Strong on the inside

18 MAY 2011

There are few topics in the telecoms industry which are able to generate such extreme differences of opinion as femtocells. Against a backdrop of harmony about the need for additional spectrum, and the fact that LTE is the migration path of choice for the majority, there are some real differences of opinion when it comes to the way that small cells can be used to improve network coverage.

To some degree, there is an agreement that small cells are an ideal tool to provide targeted network coverage in hard-to-reach areas, as an extension of the operator network. Last week, for example, UK telecoms watchdog Ofcom said that it envisaged a future where femtocells will be used as part of a smorgasbord of solutions intended to maximse the efficiency of mobile networks.

The conflict is when it comes to the deployment of femtocells in the home, as a way to provide improved voice and data services to consumers using their broadband connection. Earlier this year, Australian operator Telstra questioned the economics of using femtocells to offload traffic in the home, arguing that laptops and tablets are the devices generating the most load, and these are generally connecting to WiFi networks anyway. And when its rival Optus launched a femtocell trial, one analyst firm accused the company of “passing the buck,” by making the consumer pay to get a better connection in the home.

The last point is interesting. For many operators, the adopted business model sees customers charged for the femtocell, which then uses their existing broadband connection to connect to the operator network – which again the user is paying for. Indeed, in some cases, femtocell use has been counted as part of a subscriber’s inclusive allowance, despite the fact that load on the operator network is minimised.

Taking this into account, with the consumer paying for the femtocell and the broadband connection to the operator network, it is easy to see why the promise of improved coverage alone may not be enough to pique interest.

Driving customer demand
There is much to recommend offering devices free-of-charge to subscribers, with the operator bearing the cost. Some figures suggest that 60–70 percent of mobile traffic is generated by users when static, within buildings. By offloading this traffic to a femtocell, operators can make best use of their costly macro network infrastructure to serve customers on the move, reducing the need for additional infrastructure or frequencies to improve capacity – where these are practical options.

Indeed, femtocells can prove an effective way of serving heavy users while also addressing the ‘bandwidth crunch’ faced by networks. Heavy users are generally big spenders, making them attractive customers, but the cost of meeting their needs is disproportionately high. By using femtocells to reduce this cost, it is possible for operators to make more profit from these big spenders – rather than seeing them as “problems” in network planning terms.

For the operator looking at the longer-term game, there are other potential benefits to be derived from femtocells. For example, by offering no-cost data access to mobile devices via the femtocell, operators may be able to change user behaviour to increase data use from the handset (or tablet), which will then continue when the subscriber is connected via the macro network – creating the potential for additional mobile data revenue. Femtocells can also be linked with location-aware apps to provide an enhanced user experience, or could potentially be used with embedded mobile modems for home automation or M2M applications.

In addition, once a customer has deployed a femtocell from a specific operator, the chance of other members of the family switching to this operator is improved, and the likelihood of churn reduced. Over the course of a standard service contract, this could more than cover the cost of the home equipment, even if offered to customers free-of-charge.

Some operators are beginning to be more creative with their femtocell plans. Last year it was reported that not only was operator SoftBank planning to offer femtocells free-of-charge, but that it would also throw in a free DSL backhaul connection. The trade-off for consumers would be that these femtocells would be open to other SoftBank subscribers, but the coverage and offload benefits offered without charge could easily outweigh the downsides.

This kind of approach also shows an operator that is thinking creatively about how best to balance its macro network deployments with adoption of alternative technologies. By offering consumers free femtocells and broadband connections, it is effectively increasing the penetration of its network inside hard-to-reach areas such as buildings, providing a benefit to a much wider proportion of its customer base.

Steve Costello

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members

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