio access solution, future architectures
will focus on enhanced media management capabilities aimed at enhancing the burgeoning
mobile device and cloud computing ecosystems, the proliferation of low cost memory and
improved mobile broadband economics, while at the same time optimizing the user experience
– it is in these areas that we believe service providers will attain sustainability in the burgeoning
and disruptive mobile broadband market.
Exhibit 2. Disruptive deployment strategies take an “inside-out” approach
Network economics are driving hierarchical network architectures
Source: Tolaga Research, 2010.
Integration with WiFi
The definition of femtocell must be broadened to encompass WiFi, and other wireless technologies
such as Wireless HD to provide connectivity amongst residential multi-media devices. Coexisting
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with WiFi, femtocells can leverage established consumer electronics distribution channels, and
evolve to encompass home gateway type of functionality that enhances wireless service
management and continuity, and integrate with the macro networks where appropriate. The future
of cellular and home interconnectivity is the coexistence of WiFi and femtocells. Today, femtocells
are integrated with xDSL gateways further WiFi integration is a logical extension. Rather than
competing with WiFi, femtocells become complementary. Operators need to integrate WiFi into their
mobile strategy and make use of public WiFi or leverage home WiFi with advanced network
connection managers.
A variety of players are offering solutions to integrate WiFi and mobile networks. For example,
Accuris Networks’ AccuROAM is designed for WiFi network offload and can be installed in the
carrier network or hosted by Accuris. In addition to connecting users to the WiFi network from their
mobile device, it also enables the operator to aggregate a large number of WiFi hotspot
partnerships and manage them in a consistent way.
But it will take time to win over radio network planners and engineers who remain skeptical about
WiFi. They are conservative about their infrastructure and are more likely to favor femtocells for
several reasons:
They can be more tightly controlled and integrated into mainstream network operations and
planning than WiFi;
They use licensed spectrum, standardized security; and
Are likely provided through the same vendors and integrators as macro-cells.
We do not believe that this conservatism can prevail for femtocells to see mainstream adoption in
the marketplace.
Expansion from Residential to Enterprise and Public Access
The femtocell platform is expanding - newer versions have greater range and increased user
support. No longer limited to residential use only, more powerful femtocells are being developed
and deployed for enterprise or even metro use, with increased capacity and dedicated power
supplies. No longer adhering to the strict definition of a femtocell, they are more akin to a pico or
microcell. For example PicoChip’s new PC3X3 series chipset can support 64 active users and is
intended for a metro-zone or a large enterprise implementation.
Responding to customer demand, carriers including AT&T and CellCom in the US are exploring
the integration of femtocells with the PBX to make hosted unified communications services
simpler. Femtocells can enhance mobile functionality by incorporating presence and location.
The phone system, for example, will know when an employee is out of the building and can
handle the incoming call appropriately. While the fixed-line market is declining, people still want
and need the functionality provided by a PBX. Beginning with IP-PBX integration, femtocells are
being positioned to fit into operator’s longer term IMS architectures.
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Enterprise femtocells are not plug-and-play and require more planning than their residential
siblings. Femtocell implementations in large enterprises will typically involve a “truck roll” for
implementation. In a trial, Vodafone recently started selling Huawei femtocells to enterprise
customers in Spain, and is targeting 25,000 companies currently using its Oficina Vodafone
services. At the metro level, Vodafone Qatar is using femtocells to boost 3G coverage in public
places.
Market Status: Operator Activity To date, thirteen operators offer commercial femtocell services (see Exhibit 3); several more,
including Cellcom and Mosaic Telecom both in Wisconsin, KDDI in Japan, WIND Orascom in
Italy, and Qatar Telecom, expect to launch late 2010 or 2011. In the US, AT&T, Sprint and
Verizon all have residential femtocell strategies aimed at boosting network coverage booster.
AT&T recently went nationwide, and is giving away femtocells to select customers - the “very
small percentage” of its customer base that it believes requires them. Verizon also claims that
its Network Extender service is for a very small subset of customers.
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Exhibit 3. Current commercial femtocell services
Source: AGCOM, Tolaga Research, 2010.
