Free article: Is there a business case for femtocells? 

Awareness of femtocells is being heightened by new products, early deployments in the USA and the enthusiasm of leading mobile network operators, but the business case for femtocells still needs to be defined. The concept of indoor base stations has captured the imagination of mobile network operators, who are keen to drive up voice and non-voice ARPU, because the technology promises to provide significantly better 3G indoor coverage in a targeted and relatively inexpensive way.

In the USA, indoor coverage is perceived to be relatively poor. In September 2007, Sprint launched a commercial femtocell service, Sprint AIRAVE, to customers in Denver and Indianapolis, using hardware manufactured by Samsung. Indoor coverage is generally better in Western Europe than in the USA as the population is less widely dispersed, and because there has been concerted investment in coverage. Nevertheless, Western European operators’ interest in femtocells has also been growing. Widespread deployment of femtocells came a step closer when Vodafone issued an RFP to a number of suppliers, and its CEO, Arun Sarin, declared a strong interest in the technology. At Vodafone’s July 2007 quarterly results update, Sarin announced that the deployment of femtocells would be a productive way to use the operator’s 3G spectrum and predicted that the roll-out would start from the middle of 2008.

The potential advantages of femtocells are apparent, but mobile network operators still need to define robust business cases for commercial deployment, in which investment must be more than matched by increased revenue and/or cost savings.

Better indoor coverage will encourage mobile users to make and receive calls at home using their mobile phones instead of their fixed lines. Lowering the price of mobile calls made within a narrow zone around the femtocell might stimulate even more usage, but mobile network operators must take care not to reduce these charges too much. Customers are using their mobiles at home increasingly often even without femtocells, and paying significant price premiums to do so; there is a risk that offering lower prices for calls made in the home via a femtocell could reduce voice revenue.

The high capital investment in femtocells must be counteracted by a reduction in spend on traditional 3G network infrastructure. If femtocells are widely used to support voice and intensive data services in the home, this traffic need not be carried on the mobile operator’s macrocell network, saving capacity and obviating the need to build more outdoor base stations to boost indoor coverage. However, if the macrocell network is already providing acceptable indoor coverage, and the service mix is such that there are no capacity issues, there may be few opportunities for cost savings.

The deployment of femtocells could also reduce operators’ need to invest in dedicated broadcasting networks, such as DVB-H; these generally have to be built from the ground up, so cost savings in this area may be substantially greater than on macrocells for operators that have already rolled out extensive 3G networks.

As illustrated by Figure 1, operators should concentrate on the following:

• maximising the incremental revenue that will be earned from femtocells
• maximising the savings on network infrastructure costs brought about by the use of femtocells
• minimising the cost of femtocells, provided this does not result in elimination of features that enhance revenue
• controlling other costs, such as marketing, without compromising service take-up.

Figure 1: Major revenue and cost elements of a mobile network operator’s business case for femtocells (Source: Analysys Research, 2007)

The report Femtocells in the Consumer Market: business case and marketing plan shows mobile operators how they can make femtocells profitable by designing compelling consumer propositions for key market segments. It considers voice telephony and a number of non-voice services that will be critical to a viable business plan. The report quantifies the business case for providing femtocells to different customer segments, and for offering various service mixes, in order to pinpoint the most attractive opportunities. It also compares the business case for femtocell deployment with that for a number of other options, including network sharing, UMA services, home-zone tariffs and traditional bundles, and defines exactly where, how and when operators should use femtocells in order to achieve the best return.