Femtocells are tiny, low power 3G radio systems that plug into a residential broadband connection to provide a mobile signal directly in the home.
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Business case for operators
With about 30% of mobile calls made at home, operators with coverage holes in residential areas have the potential to significantly increase revenues by deploying femtocells. An ARPU gain of €11 per month (spread across all users in the household) would more than cover the fully subsidised cost of a femtocell. Combined with a “femtozone tariff” femtocells can be used to encourage substitution of voice minutes from the fixed line phone. Unlike homezone tariffs (based on macro cell ID), femtocells actually reduce the cost of delivering calls, and provide discounts that don’t leak outside the home.
Femtocells also encourage the adoption of mobile data services. Delivering high-speed mobile data inside buildings is a tough challenge for the macro network. Femtocells give a faster data speed and better user experience, encouraging greater use of data services inside the home, where new services are often tried first. As subscribers become familiar with using data services inside the home, so they will use the same services more outside the home as well.
Equally importantly, femtocells allow the operator to deliver data services at a very low cost, because the traffic is backhauled to the core network over the household’s existing broadband link. These cost savings can be passed on to customers (e.g. via femtozone tariffs), making the mobile phone competitive not only with the fixed line telephone, but also with the TV and PC for entertainment and information services in the home. This is strategically important to mobile operators as they adopt new business models based on revenue share with web and media partners instead of per-megabyte data pricing.
If mobile TV and other bandwidth-hungry data services are to be commercially successful, operators need a way to deliver this data cost-effectively via the 3G network. Femtocells help in two ways. Firstly, removing indoor data sessions from the macro network reduces the number of users each macro cell needs to support. Secondly, because of the way WCDMA works, if indoor users are served via femtocells instead of from the macro cell, the capacity of the macro network increases out of all proportion to the number of users who have been removed from the cell.
Even ignoring the revenue earning opportunity from femtocells, the cost savings from off-loading the macro network alone provide a strong business case for operators to deploy femtocells. If usage of high-speed mobile data services increases to a level equivalent to watching one 3-minute 384 kbps video session per day, an operator with 10 million subscribers could save €500 million over 4 years by deploying femtocells to 20% of its subscribers’ homes instead of upgrading its macro network – even with a full subsidy on the femtocell.
Consumer propositions
Ultimately the success of femtocells depends on mobile operators finding the right combination of discounts and new services to attract end users, and to overcome potential objections to more clutter in the home or irrational fears about mobile phone emissions. This will involve careful customer segmentation and creative marketing. But the potential benefits for operators are significant, and should more than justify the cost of these initiatives, including femtocell subsidies and service discounts.
In addition to offering a better user experience and better value for mobile voice and data services in the home, operators can also offer value added services via the femtocell, such as automatic podcast reloads, home presence services and personalised mobile TV. These femtocell services and tariffs may be included within a broadband package, with the femtocell itself being integrated into the home gateway.
