The other side of the femto proposition
07 January 2008
Operators should take care with their femtocell models, says Gareth Willmer.
European mobile operators that launch femtocells early could gain a significant first mover advantage, according to some industry observers. At the same time, operators should carefully consider the case for femtocells before launching, to ensure that they have an effective business proposition when entering the market.
The rationale behind the strong first mover advantage is that several customers in a shared location can benefit from a femtocell at once and may be prepared to switch SIM cards to receive a high quality indoor service or a cheaper proposition.
Most of Europe's major operator groups have been carrying out technical trials of femtocells or have issued requests for proposals (RFPs). And in November, Telefonica O2 and France's Bouygues Telecom announced that they had signed up to the Femto Forum, an industry body promoting femtocell technology.
The operators were among 30 new members that joined the forum, among them global operators and major vendors. Other European operators are also on board but have not yet been named.
A recent report from consulting group Analysys concluded that femtocell rollouts would require a substantial initial capital investment, so operators should ensure they do not overlook the need for a viable business case.
But although operators are looking at the technical challenge of integrating femtocells into their networks, many are keeping their business models for deployments close to their chests while the technology remains unproven.
The first movers in the femtocell market look likely to be converged operators. For them, one of the main challenges could be how to position services alongside current FMC offers. Before the market takes off, one method could be to continue providing the existing service as a mid tier product while aiming femtocells at high end users. This could be necessary before femtocell volumes ramp up and costs come down.
Existing FMC services have, however, largely failed to gain traction in Europe so far, suggesting that it could be difficult to attract customers to these kinds of proposition. Nevertheless, femtocell technology solves one of the drawbacks of current FMC offers in that it can be used on existing 3G handsets, whereas at present dual mode Wi Fi devices are required.
Significantly, Orange France experienced a surge in subscribers to its Unik service earlier this year after it increased its handset range, in addition to introducing new tariffs. In less than three months, from March to June, Orange succeeded in raising its daily sales volumes tenfold, with subscriptions more than doubling to 257,000.
The take up of FMC services has, however, also been hindered by other factors, with Analysys highlighting a lack of segmented offers, weak service propositions and a general lack of interest among consumers. Certainly, operators would do well to take heed of the lessons learnt from launches so far.
It could also be a challenge for operators to drive uptake of femtocells in a country such as Germany, where home zones, which enable cheap calls in and around the home, have already proved popular.
And operators should perhaps consider new ways of delivering value added services before rolling out femtocells en masse, as voice only strategies might not deliver large incremental revenues in the long run.
For example, the technology could be used to deliver high quality mobile TV, video and audio services indoors, helping to substantially reduce investment and achieve significant capacity and cost savings. In addition, femtocells could make it easier for users to download content to a mobile handset or alert parents when their children arrive home.
Indeed, operators could consider launching femtocell tariff bundles based around the family. For example, a family member signing up to a postpaid contract could have the option to add other prepaid or postpaid subscriptions to a bundle.
Meanwhile, critics are already pointing out weaknesses in draft business models that have been mooted for femtocells. In particular, they have concerns that the lack of standards or best practice for deployments means that a poorly executed launch by one operator could weaken consumer confidence in the technology.
Critics have voiced concerns about security risks, including interception of calls and malicious use of femtocells by criminals, as well as potential problems in terms of interference, network integration, regulatory approval and maintenance.
Operators would therefore do well to carry out a detailed analysis of both the business and technical proposition for femtocells before launching. It could, however, take several years before the technology gains mass market appeal.
And some believe that it will serve only a niche market of heavy users. In a December report, consultancy Arthur D Little suggested that an array of factors, including femtocells' requirement of a broadband connection to function, would limit their popularity. This, says the company, "will only result in a femto penetration of maximum 10 20 per cent".
Gareth Willmer is editor of Mobile Communications Europe
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