Operator Service Launch Date Femtocell Vendor Type of Femtocell
Service
Femtocell/Service Price
AT&T
3G Microcell
Sept 09 - July 2010
nationwide
Cisco (ip.access) 3G UMTS $150; dedicated $20 plan
with unlimited voice
minutes on femtocell with
$100 rebate. Additional
$50 rebate for BB
customers. i.e. free
China Unicom
3G Inn
Nov 29 Huawei 3G UMTS N/A
NTT DoCoMo
My Area
2007 Mitsubishi 3G UMTS;
LTE planned for
2012
Free femtocell; $11
monthly fee; $24
installation charge.
Manadate use of own
DSL
Optimus Portugal
Sinal On
Dec 2009 Huawei 3G UMTS $136 femtocell; $10.40
monthly fee
SFR
Home 3G
Nov 2009 NEC (Ubiqusys) 3G UMTS $199 femtocell
Softbank Feb 2009 NEC (Ubiqusys) 3G UMTS Free femtocell. Free
broadband connection
Sprint
Airave
Aug 2008 Samsung 2G CDMA $100 femtocell, $5
monthly or $10 monthly
for unlimited calling
StarHub
Home Zone
Nov. 2008 Huawei 3G UMTS Free femtocell with
contract; $10 monthly
Telefonica, Spain July 2010 Huawei 3G UMTS N/A
Verizon Wireless
Network Extender
Jan 2009 Samsung 2G CDMA $250 femtocell; no
monthly fee
Vodafone
Sure Signal, UK
July 2009 Alcatel Lucent/Sagem 3G UMTS $75 femtocell; $7 for 12
months with mmo
Vodafone Access
Gateway, Greece
July 2010 Huawei 3G UMTS Free femtocell or with
discount to post-paid
subscribers. Prepay
users or post-paid
subscribers not eligible
for discount
Vodafone Enterprise
Service, Spain
June 2010 Huawei Enterprise focused 15 euros per month,
Mandate use of its
business DSL service
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Vodafone is the most aggressive European player – with residential offerings in the UK and
more recently in Greece, and enterprise service in Spain. Telefonica recently joined Vodafone
with a residential service in Spain. The femtocells for Verizon and Telefonica are supplied by
Huawei and have a unique design with integrated Ethernet and power connectors on an
extended cable. A special SIM card is used inside the unit for authentication. To date, Vodafone
is alone in its announcement to use femtocells for its LTE network build-out. We expect other
operators to follow their example as LTE takes hold in the marketplace.
Operator activity with femtocells is greater in Asia with services like China Unicom’s 3G Inn,
launched in November 2009. This presents huge potential opportunities for femtocells given the
size of China Unicom’s mobile subscriber base. Japan’s DoCoMo and Softbank are pioneers in
positioning their services as more than just indoor coverage boosters. DoCoMo’s My Area
offers femtocell based services – including a package of exclusive video and music content, and
a location awareness service. When registered users enter or leave the femtocell coverage
area, other registered users are notified by email or a dedicated Website; the service can
indicate, for instance, when a child is home to its parent. DoCoMo has forecasted a need for
15K units by 2014, which would significantly augment their macro-network that is currently
made up of over 50 thousand macro-cells.
Softbank with Airvana is developing a variety of location based services such as Deferred SMS,
which allows users to send messages with a tag to defer delivery. A mother, for example, can
send messages reminding her son of after school chores and have the messages delivered to
his cellphone when he enters the house. Other proposals have contemplated the role of
femtocells in integrated smart home systems that detect when a user enters the house and
automatically turns on the lights and heat.
If the endeavors of large Tier 1 operators like AT&T, Vodafone, and China Unicom are
successful in creating new femtocell related services, we expect other operators will follow.
Today, France Telecom’s Orange, Deutsche Telecom and T-Mobile question the business case
for femtocells citing high cost of the devices, potential interference with the macro network and
back office requirements like automated service provisioning and OSS integration.
With uptake of femtocells still unimpressive, no operator is divulging significant details in term of
uptake. In the U.S., Sprint’s Airave, the longest running services, may have sold close to
100,000 devices but Sprint will not verify this. Optimus claimed orders for up to 500 units in the
first half of 2010. AT&T reportedly has a contract with Cisco for 7 million units over the next five
years; however specifics of the deal are not yet being publicized.
