Femtocells, small, low-cost cellular base stations aimed at improving indoor coverage, are seizing significant attention from mobile operators globally. In the last few months alone, the market has exploded with reports of pending trials, new RFPs and proof-of-concept partnerships.
Japan's Softbank, for example, began in June a six-month demonstration experiment on 3G femtcoell technology with seven vendors. Rival NTT DoCoMo plans to install femtocell base stations (jointly developed by DoCoMo and a third-party vendor) for its residential and business consumers to improve W-CDMA reception in indoor environments such as shops in basements and in high-rise structures.
In Europe Vodafone reportedly issued a large RFP for a combined Wi-Fi and HSPDA femtocell solution, and is close to selecting participants. The mobile giant is running trials with Ubiquisys and ip.access and plans to move to a major trial soon.
At the same time, femtocell technology vendors are accelerating product development. Companies like ip.acess and Ubiquisys have working products in lab trials, with commercial trials scheduled for 2008.
Major telecom equipment manufacturers including Alcatel-Lucent, Ericsson, Motorola and Nokia Siemens Networks (NSN) have also developed femto access solution in a bid to meet operator demand. NSN, for instance, has announced its vendor-specific 3G femto home access product and clinched a partnership with Thomson to provide a bundled solution.
Mike Murphy, NSN's head of technology for Asia Pacific, says the company is looking at conducting field trials with operators in the first half of 2008, with commercial deployment expected in the third quarter of 2008. Motorola, one of several vendors participating in the demonstration of femtocells with Softbank, is also engaged with a number of other Asian operators on femto cell-related activities. Even internet search giant Google is scouting out opportunities in the femtocell market by investing in Ubiquisys, a key manufacturer of femtocell base stations.
Improved 3G experience
In principle, femtocells can be applied to several wireless technologies, including GSM, W-CDMA/HSPA, cdma2000 1x EV-DO, LTE, WiMAX and WiBro. However, many analysts believe the 3G consumer market presents the greatest opportunity for femtocells.
'We believe that femtocells could not have arrived at a better time for 3G operators, which are struggling with poor indoor coverage and declining voice ARPU, and also find it difficult to grow non-voice APRU and new services,' says Analysys Associate Dr. Alastair Brydon.
Andy Tiller, marketing VP at ip.acces, says the fact that 3G operates at higher frequencies makes it much more difficult (compared to 2G) for radio signals to penetrate buildings. That has frustrated users when 3G services, especially high-speed data services like mobile TV, are used in homes.
Compared to existing microcellular technology, femtocells provide advantages such as physically smaller units, greater network efficiency and lower costs, he says. Instead of expanding their existing macrocell networks, mobile operators can add femtocell base stations, with DSL (or other broadband) backhaul to their mobile core-network in homes to achieve low-cost, high-quality indoor coverage.
Substantial cost savings provides another strong incentive for 3G operators to support the technology. For one, widespread deployment of 3G femtocells can help offload traffic from macrocells into fixed broadband networks, preventing operators from having to make substantial investment in more outdoor base stations to improve in-building coverage.
By using the backhaul inherent in the home through DSL, says Dr Ray Owen, head of technology for home and networks mobility at Motorola South & East Asia, it is possible to save significantly on backhaul costs like transmission and site rental associated with traditional microcells and macro-cells.
'Backhaul accounts for a significant cost of the deployment of infrastructure, especially when it comes to the use of high-speed cellular data,' he notes. 'This can account for 30%-40% of the overall capex of a wireless broadband access network.'
Additionally, there are opex savings for operators with equipment located in the end-user residence, as the carrier no longer foots the bill for the power consumed, Owen adds. 'If this cost can be shifted, then this will help the balance sheet, because the annual energy bill for most operators is significant.'
According to ABI Research, savings from backhaul and energy costs could equate to over $70 billion by 2012. The projection assumes that 70 million femtocell would be installed in homes around the world serving more than 150 million users.
Superior to UMA
Cost benefits aside, vendors and analysts suggest femtocells provide other potential benefits for mobile operators. These including increased voice revenue from fixed-mobile substitution, group subscriptions and tariffs based on home femtocells, as well as enhanced mobile data service and fixed broadband services. Vodafone, as an example, aims to use femtocells to increase its capacity by providing location billing with home zone plans.
