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Is this the dawning of the age of the femtocell?

Alan Cane
Financial Times
5 March 2008

The Next Big Thing might prove to be very small indeed. PA Consulting Group recently published five key decisions it thinks communications, media and entertainment companies will have to make this year.

Its list comprises:

  • deciding on what business your company is really in (think News Corp, think Microsoft);
  • the advantages to be had from network sharing;
  • a strategy for winning in wireless broadband;
  • whether to migrate customers from 2G to 3G;
  • and whether there is a future for femtocells.

Now femtocells, which used to be called the equally jargon-clad "access point base stations", constitute the hottest of hot buttons at the moment. They were a big talking point at the Mobile World Congress in Barcelona last month.

Simon Saunders, chairman of the recently formed Femto Forum, says these little devices represent a safe and low-cost way for cash-strapped operators to upgrade and extend their networks. He, of course, has his forum's axe to grind. But femtocells are an attractive proposition.

They take the concept of the cellular base station down to a personal level - low-power and low-cost wireless devices that can be installed in a home or office and linked to a wireless operator's network via the internet - typically using a DSL or cable broadband connection.

Once connected, a femtocell can link several handsets or other wireless-enabled devices to the network.

Mobile network operators should be enthusiastic, because in principle femtocells offer a way for them to compete in the home with fixed network operators without further expensive network upgrades.

They also offer a viable alternative to the growing threat to their revenues of Voice-over-IP and Wi-Fi. And a femtocell works with all existing handsets.

Although the technology is new - it was developed by a group of Motorola engineers in the UK only in 2002 - it is already being tested in the US, Europe and Asia.

Late last year, the US group Nextel rolled out a trial of a home-based femtocell built by the Korean electronics group Samsung. Its chief attraction, however, is cheaper residential calls.

At the Barcelona congress, the UK operator O2 said it was planning a trial based on femtocells from the Japanese group NEC with a view to launching a service next year. Other trials are under way.

Femtocells are available from leading electronics manufacturers, including Alcatel-Lucent, Ericsson, Motorola, Nokia Siemens and Samsung, and innovative UK companies such as ip.access.

Such heavyweight support, would seem to guarantee that femtocells are a valuable addition to the armoury of wireless technologies available to network operators. Nothing, however, comes without cost and there are a number of problems that have to be solved before the base station on your wall becomes a reality.

Industry standards and business models apart, there are three main issues.

The first is interference. Making macrocells and femtocells work together can require careful spectrum planning; furthermore in tall residential blocks, femtocells on different floors can present problems. These are, after all, volume consumer electronics products that are expected to be sold directly to customers for self-installation.

This laissez-faire approach is in direct contrast to the complex, algorithm-based planning that mobile operators undertake to ensure their base stations are placed most economically and effectively.

Second, regulation. Femtocells operate in regions of the spectrum that are licensed and therefore heavily regulated. This raises all sorts of issues.

What, for example, if a customer unplugs the femtocell and takes it to another location or another country with a different regulatory structure? Who pays if someone piggybacks on another user's network. And how can operators convince themselves and their regulator they know where all the base stations are? This is a regulatory requirement in many countries.

For now, the biggest practical issue is cost. A full-scale mobile base station costs hundreds of thousands of pounds; the expectation is that you should be able to buy a "base station in a box" on the High Street at a High Street price.

PA Consulting recently carried out some theoretical research which suggested a femtocell based on a single-chip processing platform could be produced at a factory gate price of $100. Chris Buist of PA says: "For operators, the situation will be a little like handsets - do you subsidise them or not? The price will initially be high and then come down quite a lot as volumes increase."

Femtocells would seem to have a bright future and communications and media companies should be planning what to do with the extra coverage they will bring and the new services - including mobile television - that they will make simpler to provide.

After that, they have only the other four issues PA considered be critical to consider.


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