Femtocells - What are they and why are they important?

Given news last week that, on the one hand, Deutsche Telekom is no longer promoting its FMC offering (T-one - just 2,000 users in 6 months) and, on the other hand, Vodafone talking about how it's Fixed-Mobile Substitution service, @Home/zuHause, is taking off (2 million subs in Germany already), we thought it would be useful to look at Femtocells - new devices that could help mobile operators penetrate deeper into the Digital Home market.

Whether it's network coverage, retail presence, or compatibility with existing infrastructure, the winning strategy over and over in telecoms is "out-distribute the other guy". Telco 2.0 event sponsor ip.access describe below how femtocells help execute this strategy for operators. There is some irony in operators using expensive licensed spectrum to deliver their nemesis -- open Internet access -- to mobile devices. However, we think this will prove to be a winner against Wi-Fi/UMA access -- whose proponents will over-estimate the importance of speed and low price, and under-estimate the overall user experience, the lack of dual-mode handsets and the distribution ecosystem of cellular. Andrew Tiller, who'll be speaking in the 'Digital Home' workstream, explains:

"Why femtocells?

Femtocells are tiny access points that plug into a residential broadband connection to provide a 3G mobile signal directly in the home.

Apart from being able to extend network coverage where none previously existed, femtocells have the potential to play a significant disruptive role in Fixed Mobile Convergence.

Delivering high-speed mobile data inside buildings is a tough challenge for the macro network. A home femtocell not only delivers fast (HSPA) data rates, but it does this at very low cost because the traffic is backhauled to the mobile operator's core network over the household's existing broadband link.

These cost savings can be passed on to customers in the form of targeted "homezone" 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.

But do people really want to use mobile data services at home? After all, the PC and TV are readily available, free, and in many ways more natural choices for video entertainment, Internet browsing, social networking, instant messaging and other applications.

Interestingly, it seems that the mobile phone might indeed retain its appeal, even when pitted against the PC and TV. For instance, a recent McKinsey report ("The Revolution of the Third Screen", October 2006) highlighted that 35% of mobile TV is watched in the home. And the mobile phone has advantages, such as privacy for IM sessions and Internet browsing, as well as the convenience of being immediately to hand for quick tasks like Internet search.
Much of the user-generated content shared on the Internet is captured on mobile phones, and RSS feeds and podcasts are often consumed on portable devices. It makes sense to upload videos and photos directly from the mobile phone to websites like YouTube and Flickr, and also to download podcasts and music directly to the phone from the web. Doing this on the macro network is expensive, but will be much more affordable using a femtocell at home, and much more convenient than transferring everything via the PC.

Encouraging use of mobile data services at home, especially for web applications such as social networking and Internet search, is strategically important for mobile operators who have begun to embrace Internet business models. Instead of charging per MB for data, they are beginning to share content and advertising revenues with web and media partners. The more users purchase and download content directly to their phones, and the more they use the phone for Internet search and social networking, the greater the advertising and content revenue a mobile operator can generate. And the cheaper it is for the operator to deliver the data, the more profitable these revenue sharing deals become.

And as subscribers become familiar with these services inside the home (where femtocells provide a fast connection and an attractive price), the more they will use the same services outside the home as well.
In fact, femtocells have an additional, hidden benefit outdoors. Because of the way W-CDMA works, power is shared amongst all users in a 3G cell. If some users are indoors, the radio signal must be forced through walls to reach them, and their phones therefore consume a large share of the available power. The net result is that quality of service is degraded for outdoor users.

If the indoor users are served via femtocells instead of from the macro network, outdoor users will benefit from a significant improvement in quality of service, as the capacity of the macro network improves out of all proportion to the number of users who have been removed from the cell.

All this adds up to an attractive proposition for consumers and operators alike. Consumers get attractively priced, high-quality voice and high-speed mobile data services in the home, and seamless handover to the macro network when outdoors. Mobile operators benefit from lower costs and increased usage, leading to profitable revenue share with their Internet and web partners. What's not to like?"

Come to the Telco 2.0 session on 27-29 March, London to understand more about this...!