Opinions about Femtocell Business Case

The strong operator business case for free hotel femtocells

hotel-with-poolThe holiday season (in the Northern Hemisphere) will have seen many head for the sunshine and/or beaches. Many look to escape from work and domestic pressures, having little or no communication other than sending a postcard. A growing number however do want to keep in touch, whether to keep an eye on business activities or to share their experience with friends and family. More often these days, people prefer to do this via email rather than voice call because it allows more control of the duration and response time for each message.

Poor connections in a Greek Hotel

My own experience this summer was to stay in a beach hotel on a Greek island. Wired telephones were provided in each room, but were rarely used. 2G mobile voice coverage was available from several networks (including Vodafone Turkey – the country was visible from the hotel balcony and just a few miles away). 3G signal was occasionally available, but I couldn’t reliably access email or internet through any mobile data network. The hotel did have provide a PC with internet access for rent, but this was very slow (and in Greek, which gave me security concerns because I struggled to clear the cache). Wi-Fi service wasn’t available. A visit to the coffee shop with free Wi-Fi in a nearby town was much more successful, although much less convenient.

I suspect this is quite a common scenario for many on holiday this year.

Roaming Charges

The cost of making and receiving voice calls when abroad has come down significantly in the European Union in the last few years. Additionally, there are a variety of special offers which offer even lower rates for short periods in return for a fixed fee.

Data access is another matter entirely. My own operator (Telefonica O2) charges a fixed price of  £3 (about $5) per Megabyte from all networks across Europe. One survey of UK operators reports the average charge is down to about £2/Megabyte

This compares with in-country rates of £5 per Gigabyte (1000 times more than a Megabyte), indicating just how steep these data roaming charges are and how lucrative this traffic is for the network provider.

Data roaming remains highly profitable

A typical revenue split of 80/20 applies when roaming: the visited network gets about 80% of the revenue for delivering the service, your home network receives about 20% for billing you. In most cases, visitors can use any available network and will often choose the one with the best coverage or speed. This means that it is very much in the interests of the visited network to provide excellent coverage and service, capturing the most of this extremely profitable traffic and revenue stream.

The business case for Hotel Femtocells

I know that if a good strong signal and data throughput were available to me at my hotel then I would have used it. This is much more attractive to me than the hotel wireline phone, especially since no Wi-Fi alternative exists. Even where Wi-Fi is available in many hotels, the cost of using it and/or hassle of connecting to it are outweighed by the convenience of just using the mobile device.

From the visited network’s perspective, I would expect the payback on a femtocell at a hotel to be very quick during the holiday period. The cost of providing it, even with its own dedicated DSL broadband line to ensure adequate capacity, would surely be very profitable. Calls made when away from the hotel would likely be carried on the same network, further adding revenues. Unless you believe data roaming charges will drop by 100x or be bypassed by Wi-Fi, then surely there is a very strong business case here.

Let’s say cost to the operator of providing the femtocell, including backoffice gateway and support etc was $500. Add in provisioning of a dedicated DSL line, say another  $500 per annum. Adjust these figures up or down to suit. Total cost in year 1 is $1000, thereafter $500 or less. Annual roaming revenues from just 200 Mbytes of data traffic (assuming some 90% profit margin), or perhaps 3000 minutes of use (or a mix of both), would make this profitable.

Where the hotel's existing DSL broadband is used and/or lower cost femtocells used, then the breakeven point becomes even more attractive.

The Hotel Owner's Viewpoint

From the hotel owner’s perspective, it might be a bit more complex. Some, like mine, have invested in wireline phones in each room. These are based on paying back through premium call charges over a period of time, and may not have been quite as profitable as forecast because few holidaymakers tend to use them while business people may instead choose to use their mobile phones for convenience. Installing a femtocell may be seen to detract from revenues from wireline phones and/or any Wi-Fi service they provide. I believe the days of wireline phones in hotels are over – their high cost and inconvenience compare poorly to either the mobile phone (convenient) or VoIP (low cost).

The other business driver for the hotel owner to install wireline phones and/or Wi-Fi is to improve the facilities and attractiveness of the hotel itself – more discerning clients may actively choose hotels which provide this feature, leading to higher room occupancy rates and associated revenues. This is in my view much more important to the overall success of the hotel business.

Summary

Network operators may need to convince hotel owners of the attractiveness of the femtocell option and make it easy for them by providing free femtocells and possibly dedicated wireline broadband connections. Surely the business case to do so must be very attractive to both parties. The operator's technical department may also find this easier to accept because these serve remote and otherwise difficult to reach coverage areas, freeing up capacity for outdoor use.

Let’s hope that by next year roaming data service will be widely available and reasonably priced.

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Comments   

#1 NGUYEN VAN CUONG said: 
I wonder how I can use femtocell in hotel for my roaming call when I am aboard
0 Quote 2010-09-02 04:16
 
#2 John said: 
Surely just offering better indoor coverage won't be enough to encourage high takeup by hotel owners. Even if the femtocell is free it still needs some time to order and install it. Large cellsites are sometimes part paid by giving the landowner a free phone or other discount. If this is so lucrative to the operator and there's a bit of competition between them to get theirs installed first, perhaps the hotel owner should get some incentive or kickback. It might depend on the amount of revenue/profit generated.
0 Quote 2010-09-03 09:24
 
#3 ThinkFemtocell said: 
@nguyen: I didn't mention that these femtocells would be fixed in the hotel but provide open access for anyone visiting, so no need for the hotel owner to manage access. From the visitor's point of view, they do nothing differently - it just works and gives them 5 bar voice and data service automatically. I wasn't considering the case where visitors take their own femtocells abroad - this is illegal because the femtocell transmits on spectrum not owned by the home network operator.

@John: Good point. Tracking revenue share from individual calls might require some additional complexity in the billing systems, but surely some incentive scheme (especially at the beginning) could be very effective.
0 Quote 2010-09-03 11:14
 
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