Opinions about Femtocell Business Case

Managed Service Business Model for femtocells

Femtocell OutsourcingA Scottish firm has been pushing the envelope on who and how femtocells may be sold and operated. Hay Systems, who have designed and launched their own 2G GSM femtocell, have announced two new routes to market. Here, we look again at the option for outsourcing the femtocell operation as a managed service.

What is a managed service for mobile networks

Mobile networks around the world have been outsourcing more and more of their operations in recent years. Large equipment vendors such as Ericsson, Alcatel-Lucent and Nokia-Siemens have all provided huge resources to build and operate mobile networks in many countries. In more recent years, this has included these companies taking over the field staff and equipment of existing networks - examples such as Ericsson taking over Sprint for $5B.

Outsourcing is not limited to running just the towers/cellsites. We've also seen huge deals where the likes of IBM have taken over the back office departments, including operator's inhouse software development teams, billing and customer care.

What are the benefits?

Financial benefits are achieved through applying best practice and shared resources across multiple networks. Investment decisions made within the managed service can be based on the returns from (say) a 5 year outsource contract, rather than the short term returns of (say) 12-18 months required to justify internal project funding.

The operator retains the market strategy, key decision making and performance management. It will decide what type of services and technology are to be used, and monitor key metrics to ensure they are being met.

We've seen even further steps taken in outsourcing and rationalization such as a joint venture company setup to consolidate the radio network assets and operation for two competing networks. T-Mobile UK and 3 setup Mobile Broadband Networks Limited , which owns and outsources all 3G network activities to Ericsson. It plans to decommission some 5000 redundant 3G cellsites whilst also expanding the largest European HSPA high speed 3G network.

A femtocell managed service

With this background of outsourcing rife across the world, perhaps it isn't surprising that an operator might be interested in operating their femtocell service as a managed service. Rather than each individual operator having the learn the specifics and specialities involved with this new technology, they could outsource to a common provider who would provide the expert knowledge and systems required.

To a CFO, this could appear attractive. Lower initial investment, faster time to market, less risk - it all makes for a great business case.

The flip side of this approach is that femtocells when offered to end consumers affect a wide range of different departments across the operator. Examples include:

  • Internal systems updates and training are required for all customer facing staff from the dealers shop staff, call center sales staff to the call center complaint/problem staff and customer retention team.
  • Technical planning and integration of the femtocell subsystems, including fault tolerance/redundancy, capacity planning and load analysis on existing sub-systems
  • Billing system updates and configuration for both prepaid and contract customers
  • Online shop, retail and other sales channels including procurement, provisioning and shipping processes.

Several leading industry players have told us not to underestimate the different areas of bringing a complete femtocell solution to the domestic market. Lauren Town of Orange/France Telecom highlighted this from her experience of launching the Uniq UMA service which predates femtocells using WiFi.

In other words, this isn't a simple drop-ship point solution that can be segregated off to one side.

Could this work for enterprise market alone?

One area that is often sub-contracted by network operators is the installation of picocells and Distributed Antenna Systems (DAS) in large office and commercial buildings.

Since this doesn't affect other departments within the operator - it's more like installing a few cellsites with clear specifications - this work can be separated off.

I guess the existing picocell installation sub-contractors would be looking at this new market. Whether they see it as a threat or an opportunity depends on its size and effectiveness. There is still a lot of specialist expertise required when installing any equipment in-building such as understanding if the existing IP networks can be shared to support femtocells rather than installing additional cabling. 

And isn't that what several femtocell vendors/integrators have already been supplying anyway?

The major femtocell players have already been supplying extensive system integration knowledge and expertise during many trials around the world. Many of these companies already provide managed services for large networks - indeed Alcatel-Lucent have been winning a lot of managed service contracts recently and claim to operate more Nokia-Siemens basestations than NSN do themselves.

Surely they would be better placed to simply take over/offer a full managed service, having gained the experience through many trials in different countries and already having huge managed services divisions.

Femtocells requiring comparatively small initial investment (even if it does affect many different departments), because the bulk of the cost is the femtocells themselves. This means the financing of the units themselves is the critical investment and highly linked to the other aspects of the femtocell business case. With the femtocell business case still in its early stages of evolution, this makes it more risky for operators to outsource because they don't know the parameters yet.

But perhaps there is a niche opportunity here

I recall when mobile data first appeared as a service in the 1990's (we are talking circuit switched data at 14k bits/second now!), it was extremely difficult and fiddly to get it to work. Compatibility issues between laptops, handsets and networks were complex. A single specialist company in the UK provided 2nd and 3rd line technical support for all the UK networks, saving each of them investing in this small and complex (but highly profitable) aspect.

There will no doubt be other examples where femtocell specialism is required, either serving the end customers or providing aspects of the overall solution to the network operator.

Summary

My view is that the femtocell operation is very tightly integrated with many different aspects of the network operator's internal systems and staff. This means that it would be difficult to offer this as a completely separate managed service.

There may be aspects of the solution which can be outsourced and this may be easier to achieve for enterprise femtocells.

In this early stage of market development, there will undoubtedly be several niche opportunities for enterprising businesses to capitalize on. Let's watch out for other innovative new ideas.

We also wrote about Femtocell Outsourcing in April 2009 and came to the same conclusion.

 

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