Vendor Activity: Product Enhancements, New Players A new generation of femtocell products has reduced energy consumption and form factor and
support a wider range of functionality and applications. Current technical concerns center on
interference with macro networks and back office requirements like automated service
provisioning, network and inventory management, and OSS integration. An impressive amount
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of vendor effort, increasingly that of traditional network equipment players, is being concentrated
on resolving these technical issues, which are not insurmountable.
Femtocell standardization is critical for interoperability and network performance. Standards
work is progressing through 3GPP and driven by the Femtocell Forum. Most vendors now
support the lu-h network interface, and compliance around the DSL TR-069 CPE WAN
management system already proven in the high speed broadband environment is in progress.
The vendor chain for femtocells encompasses chipset to develop the femtocell access point,
gateways between the femtocell and the core network, and back office support systems that
support service development (see Exhibit 4). Network management vendors like Interdigital who
recently joined the Femtocell Forum, can bring their Bandwidth and QoS management expertise
to heterogeneous radio access networks with femtocells and WLAN.
Exhibit 4. Femtocell Vendor Value Chain
Source: Tolaga Research, 2010.
Chipset – Increased Functionality and User Support
Femtocell industry pioneer, PicoChip continues to enhance its chipset architecture to increase
femtocell functionality. Two recent enhancements include SmartSignalling and capabilities to
support an increased number of simultaneous users. SmartSignaling deals with smart phone
chattiness and its strain on network capacity. Frequent status checks that “always on” handsets
perform for social network updates and push email etc, appear to use little bandwidth until you
add the overhead of opening and closing the connection. With SmartSignaling, the network
remembers the data connections so that the phone can be sent any new data without the need
for a full data setup sequence. PicoChip’s most recent chip design can support 400 smart
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phones in always on mode, as well as 64 active users. PicoChip has managed to raise $20
million in venture funding after selling an estimated million chips.
PicoChip faces increasing competition from new players which will help to stimulate market
growth. Percello, an Israeli fabless semiconductor vendor, is developing price competitive
baseband processors for femtocells aimed at enterprise, outdoor and residential use. Ubiquisys
is using Percello and claims it can price its femtocell under USD100 as a consequence of its
architecture.
Texas Instruments was the first Tier 1 chipset vendor to back small base stations and give
credibility to the embryonic market. But it is slow in bringing product to market. Meanwhile,
Qualcomm is taking femtocells to the next level in its chip design and focusing on femtocells
evolving from target hot spots toward large scale femtocell networks providing femtocell home
zone services that can be accessed locally and remotely. Deployed by the operator but with an
adhoc architecture, these femtocell networks demand unique management capabilities. Paul
Jacobs at Qualcomm believes femtocells have the potential to increase throughput per user by
a factor of eight, (which aligns with PicoChip’s perspective), providing interference can be
managed between the femtocell and macro network.
Qualcomm has developed a single femtocell chipset platform for UMTS and CDMA that can be
applied for the home, small office and enterprise. Six different solutions have the same software
and hardware architecture. Hardware features include innovative interference management with
home and guest user protection and a multiband beacon for femtocell discovery that has
negligible impact on device battery life. Qualcomm’s software architecture supports OEM
application development for product differentiation, and it expects chipsets to be available by
year end 2010.
Femtocell –Established RAN Vendors join Dedicated Start Ups
All the major RAN vendors now offer a femtocell solution – Huawei, Alcatel Lucent, NSN, all
support 3G UMTS. ZTE is developing a CDMA solution using Qualcomm chipsets. Given the
traditional roles of Major RAN vendor in the macrocell market, their cautious and sometimes
contradictory approach to femtocells is recognizable. For example, Ericsson released a 2G
solution in 2007, but has not upgraded to support 3G, ostensibly because of lack of customer
demand and concern of the business case. Ericsson acknowledges there may be an LTE
femtocell opportunity but is concerned that interference from femtocells will raise signal to noise
ratio levels, shrink cell sizes and effectively reduce throughput. However, it has partnered with
PicoChip to embed 3G in routers and facilitate new home and office applications.
