Fixing the Follies of Femtocells

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


Copyright © 2010 Tolaga Research

2

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

http://www.picochip.com/

http://www.ericsson.com/



3

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



~$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

http://www.taqua.com/



4

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


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

http://en.wikipedia.org/wiki/WirelessHD



5

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.

http://www.accuris-networks.com/assets/files/pdf/fmc/AccuROAM_FMC_Datasheet.pdf

http://www.picochip.com/news/148/

http://www.att.com/

http://www.cellcom.com/



6

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



8

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

http://www.huawei.com/



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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


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

http://en.wikipedia.org/wiki/Femtocell

http://en.wikipedia.org/wiki/TR-069



10

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.

http://www.percello.com/

http://newsroom.cisco.com/dlls/2008/fin_012308.html

http://newsroom.cisco.com/dlls/2008/fin_012308.html

http://www.ubiquisys.com/

http://www.airvana.com/

http://www.nokiasiemensnetworks.com/news-events/press-room/press-releases/mosaic-telecom-to-transform-rural-mobile-broadband



11

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

http://www.kineto.com/

http://www.tatarasystems.com/

http://www.2wire.com/

http://www.netgear.com/

http://www.pirellibroadband.com/web/default.page

http://www.airvana.com/news/news_514.htm

http://en.wikipedia.org/wiki/Self-Optimizing_Networks



12

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



13

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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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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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:

Contact: [email protected]

Tolaga Research:

Riverside Center, 275 Grove Street – Suite 2-400

Newton, Massachusetts 02466

United States of America

http://www.tolaga.com/tolagaSpectrumDatabaseIntro.aspx

http://www.tolaga.com/tolagaModelingIntro.aspx

mailto:[email protected]

Fixing the Follies of Femtocells

Technology

Transcript of Fixing the Follies of Femtocells