Free article: Operators need a viable business case for femtocell deployment

An increasing number of mobile operators are investigating the opportunities presented by widespread deployment of 3G indoor base stations, known as femtocells. However, such deployments would require a large initial capital investment, so the risks are high and success is not a foregone conclusion. Many operators are focusing on the technical challenge of integrating potentially millions of femtocells into their mobile networks, but they must not overlook the need for a viable business case. To be successful, operators will need to create compelling consumer propositions that are targeted towards the most appropriate segments.

Operators will need strong consumer propositions for femtocells if they are to achieve greater take-up than dual-mode handset services

Femtocells have rapidly developed from an interesting emerging technology to a feasible deployment option for mobile operators. For example, in the USA, femtocells are viewed as a means of improving the relatively poor indoor coverage experienced by many mobile users. Sprint Nextel launched a femtocell service, called Airwave, to customers in Denver and Indianapolis in September 2007, and intends to roll out the product nationwide during 2008.

Indoor coverage in Western Europe is generally better than that in the USA, but Western European operators have shown a strong interest in femtocells. For example, Vodafone issued a femtocell request for proposals to a number of suppliers earlier this year. The operator’s CEO, Arun Sarin, announced in July 2007 that femtocell implementation would provide a productive use for Vodafone’s 3G spectrum, and predicted that deployment would begin in the middle of 2008.

Initially, mobile operators have focused on the critical implementation issues that need to be resolved before 3G femtocells can be deployed widely, which are considered in the report Picocells and Femtocells: will indoor base stations transform the telecoms industry?.

These issues include:         

• interference
• quality and range
• network integration and evolution
• network management
• handover
• tolerance of broadband backhaul limitations
• billing
• security.

The focus on technical issues has meant that engineering departments have been more involved than marketing or business development functions in the evaluation of femtocells. However, as well as making sure that femtocells work, operators must build robust, viable business cases for their deployment, and effective marketing plans to drive them into the market.

Mobile operators may be able to construct strong business cases on paper, but it will be more challenging to realise them. As shown in the forthcoming report Femtocells in the Consumer Market: business case and marketing plan, mobile operators will need to target the appropriate segments with compelling service propositions. There are important lessons to be learned from the introduction of dual-mode UMA services, which their providers claim offer enhanced coverage and reduced call charges for voice calls made in the home (just like femtocell-based services). Despite the early hype and expectations surrounding dual-mode UMA services, take-up has generally been disappointing. For example, by April 2007, BT had gained just 40 000 customers for its BT Fusion service in the UK, after 18 months of operation. Similarly, Deutsche Telekom attracted fewer than 10 000 customers to its T-One service in Germany between August 2006 and March 2007, before withdrawing the service.

The early failure of UMA services can be partly attributed to the limited range of compatible handsets, but take-up has also been hindered by:

• the lack of segmented marketing
• weak service propositions
• general apathy among potential customers.

Mobile users will have to perceive significant benefits from femtocells to justify the effort involved in changing their service or switching mobile networks. The prospect of reduced pricing on voice calls has not, so far, been sufficient to encourage mainstream adoption of UMA services. Mobile operators that want to achieve success with femtocells will need to build a more compelling service proposition that encompasses a much broader range of services than voice telephony.