Industry shakeout has already happened among the smaller femtocell vendors. The strongest
remaining players have forged partnerships with established vendors, and ip.access was
purchased by Cisco. Ubiquisys, who recently raised a further $9 million, has partnered with NEC
and won a potentially large contract with Softbank. Airvana claims the first UMTS deployment
using standards compliant Iu-h interface with the NSN gateway. Airvana’s solution has been
rolled out for Mosaic Telecom, a rural operator in Wisconsin. It also won the CMDA rollout in
Japan for KDDI and for Sprint’s 3G network in the US.
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Gateways – integrated for advanced service support
Femtocells are either standalone or integrated with a gateway that aggregates and secures the
femtocell traffic. Vendors and products are diverse; some vendors provide part of the femtocell
gateway functionality, such as Kineto’s UMA network controller or Tatara System’s convergence
server. Femtocell vendors like ip.access (now owned by Cisco) have developed their own
gateways for their femtocell devices. Large equipment vendors, Alcatel Lucent, Huawei, and
NSN, have adapted existing products to support femtocell solutions.
Consumer electronics vendors 2wire, Motorola, NETGEAR, Pirelli Broadband, Thomson, and
Huawei have already integrated femtocells into their home gateway products. These gateways
typically include an ADSL modem, WiFi router, femtocell and external Ethernet ports.
In the future, gateway products will evolve to support advanced services and applications. An
early example is Tatara Systems enterprise focused gateway, which includes enhanced call
forwarding.
Market Drivers: Product, Place, Promotion and Price Cisco attributes customer resistance to lack of a compelling value proposition for femtocells. We
believe that this is true, and that the current marketing strategies for femtocells warrant further
investigation. In general, we believe the industry needs to build awareness, improve
distribution, and reduce or eliminate cost barriers. Analyzing femtocells through the lens of
Kotler’s strategic marketing plan, it can be described in terms of the four Ps: price, product,
place (channel) and promotion.
Product
Femtocell products are evolving but must become more consumer market oriented than they
have traditionally been. Products need consumer market economies of scale to bring down
capex, greater intelligence to fulfill media functions, and advanced management capabilities
such as self optimizing network (SON) technology to attain manageable operational cost
thresholds. Residential products must be customer installable, which is challenging today given
CPE configuration complexities (timing, location, downloading neighbor lists and security
mechanisms) that are only partially addressed with standards such as DSL TR-069.
Price – Need for New Service Model
Ubiquisys, using Percello’s chipset, claims to have devices that can retail for less than USD100,
but we believe this can only be possible with large volume orders which have yet to be realized.
Realistically today’s prices for femtocells are closer to USD200, when bill of materials (BOM),
intellectual property, manufacturing and margin for the vendor are factored in. Operators are
waiting for prices to come down before submitting volume orders, but chipset vendors need to
see volume orders before committing R&D to develop lower cost silicon.
Operators are testing different retail pricing schemes in their effort to offset the cost of service
and equipment, while stimulating adoption. Pricing ranges from a complete subsidy to sharing
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cost with bundled value added service for the end users. Vodafone led by slashing femtocell
prices by 70% when it relaunched Sure Signal in the UK in January 2010; AT&T followed in July
by giving away femtocells to target customers. Softbank also gives away femtocells to anyone
outside its coverage area.
Cisco believes the market needs a ” new service” push model to accelerate femtocell adoption
where service providers fully subsidize femtocell devices and provide coverage free of cost to
select customers with high end data or voice plans. Cisco also believes that they could be
offered free as a way to improve customer satisfaction for service related calls. The implied
subsidies will be offset by network cost savings, market share gains and upsell opportunities
and churn reduction for the operator.
We agree that a new service model is needed for femtocells. But is the operator the best player
to market femtocells? And how do femtocells aid operators in creating sustainable market
value? We believe that operators must provide more than just connectivity. Femtocells offer the
opportunity for value added services with presence, context and personalization. Femtocells
should incorporate content storage and processing capacity for the management of media and
applications; further, with unique knowledge of the end user devices, femtocells are well
positioned to personalize services to the customer’s requirement. There are many potential
applications, but we need creative marketing people to identify and promote those that will
succeed.
Product Positioning: Femtocells will take off when they are not called
Femtocells
The market needs to view femtocells differently. To begin with, they should not be called
femtocells. It is an obscure name that is meaningless and misleading to consumers and
increasingly in the vendor environment also. They are part of an evolution in cell site technology
toward smaller form factor with an increasingly fine line emerging between femtocell, pico and
microcell.
