Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
Think femtocells are a niche product? Think again: In the United States alone, they already outnumber macrocell base stations – 350,000 compared to 256,000 – according to an October 2010 Informa Telecoms & Media report.
By next March, femtocells will outnumber macrocells two to one in the U.S. market, Informa estimates. On a global level, there will be about 49 million femtocells serving 114 million users by 2014, the firm estimates.
What’s driving this adoption? Two reasons: Femtocells solve real-world problems for carriers and their customers; and they enable a variety of new applications and services.
Clear value for carriers and customers alike
Femtocells provide a strong signal, which significantly improves data throughput and voice quality. Both of these improvements are noticeable to end users, so they recognize the value that femtocells bring to their home or business.
A strong signal also increases battery life because the handset doesn’t have to use as much power to maintain a connection. Femtocells also reduce the need for switching to Wi-Fi, which draws more battery power than cellular.
By providing a reliable connection, femtocells help make end users comfortable with the prospect of using their mobile phone as their only phone. That in turn benefits carriers by giving potential cord-cutters one more reason to shift their wireline spending to wireless.
Clear voice calls, reliable signals and fast data performance also reduce customer-care costs and churn. Those savings directly improve the carrier’s bottom line and can trigger additional benefits. For example, when femtocells help improve a carrier’s reputation for high-quality service, less of its advertising budget has to be spent counteracting negative market perception. Meanwhile, churn is a metric that investors watch like a hawk, so low turnover can improve a carrier’s access to capital.
Research backs up this analysis. In a Sept. 2010 Parks Associates survey of U.S. consumers who were considering changing carriers in the next 12 months, 44% said they would reconsider churning if offered a femtocell. In fact, even among respondents who weren’t familiar with femtocells, once explained, the devices’ value proposition was so clear and so compelling that they were willing to pay $5 per month or more for femtocells and femtocell-enabled services.
Although femtocells are best known for their ability to improve service quality, they’re also service enablers. For example, because they cover a small geographic area, femtocells are ideal for enabling location-based applications. One possibility is a femtocell app that detects when a teenager’s or elderly parent’s phone enters or leaves the home and automatically sends a status update to a family member. Many vendors are developing femtocell apps, and in 2009, the Femto Forum created a Special Interest Group to simplify app development.
Delivering on 4G’s promise
Just as important, all of these benefits apply to all air-interface technologies, including CDMA2000, LTE, UMTS/HSPA and WiMAX. That broad applicability is another reason why femtocell adoption is skyrocketing.
Femtocells are particularly valuable for LTE because they provide carriers with a fast, cost-effective way to ensure that their networks can deliver the multi-megabit speeds that consumers and enterprises expect from LTE. One reason is because just as with 3G femtocells, a strong signal can support higher data rates.
Another reason is because femtocells are better able to support high densities of simultaneous users than macro base stations. It would be ruinously expensive for a carrier to keep splitting macrocells in order to ensure that, for example, every user in an urban area gets as close as possible to LTE’s theoretical peak speeds.
Even when the carrier subsidizes the femtocells, they’re still a far more cost-effective way to ensure consistently high speeds in densely populated areas. Femtocells also are designed to be plug and play, so they can be up and running in minutes, unlike a macro base station, which requires months of zoning approval and construction.
Those benefits are among the reasons why, in October, the Femto Forum published a set of APIs that help enable interoperability between different vendors’ LTE femtocell components and software. This interoperability also enhances the LTE femtocell marketplace by giving femtocell manufacturers a larger, more competitive and more cost-effective selection of components. That in turn gives femtocell semiconductor manufacturers a larger market to sell into.
In business, one rule of thumb is that as volumes increase, prices decrease, further expanding the market as the product becomes more affordable to more potential customers. Femtocells have begun their journey down that cost curve, setting the stage for widespread adoption even in price-sensitive markets such as China, India and Latin America. That’s one more reason why femtocells are coming soon to a home or office near you – if they haven’t already.
Simon Saunders was appointed chair of the Femto Forum in July 2007. Saunders is currently an independent consultant, working for regulators and technology firms and a visiting professor at the University of Surrey. Saunders has acted as a consultant to a wide range of companies, including BAA, BBC, Mitsubishi, British Land, O2, Ofcom, BT, ntl and many others. He has invented more than fifteen patented technologies and has written more than 130 publications in learned journals, international conferences and book chapters.
