There are many analyst reports forecasting dramatic growth in the numbers of small cells. Rapid growth is predicted across all sectors. The quarterly Small Cell Forum market report lists several. I took the opportunity to ask Dimitris Mavrakis, Principal Analyst at Informa Telecoms & Media, who compiles the report for more insight into the assumptions and basis behind it.
In the latest quarterly Small Cell Market Report, of the 62 million small cells predicted by 2015, 56 million are residential femtocells. Compared with perhaps some 3 million in use today, that's a very rapid growth. Back in 2008, analysts had been forecasting that numbers of 40 million units would already have been reached by now. I asked why this was not yet the case.
"Everyone in the industry had expected numbers to grow very quickly. Operators are saying that unit prices are still the main factor holding back further takeup. The end consumer doesn't understand what the femtocell does, and doesn't place a high enough value on it. Effectively, operators have to subsidise each femtocell – this is commercially viable to prevent churn of high value customers, but less so for normal service to the rest of the market.
"While operators do contribute substantial subsidies towards new devices (smartphones, tablets etc.), these are also under pressure. In some cases, device subsidies can be more than the cost of the supporting network but are still required to remain competitive.
"Vendors would reply that prices could drop dramatically if operators were to buy more. There isn't a technical reason holding back further growth. With over 40 operators having already invested in the core network gateways and integration, they could quickly scale up this side of their business."
Public Access Small Cell Forecasts
The rapid takeup of LTE will be a key driver for small cells. Dimitris sees North America as having enormous potential and expects to see commercially deployed LTE metrocells in the US very soon.
"The high throughput of a small LTE cell ideally requires fibre in the ground for the backhaul – microwave backhaul is possible but more difficult. This factor may constraint takeup in other regions, such as LATAM where LTE is aggressively being adopted.
"We've seen operators asking for considerably more spectrum, as a means to provide the additional capacity for data services. However this on its own won't solve the problem. Even if 2-3 times more spectrum were released, it wouldn't contribute to the 10x or 100x capacity growth required – the laws of physics mean that small cell deployments (of whatever radio access technology) are essential to meet the traffic explosion we are seeing at the moment."
In other regions, such as Europe, ongoing investment in 3G will include growing numbers of metrocells. [Editor's Note: This appears to be confirmed by other analyst reports, such as from Infonetics, iDate and Mobile Experts who are also predicting strong growth in this area.]
Holistic Approach to Capacity
To address the data capacity issue, Dimitris believes a much more holistic approach is needed. The introduction of data caps and video optimisation/transcoding has worked well in many networks, reducing the excessive overload. In some cases, he's heard this has had better results than initially expected. At Mobile World Congress, there was growing interest of public and 3rd party Wi-Fi as part of the total service provided by cellular operators already.
"Cellular operators can offer some unique benefits to their customers when using Wi-Fi. The advent of Hotspot 2.0 and other new technologies should allow them to provide seamless authentication and authorisation. Operators can also offer a more managed and controlled service, rather than just best effort. There were several demonstrations showing how the system could determine and select the best option of Wi-Fi or 3G/4G.
A combination of 3G/4G and Wi-Fi in the same small cells would make best use of all the available spectrum and reduce the proliferation of competing hotspots."
ThinkSmallCell's take on the situation
The residential side of the analyst forecasts seem to be heavily predicated on unit cost. If this deadlock can be broken, the gateways and supporting infrastructure already deployed should be easy to scale up to large numbers. The trigger may be some of the innovative marketing we have seen in France and APAC, or the significant volumes being shipped in North America. Otherwise, the business will continue to grow more organically and not reach the very high estimates originally forecast.
For small cells the picture is much clearer. This recent research report published by Infonetics forecasts some 3 million small cells (excluding residential) of which half are public access. By 2015, they estimate LTE small cell shipments will overtake 3G in 2015 as part of a $2.1 billion small cell non-residential market.