Secondly, the femtocells should be repositioned as a complementary rather than competing
technology to WiFi, and aim to integrate other radio technologies like Wireless HD. A recent
Femtocell Forum survey of 1100 US consumers found that 56% find femtocells appealing, and
interestingly those that already have and use WiFi were most interested. Both cellular and WiFi
access technologies have their strengths and weaknesses. Today, WiFi is the incumbent
solution but can be difficult for consumers to provision and manage (though improving with the
iPhone), it tends to be unreliable and lacks security and service continuity with wide area mobile
network ecosystems. Operating on unlicensed spectrum, reliability will continue to get worse
with greater data usage, which can be addressed to an extent with the increased management
capabilities of femtocells. Femtocells enable improved battery life for mobile devices and greater
service continuity, and require less technology to integrate back into core mobile networks. As
data usage continues to grow there is a role for both solutions: WiFi is adequate for best effort
data, and latency tolerant services while femtocell technology is generally superior for latency
intolerant services such as voice, and video, and better than best effort data. Integration of
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femtocell and WiFi technology is not happening because vendors and many operators still
perceive the technologies as competitive rather than complementary. Cisco purchased
ip.access but has not integrated it with Linksys; perhaps it is keeping the two separate because
it does not to want to upset its WiFi business. Motorola, who is more in the managed WiFi
service business, is taking a lead in linking WiFi with 3G/4G cellular; however these efforts are
likely to be stalled since the acquisition of its network infrastructure business by NSN.
As mobile broadband continues to take hold, services will increasingly rely on local area
network wireless capacity, whether femtocell, WiFi or another technology such as Wireless HD.
As this occurs, we believe it will herald mobile to fixed convergence that will significantly favor
operators with integrated and hierarchical network solutions that are optimized for broadband
service distribution.
Operators need to integrate WiFi into their mobile strategy and make use of public WiFi or
leverage home WiFi with effective connection managers. AT&T was smart to buy WiFi solutions
provider, Wayport, but needs to go further by integrating its femtocell assets into its public WiFi
division and WiFi into its mobile strategy. Virtually all of the AT&T femtocell owners (96 percent)
also have WiFi and their entire smartphone portfolio has WiFi. Today, AT&T double charges for
data consumed through a femtocell (it counts for mobile data as well as the wireline plan – in
areas where it operates both). AT&T currently promotes WiFi rather than femtocells offload
because network capacity and resources aren’t used to handle the WiFi traffic. Instead the
company should pursue an integrated offload strategy that includes both technologies, with
intelligent network capabilities to manage the routing of traffic specific to service and subscriber
demands.
Promotion
Service providers are challenged with educating consumers and building awareness of the
capabilities of femtocells. Consumers understand issues with poor TV or radio reception;
operators want them to have the same awareness and acceptance regarding cellular coverage.
But they have devoted little effort or funds to promotion. Vodafone is an exception: in the UK,
the operator conducted a massive ad campaign to 13 million press inserts and leaflets
distributed to 8 million addresses. The company also understands the importance of a service
name; residential service in the UK began with the consumer unfriendly Vodafone Access
Gateway, and then changed to the more easily understood, Sure Signal. (Strangely Vodafone’s
recent launch in Greece reverted back to Vodafone Access Gateway). Although the operator
claims both the advertising campaign and name change resulted in increased customer uptake,
it provides no hard numbers to back up the claim; however we do believe that such strategies
for promotion are important, particularly as femtocells take a broader role in delivering
personalized services.
Place (Channel) Any new consumer technology requires careful evaluation and phasing of channel strategy.
Initially a direct sales approach for femtocells is essential in incubating the new technology, but
market scale will only come once distribution is broadened to align with traditional consumer
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14
electronics channels. Vodafone believes that having Sure Signal units in retail stores is a much
better route for potential users to appreciate the functionality and requirements. We believe that
this addresses its early market needs, but will stifle adoption in the medium to long term. Cisco
recommends point of sale (POS) displays at retail stores, which we believe is premature at this
stage and will result in confused messaging. Wal-Mart, Sears and RadioShack may be a sales
outlet in two or three years time, but today they represent not more than 5% of broadband
access sales, indicating that they are not yet well positioned for femtocell sales. We believe that
similar challenges and other considerations such as incentive plans need to be addressed in
cases where service providers sell femtocells through their distributors.
