Free article: Femtocells - the compelling case for indoor base stations

Small, low-cost indoor base stations, often referred to as picocells and femtocells, could present the opportunity for mobile operators to make a radical departure from their traditional cellular network architectures. The prospect of substantial cost savings and new service opportunities from this change is generating intense interest in the mobile industry and a growing number of companies are now developing products. Of all the wireless technologies that have been hyped in recent years, indoor base stations could be the one that really does have far-reaching consequences.

In principle, indoor base stations can be applied to a variety of wireless technologies, such as GSM, W-CDMA (including HSPA), CDMA2000 1x (including EV-DO), 3G LTE, WiMAX and WiBro, although in practice, not all of these will be commercially justified. By far the biggest opportunity will be with 3G femtocells in households, to provide high quality coverage and improved tariffs and services for customers.

For mobile operators, there is a compelling case for the widespread deployment of 3G femtocells. Faced with the need to improve in-building coverage significantly, 3G femtocells offer a real, and potentially much cheaper, alternative to massive further investment in 3G macrocell networks. Our modelling shows that mobile operators could benefit significantly, particularly if they have a small number of customers. A typical small operator could save an average of about USD45 per customer per year by 2012 by deploying 3G femtocells in 60% of customer households. However, the analysis also illustrates that if mobile operators do not think big enough, there may be a risk of being caught in ‘no man’s land’, expending great effort on integrating a large number of 3G femtocells but still not avoiding significant macrocell investment, if most customers do not take up femtocells. 3G femtocell deployment to 20% of households would only save about USD20 per year by 2012, as significant numbers of macrocells would still be needed.

With 3G femtocells, mobile operators also have a number of revenue opportunities, for example from fixed–mobile substitution. 3G femtocells could allow mobile operators to offer relatively cheap, high-quality voice calls when mobile users are at home (to drive fixed–mobile substitution), while maintaining a significant premium for mobile calls when users are elsewhere. Operators could also offer various group subscriptions and tariffs linked to femtocells, for example to attract all the members of a household to their networks. Femtocells will also allow mobile operators to respond against emerging converged cellular/WLAN services (such as the BT Fusion UMA-based service in the UK), by offering very similar tariffs without the need for special handsets.

3G femtocells are set to have far-reaching consequences for the telecoms industry. While mobile operators have previously invested heavily in the construction of macrocell networks, they will increasingly divert their investment towards indoor base stations, with profound implications for cellular network infrastructure vendors. Indoor base stations will drive the migration of voice traffic from fixed to mobile networks, with 3G networks eventually carrying the vast majority of voice telephony. However, indoor base stations will also reverse fixed–line substitution in developed countries, as fixed broadband capabilities are needed to connect femtocells back to core mobile networks, and will help to drive DSL penetration to very high levels.

The new report Picocells and femtocells: will indoor base stations transform the telecoms industry? defines how indoor base stations could be used across different wireless technologies, including 2G, 3G and WiMAX. It considers the business case for their application and identifies the issues that need to be resolved to enable widespread deployment. It quantifies likely revenue and cost benefits, including the savings that can be made by avoiding the expansion of macrocell networks. It also assesses the strategic impact of home base stations on the telecoms industry, including fundamental changes to network evolution. The report draws on interviews from a wide range of indoor base station experts.