Small Cell Business Cases

Vodafone Sure Signal stock shortages highlight what a residential femtocell is really worth

sure-signal-out-of-stockVodafone UK ran out of supplies of their latest Sure Signal femtocell last week – their latest 3rd generation model is sometimes called a femtoplug because it resembles a mains electrical plug. Their online shop posted a "currently unavailable" status on the product, and shops with stock found they were being quickly snapped up or redirected elsewhere.

This led to rumours on the Vodafone forum that the service itself might be discontinued, with one customer being told by customer services that "we've had a top level instruction saying NO more Sure Signal devices are to be supplied". In practice, this was simply a case that there weren't any available in stock at that time.

This week, the online store is back to normal and accepting orders – presumably fresh supplies have been delivered and stocks replenished.

 


There's no public information as to whether this was a supply chain problem causing late delivery, Vodafone simply underestimating demand and not ordering enough, or some other procurement snafu. But the publicity does show that shipments are still in significant numbers, and that shortages are noticed and cause problems with real customers.

Further evidence of demand can be measured on other selling channels

So where do you turn to if you can't buy one in the shops or online store? You've guessed it – eBay has been a hive of activity over the past couple of weeks. The graph below (courtesy of NetTrajectory) plots the actual selling price for auctions of "nearly new" Sure Signal boxes. The regular retail price is £100 (approx. $150), although in some cases they are given free of charge to high value customers threatening to churn.

ebaysuresignal

While we often hear the story that customers are unwilling to pay for a residential femtocell, this also sets an indication of how much they are really worth when unavailable through traditional channels.

The chart shows that several units were changing hands every day for in excess of £140, and peaked at £170, a 70% premium on the list price of new equipment. As you might expect, when prices rose the number sold dropped.

Some might say this validates that Vodafone have got the list price point about right, leaving them to discount heavily should they so choose and/or give them away free in specific circumtances. Others may argue that it should be much cheaper (effectively free, as happens with SFR in France). A third view is that the standalone pricing model doesn't encourage high volume and units should be bundled in a similar way to handsets, set top boxes or broadband internet modems.

How could Vodafone avoid stock shortages in future?

The end-to-end system for Vodafone's Sure Signal is supplied by Alcatel-Lucent in more than 10 countries, and consists of network equipment (femtocell gateway), provisioning and monitoring systems in addition to the femtocells themselves. In the early days when the system was still being debugged, all Sure Signal boxes had to be procured through Alcatel-Lucent. They subcontracted the hardware design and manufacturing to Sagemcom, and later expanded their range of suppliers to include several other Far Eastern ODMs.

Nowadays, however, Alcatel-Lucent enable almost anyone to build femtocell products and supply them directly to their customers. They've introduced a software licensing scheme similar to that of Ubiquisys, where they provide a complete hardware reference design for ODMs to adopt. The ODM can tweak this to reduce manufacturing costs and tailor the packaging/physical format to differentiate by size, shape and/or colour.

Alcatel-Lucent then test and certify new prototype hardware against their own gateway in their labs to confirm it is fit for purpose. Once approved, ODMs can directly sell and ship products to operators. When these are physically installed and switched on by the end customer, the appropriate software is downloaded from Alcatel-Lucent's gateway. Software licence fees are required for both the femtocell and gateway. The gateway is smart enough to handle multiple versions of software for different types/generations of femtocell concurrently, much in the same way that Apple can cope with different software updates to the various iPhone platforms they've shipped over the years.

The latest ODMs to join Alcatel-Lucent's party are Taiwanese vendors Askey, announced late last year, and ZyXEL, announced at Mobile World Congress 2013.

Ubiquisys also operate a similar scheme, distributing software and updates from the cloud via the Akamai CDN (Content Delivery Network) using Flexera software licencing system. Their Cloud solution handles the full lifecycle of software distribution from initial installation through retirement. Ubiquisys have been licencing their software to vendors in a scheme they've named "Femto Engine" since 2009. Partners using this scheme announced to date include SerComm, Tecom and Public Wireless.

ODMs differentiate on physical format and cost

This approach allows ODMs to do what they do best. They tend to be very good at driving the cost down for high volume consumer electronics, and introduce new and interesting shapes, sizes and colours. It also allows operators to negotiate directly with the manufacturers and tailor the logos and packaging to suit their needs. In return, the ODMs would expect large orders which their factories and supply chains are designed for.

This isn't a new concept – we've seen this happen with many other mass-produced electronic equipment from Wi-Fi access points to mobile phones. Other ODMs are lurking behind the scenes too – I saw a residential femtocell model on display made by Foxconn (who manufacture the bulk of iPhones for Apple). Where in the past, some have attempted to build their own from scratch, the route of licencing software from an existing vendor like Alcatel-Lucent or Ubiquisys takes a lot of risk and time-to-market out of the equation.

Operators also like this approach because they can be more confident of fewer technical compatibility issues, while still gaining from wider choice and potentially lower prices through competition.

Further multi-sourcing aspects

Most gateway vendors have adopted the Iu-h standard, which makes it easier for different femtocell products to be used. In the longer term, this will also help widen the choice for procurement departments and further stimulate the market.

It's also important to have diversity of components through the supply chain. If every ODM used the same chips or components, then a shortage of a single item could completely halt production everywhere. This is why most designs have second-source suppliers as an option, such as oscillators, memory chips etc.

There are two dominant 3G femtocell baseband chipset vendors (Mindspeed and Broadcom) and multiple suppliers for the RF chipset (although MAXIM seems to have the lion's share). This diversity helps protect the industry from a complete shutdown. The market for LTE and multimode 3G/LTE designs is also strongly competitive, with several chipsets/vendor eco-systems emerging that make it likely that the diversity will continue.

Summary

The eBay graph illustrates the pricing elasticity of a residential femtocell, with a value as much as 40% above list price.

The wider eco-systems of femtocell manufacturing, combined with open standards are allowing increased choice of product, price and device format.

But perhaps the lesson here is not to let your procurement department run low on stock. Ensure they have at least two suppliers to choose from with different underlying components.

Oh, and make sure you've got a clear market communication plan for dealing with such incidents.

PS: Vodafone has replenished supplies and their online store now accepts orders again. Astonshingly, eBay recorded another sale at £147 yesterday (list price is £100) despite this. Perhaps we should start selling them online here at that markup!

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