There's an excellent marketing book which documents theories and experiments to prove the irrationality in human behaviour. Some of these concepts could easily be applied to how femtocells are priced and marketed – and also explain some of the feedback and (dare I say) hostility to some pricing models. Let me explain what it uncovered about free pricing, and discuss how that might affect femtocell pricing offers.

Our  irrational behaviours do have a pattern after all

The book (Predictably Irrational: The Hidden Forces That Shape Our Decisions) has been written by Dan Ariely, a professor of psychology at MIT in the USA, and covers a range of our irrational behaviour. I won't summarise the entire book, but pick out a specific chapter relating to the power of free (rather than low) pricing.

An example of how free changes our behaviour can be derived from the price for postage and packing from Amazon, the popular online retailer. They changed their policy to include free shipping for all orders above a certain threshold – and watched while sales increased in all subsiduaries around the world.

…..Except one.

In France, they reduced the price of shippping to one Euro (about $1). In that country, and that one alone, sales did not increase by nearly the same amount as elsewhere. When Amazon then aligned their policy to free shipping as elsewhere, the same increased results occured.

Ask yourself whether the attraction of free shipping by spending only another $0.02 more to cross the threshold has resulted in you buying another book/item that you wouldn't have considered before.

So it is with pricing in mobile telecoms. Like lemmings, we flock to the “Free” handset or “Free” minutes, kidding ourselves that the long contract that tying ourselves in is a small price to pay.

Pricing for Femtocells

Some early femtocell and UMA/WiFi offers have tended to highlight unlimited free nationwide calls when at home. But there is often a monthly fee associated with this benefit.

List pricing for femtocells (or UMA phones) themselves can be low. In some cases, we've heard of service providers providing these free of charge as part of a deal to retain customers about to cancel. But no-one is yet promoting femtocells completely free of charge (even when tied to a contract or as part of a wider package).

But what if femtocells are incorporated into more expensive home hubs?

We are seeing femtocells being added into more widely featured home hub boxes. AT&T Wireless are rumoured to be integrating these with uVerse and FiOS into a single combined solution. Other products typically include a broadband modem, WiFi, router and other features. Even if femtocells do get down to the target total cost of $100, when combined with other features then the total price could easily be double that.

This is in the territory of the price of a good smartphone or similar device, so still feasible to include free as part of a wider package.

What if users don't want to upgrade their phone so often?

We're not yet at the stage where developments in mobile phones have slowed to an extent that we don't always want to upgrade every 18 to 24 months when our contract comes up for renewal, but as the market matures this is more likely to be the case.

The penchant to upgrade to the next release of Windows operating system has lost its glamour, and Microsoft have had to market Vista and Windows 7 more attractively. We're also seeing the effects of the economic downturn seriously affect mobile phone sales, as many postpone that optional upgrade.

It may be that in the not too distant future, customers may prefer to accept a free femtocell instead of a phone model upgrade.

The price of the femtocell can be split between multiple members of a household

Whatever the arrangement between those sharing a house, whether a family, couple or group of friends, there can be an incentive to be given a free femtocell. This could be based around some members of the group switching contracts to the same provider, or all members signing up to a group discount deal (but still paying separately).

Prepaid vs Contract

Most of the pricing and suggested market offers we've seen so far have been based on long term contract (post paid) subscribers. With a known minimum income from these contracts, finance departments can easily determine the return on the overall package.

The vast majority of mobile phone users today are prepaid. Even in developed countries such as Italy, this is the dominant form of payment used by business customers. With no long term contracts, phones themselves are typically not subsidised, and the price to the customer is much more transparent.

We'd therefore expect that offers will initially be much more like Verizon Wireless – a fixed price (launch price was $249 + tax).

So what can be free with femtocell pricing?

For those on long term contracts, a free femtocell can be costed into their package.

For those signing up for broadband internet on a long term contract, where a free modem/WiFi access point is often included, there may be an option to include a femtocell with higher priced packages. This would most likely be incoporated into the broadband modem: 

• in the US, where Cable broadband is more common, this could be incorporated into a new set-top box that also handles higher speed broadband service. (Such as what AT&T Wireless are rumoured to be considering with their uVerse+femtocell box).
• in Europe and other countries, where DSL over copper is more common, this could be incorporated into the more advanced ADSL2+ modems that will be needed to achieve the higher speeds becoming available today.
• For enterprise customers, femtocells are unlikely to be incorporated into such combined products and instead remain separate, connected by Ethernet through the corporate network. It may be worthwhile to integrate them with WiFi, but many corporate IT departments will want to have secure control over that and could well have enterprise WiFi in place.