Small Cell Business Cases

Free shakes up the residential femtocell market in France

Freebox with femtocell moduleOn Friday, Free commercially launched a residential femtocell module for their existing Freebox. This will capture 3G calls in the home, providing much better signal quality and offload traffic from macrocells. Since Free, a new mobile operator in France has to pay substantial annual roaming fees to France Telecom, the switch to residential femtocells has a strong business case for them too.

We've been reporting about this plan since two years ago, in July 2011, so it's nice to see it come to fruition, and clearly indicates a execution of a calculated long term strategy which could affect the industry worldwide.

We examine the business drivers, reveal who's behind the design and manufacturing, and consider whether this approach has the same potential to shake the telco industry up as have low cost airlines in the aviation sector.

A little bit of background about Free

Free, the brand name for parent company Iliad, have cause structural changes to the fixed and mobile telecom industry in France. First, they offered low cost triple play DSL/VoIP/TV for €30/month (about $35) and radically shook up the wireline business.

Then they've repeated the same trick for mobile.

After launching their 3G mobile service in January 2012, they offered such attractive pricing that they captured 60% of all new subscriptions. Their unlimited data/voice/SMS package is only €20 (approx. $26) and discounted further to €16 for existing wireline broadband customers. Although mobile broadband speeds are reduced after 3Gbytes/month, this affects very few customers.

This has had a dramatic effect on the other three mobile networks, who have had to radically reduce their costs including laying off staff.

Each Freebox is also a Wi-Fi hotspot, accessible by all Free subscribers, and this helps offload considerable amounts of 3G mobile data traffic which would otherwise add to Free's roaming bill from Orange.

And now they've launched their own residential femtocell module

Free now offer their 2.5 million Freebox Revolution owners, from their total base of 5.3 million broadband subscribers, a free plug-in femtocell module which can be quickly slid into the spare slot in the box and almost immediately provide high quality 3G coverage in the home, in the same way as Wi-Fi.

The new femtocell module is compatible with the latest Freebox model, called the Revolution, which has been shipping since 2010. It's free to existing subcribers (€10 shipping fee), but more importantly will be included in every new Freebox shipped from now on.

A custom in-house development using commercial components

It is my understanding that Free have developed a lot of their own technology in-house for their Freebox, and have also done so for the femtocell – taking commercial hardware and software components and assembling them into a bespoke solution that closely meets their needs. They took a similar approach with their Freebox in the first place.

It is believed to be based on Broadcom's residential femtocell chipset design and engineered to be very cost effective. Clearly, this must have been a long term strategy because the spare Freebox slot had been designed in and manufactured since 2010.

Several web references suggest that Node-H provided the software stack while Arcadyan provided the hardware and manufacturing.

The photos below show the module and how easily it slides into a spare slot at the back of the set top box.


What do subscribers think of it?

Some might say that 3G indoor coverage is already more than good enough. Reader comments indicate this is not so, for example:

"Personally, I am in a city in the Paris region and I really had a rotten home network service from Free as well as Orange, Bouygues and SFR. Fortunately 3 months ago, Orange has added a site and I can finally call or receive calls from home. The femtocell will allow me to switch to Free with a lower RF emission level from my mobile."

Could this become the fastest and largest femtocell deployment?

If you consider that there are 2.5 million Freebox Revolution installed and increasing at a rate of about 1 million per year, you can see there is huge potential for a very large installed base quite quickly.
There are four reasons why this could quickly become the world's largest femtocell deployment:

a) There is a strong commercial incentive for Free to promote them. This isn't about the simple case of churn reduction, instead there is a stronger financial incentive to reduce the €2 Billion national roaming fees which would otherwise be paid to France Telecom.
b) Customers don't have to pay to get one. They are free to anyone with a Freebox and Free mobile subscription.
c) They are incredibly simple to install by existing customers. Just slide into the spare slot at the back of the unit.
d) They will be incorporated in every new Freebox shipped.

There may already be substantial stocks in the warehouse in preparation for launch. We've heard that a Taiwanese vendor, Arcadyan, is manufacturing them at a rate of 3,000 per day according to these articles here and here.

Projecting 12 months forward to mid-2014, one could imagine there would be 1 million new Freeboxes plus a rough guesstimate of 20% upgraded (another 500K) = 1.5 million units. This would put it on a par or ahead of AT&T and Sprint in the US, currently the largest two deployments, and increasing at a faster rate.

Competitors also offer residential femtocells

France is one of only two countries (UK being the other one), where all mobile operators offer residential femtocells to their customers. SFR has been offering their's free of charge for over a year (you get your €49 Euros back when you activate it). They have shipped over 200,000 units to date and so demonstrate the appetite for the product.

France Telecom/Orange and Bouygues also offer standalone femtocell products.

One could imagine some "pull through" for their femtocells also, which would have to be matched at the same price point despite their higher costs due to being standalone and lower volume.

The equivalent of low cost airlines?

It's tempting to compare Free's business model with that of the low cost airlines. There are many comparisons with restricted access (spectrum vs landing slots/airspace), high capital investment, long lead times for upgrades, attractive consumer offers.

One wonders if Free's unorthodox approach will be copied elsewhere and create greater competition by unleashing much greater volumes of residential femtocells than we've seen to date.

This is a bold move by an innovative and disruptive company, and worth watching closely. We've hinted that this might happen for quite some time, so I'm guessing there will have been substantial testing and validation of the solution before committing to volume.

It's also interesting to compare this incremental investment (say $100 million or so in the first year) with the $ billions being pumped into buying spectrum, LTE equipment and nationwide cellular network upgrades elsewhere. Part of the question is whether it will it make a perceived improvement to call quality and performance in the home compared to using the forthcoming VoLTE solution from other operators?

Visit Free's website


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