First, China got the iPhone, and then it got femtocells. So far, China’s response to the iPhone has been tepid and it’s not clear whether femtocells will fare any better.
Femtocells, long touted as a way to fix patchy in-building coverage, keep customers happy with at-home coverage and lower backhaul costs, have simply failed to thrive.
Adoption on the consumer side has been sluggish, and carriers are turning to higher-capacity picocells and microcells to mend holes in their network. While the news that the home base stations are coming to China is certainly good, it’s unlikely that growth in a single market could offset sluggish worldwide demand for femtocells.
ABI Research analyst Aditya Kaul estimates just 790,000 femtocells will be sold this year – and that’s on a worldwide basis. The problem, it seems, is that no one really knows what they’re good for.
“When I look at femtocells’ value proposition, it looks like carriers are aiming a fairly expensive device at a fairly small segment of consumers: Those with poor in-building coverage and an existing broadband connection,” says analyst Mike Jude with Frost & Sullivan. “This is a really expensive way to burn up minutes.”
Jude isn’t overly impressed when he looks at femtocells’ use case for data, either. “If you look at femtocells in the domain of data, the use case becomes even more weird: I’m supposed to be spending money so I can pump data over a connection that’s less reliable and less quick than the wireless router I already have.”
The only thing differentiating the use case for femtocells in the Chinese market is the current iPhone on sale in China doesn’t have Wi-Fi. As a result, the iPhone’s Internet users are dependent on the China Unicom network to handle their bandwidth-hungry Web browsing.
A home femtocell could go a long ways towards boosting the indoor user experience, something that hasn’t been the case in other areas of the globe where devices like the iPhone have Wi-Fi connectivity.
The closely-timed launches of the iPhone and a femtocell for China Unicom subscribers seems to hint at this use case, but the close-mouthed carrier hasn’t given clear details as to availability of its femtocell service, which it’s dubbed “3G Inn.”
Femto Forum: Poised for Growth
Backers of the mini base stations insist that the market is poised for growth despite low initial adoption rates. Simon Founders, chair of the Femto Forum, insists that femtocells are about to take off.
Founders expects the cost of the devices to drop considerably in the near term as volumes increase, thereby spurring consumer adoption. Instead of citing consumer-side demand for the products, however, he points to carriers as the primary demand drivers.
“We’ve got over 50 operators in the forum: More than two-thirds of their traffic is indoor traffic,” Founders says. “You’ve got to reduce the cost per bit massively and it’s really only femtocells that do that.”
The Femto Forum backs this up with a commissioned study on the business case for femtocells conducted by Signals Research Group earlier this year. In a June update on the study, the Signals group argued that carriers could use femtocells to reduce backhaul costs associated with indoor device use.
According to Signals’ analysis, “the cost savings associated with offloading at least 1.4 GB of HSPA data per month onto the femtocell from a coverage-constrained macro cellular network would justify a free femtocell being dropped into the home.”
It’s not clear whether carriers buy that argument. Verizon’s femtocells, euphemistically dubbed “network extenders,” cost $250. Sprint Nextel’s AIRAVE femtocell costs $100 but comes with a $5 monthly service fee. AT&T’s femtocell, the 3G MicroCell, is still undergoing consumer trials.
None have given any indication the devices will be offered free to consumers with the hope of reducing backhaul costs. Instead, the devices are most commonly used to placate customers threatening to defect because of spotty in-home coverage.
The Signals analysis of the femtocell industry stops short of making predictions as to the devices’ success. The outlook from other research firms is murky. ABI Research attributes femtocells’ sluggish sales to the recession and says there are signs that carriers are preparing to more aggressively push femtocells as the economy improves. However, ABI’s final note is one of caution, saying that an en masse network launch of femtocells is unlikely.
Juniper Research has published similar forecasts, predicting “multimillion dollar revenue opportunities for vendors and mobile operators alike as early as 2010/11” – a grim sum for worldwide sales.
Critics of femtocells suggest that the industry has not found a compelling use case for the devices. Back at Frost & Sullivan, Jude suggests that the technology may become obsolete if the industry doesn’t discover some innovative uses.
“This is a market that could easily be overwhelmed by the march of technology. The 700 MHz spectrum that’s out there for development is very penetrating, making buildings that used to be impenetrable become somewhat transparent to the new spectrum,” Jude says. “When you get to that point, the reason for having femtocells kind of goes away.”