According to Robert Wiggins, mobility research fellow at Yankee Group's enabling technologies service provider division, Vodafone will give away a femtocell if two members of a household sign up with the carrier.
Analysys' Brydon says femtecells could also provide a superior alternative to converged cellular/Wi-Fi services, such as those based on UMA. Mobile operators could offer tariffs similar to those of UMA-based services, with low-priced calls for the home and premium-priced calls elsewhere.
Leonidas Sivridis, analyst at Visiongain, says a key advantage of the femtocell solution is improved coverage and customer satisfaction that can be achieved without customers having to change the mobile devices they use. UMA-based services require dedicated handsets. Also users of voice over Wi-Fi connections can experience patchy connections. Services delivered over unlicensed spectrum also tend to be more prone to radio frequency interference, despite the wide availability of Wi-Fi hotspots.
'Given there will always be more single-mode handsets than dual-mode and as networks move toward LTE, quality indoor coverage over licensed spectrum will be particularly important,' Sivridis says.
Motorola's Owen believes femtocells will impact the installed Wi-Fi base, extending in-home networking capability beyond the 'tech-savvy' population. Wi-Fi, usually a class-licensed or unlicensed technology, is prone to interference even within the home from technologies using the same frequency bands. Guaranteeing connectivity and ensuring user quality of any voice, video or web-browsing service can be difficult at the operator level with Wi-Fi because there is little control on the end-to-end network experience.
Today most DSL providers don't take responsibility for home Wi-Fi routers unless the operator provided them. The reality is that for a truly end-to-end, fully secure and high-performance in-home network, some consumer technical expertise is required, Owen says.
'Femtocells not only allow operators to extend their cellular voice coverage deep into the home environment, but also are easy to set up and provide guaranteed end-to-end performance.'
Seamless integration
Despite these anticipated advantages, some industry players admit that femtocells are still at an early stage and a number of business, technical and regulatory issues need to be solved before operators deploy them widely.
On the technical front, choosing the appropriate way to integrate with the mobile core is the greatest challenge for operators, says Sivridis. At present vendors use one of three main approaches to address the integration issue. These include: connecting to legacy RNC using the same IP tunneling protocol as 3G; using a concentrator or connection protocol such as UMA; or using IMS and SIP to support femtocells.
Another challenge is to ensure seamless handover between femtocell base stations and macro base stations, says ip.accecss' Tiller.
On the commercial side, femtocell vendors need to bring down the price of the access point from the present $200 per unit to $100, a price level comparable to Wi-Fi nodes. Unless this happens, it is unlikely that the consumer market will take off, Wiggins at Yankee Group notes. 'Wi-Fi router sales did not take off until products reached the $100 price point or less,' he says. 'Femtocells require a similar price point, or subsidization to gain meaningful market penetration.'
However, Motorola's Owen believes such a price drop depends on the volume take-up of femtocells in the market. 'If as some analysts predict, the volume requirements for femtocells increase rapidly, we would also expect to reach the expected price-points,' he says.
For the market to boom, femtocell access points will also need to be easy to install. Tiller says vendors are working on making femtocell base stations and access points completely plug-and-play for end-users.
Operators in some countries also will need to clear regulation hurdles on managing licensed-spectrum deployments in the home and ensuring they conform to local emissions laws. In Japan, for instance, current regulations make femtocells illegal because a licensed technician is required to install equipment operating in a licensed frequency. In addition, end-users need to apply for a license to install a femtocell base station at home, says a spokesman at NTT DoCoMo.
'That is why we are installing indoor base stations like picocells in combination with a dedicated line [DoCoMo is renting this dedicated line from NTT],' he says. 'Unless the regulation changes, it would be difficult to achieve a fast penetration of femtocells.'
Despite all the drawbacks and uncertainties, widespread commercial deployment of femtocells could occur as quickly as 2008, bringing far-reaching consequences to the mobile industry, Analaysys' Brydon predicts.