Today, the operator is forced to subsidize femtocell devices. We believe that market scale depends
on femtocells being operator agnostic. In the final analysis, we believe that operators should
dissociate and give hardware and distribution to a third party. Leveraging the established WiFi
channel, they can be marketed as a component of an integrated residential gateway with bundled
service. Consumer electronics agents are already commissioned to sell WiFi, and the channel is
accepted by consumers for home networking products. Embedded in WiFi APs, femtocells can be
subsidized at the same rate.
Conclusion: Toward the Future Femtocells and WiFi APs will coexist supporting 802.11, 3G/4G devices and subsequently
other access technologies, such as Wireless HD. Continued growth in data traffic will validate both
WiFi and femtocell network offload technologies. WiFi is accepted in the home and office, and new
WiFi smartphones and consumer electronic devices will continue to enter the market. Both
technologies should be part of operator portfolios.
Consumers need to be educated on why they need a femtocell as well as a WiFi AP to obtain
managed services with QoS, improved service continuity and greater security. WiFi will support
applications where best effort is acceptable. Femtocells will also enable new applications and
services based on presence, context and personalization. With advanced (and sufficiently
standardized) connection managers, user devices in unison with intelligent networks will be capable
of selecting the most appropriate connection depending on the type of application and usage
scenario.
Future networks will be heterogeneous and hierarchical – a mix of cell types and multiple
spectrum bands - aimed at economically delivering the necessary coverage and capacity, with
integrated access, backhaul and transmission solutions. Heterogeneous network distribution will
drive control plane and software enhancements including network management functionality,
advanced policies for access, authentication, content distribution and security, and integration with
other business and OSS systems including inventory management, and product catalogs. Adhoc
femtocell network deployment will require a new level of real-time planning and management using
technologies such as SON.
Femtocells will evolve into a home/business gateway function combined with WiFi and other
access technologies, and integrate with macro networks where appropriate. Multi-mode femtocell
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15
gateways will be managed with standards based solutions aimed at orchestrating hierarchical and
heterogeneous architectures – which will prove a challenge for traditional standards bodies like
3GPP which tend to be focused on a specific family of access technologies. Robust connection
managers are essential to seamlessly integrate access technologies, whether WiFi, 3G or
otherwise, and must be sufficiently standardized to allow femtocells to be white-labeled and
disassociated from the service provider, enabling them to be sold through independent consumer
electronics channels.
Upcoming Report: Beyond connectivity – Building sustainable femto business models An upcoming Tolaga Research Report will focus on the business model for femtocells and the quantitative impact of femtocells on the economics for mobile broadband services. We will discuss in closer detail the constraints in bringing femtocells to market and how they can be minimized to promote market growth. The report will draw upon data from a primary interview program with femtocell suppliers and combine our analysis with Tolaga’s sophisticated modeling capabilities.
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About Tolaga Research
Tolaga Research was founded in 2009 by industry analyst veterans, and modeling experts led by Phil Marshall, who
previously headed Yankee Group’s technology research. Tolaga offers an integrated research solution for the mobile
industry that includes modeling, research, consulting, analyst interaction and an extensive regulatory spectrum
database.
Tolaga has developed a unique approach for research and analysis. By leveraging sophisticated modeling
techniques, detailed market data and analyst expertise, Tolaga provides in-depth insight and actionable advice for the
wireless mobile marketplace. Its integrated research platform provides unparalleled depth and transparency so that
clients can confidently analyze key market dynamics, gain insights into granular global regulatory and network data,
and analyze strategies to profit from the mobile broadband marketplace.
Tolaga’s integrated research solution Source: Tolaga Research, 2010.
Tolaga Research has a variety of databases and advanced modeling solutions which form the quantitative
basis for its published research. Notable examples include:
An extensive and global radio spectrum database which includes detailed information on national spectrum
licenses and service provider holdings; see Tolaga Spectrum Data, and
Advanced simulation models to determine the impact of differing spectrum allocation scenarios on mobile
Internet business models; see Tolaga Modeling.
For more information:
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