Femtocell Opinion, comment and reviews

Femtocells become DSL modems ?with fries?!

Femtocells with fries Although many initial models of femtocells are standalone devices, which connect via Ethernet to a broadband IP modem, several vendors have already developed integrated DSL modem/WiFi/VoIP and 3G femtocell products. These include major DSL modem players partnering with the small independent femtocell vendors, such as Netgear/Ubiquisys, Thomson/Airvana and the larger players such as Alcatel-Lucent/Sagem.

The overall cost of a combined unit is clearly going to be less than two separate devices – there is a common power supply, case, display (lights or panel) and connectors. The incremental cost of a 3G femtocell is still believed to be around US$ 200-300 in volume, although this is predicted to come down quickly.

We have already seen additional functions being added to the basic DSL broadband modem or Set Top Box in recent years, in much the same way that additional features have been incorporated into mobile phones. Mainstream devices typically support both ADSL and ADSL2+ which can technically support lines speeds up to 24 Mbit/s, whilst downgrading to a few Mbit/s or less for adverse line conditions. Firewalls, DHCP server and packet switches are also often included, with multi-speed ports supporting 10, 100 and 1000 Mbit/s rates. Some of the features, such as VoIP ports which provide one or two additional fixed POTS voice lines with their own landline number and connect to standard telephones using standard sockets, do not have wide adoption. However, the incremental cost of providing the feature means that they are being included as standard.

The long term goal of femtocell vendors is to become the central communications hub of the home, and thus be integrated with the DSL modem itself. This is why leading independent femtocell vendors have partnered with the major DSL modem manufacturers to create combined units. Their intent is that customers will be shipped a single box, which is self configuring/installed, and replaces any older DSL modem with a superset of features and functionality.

Depending on the additional cost of the 3G femtocell functionality, some of which may be subsidised by the operator, this may be bundled in with the standard DSL service package as a small optional extra. In the way that MacDonalds might ask you whether you want French fries with your burger, your communication provider might ask if you want “3G in the home” with your DSL service.

As with any business proposition, the critical economics here are whether the additional price charged to the customer offsets the CAPEX and OPEX costs of providing a more complex service. The current debate seems to be around whether 3G femtocells only have a strong business case around poor coverage (valid in the “exburbs” of North America, but weaker in Western Europe with its high mobile coverage), or whether they can enable high mobile data consumption through low cost delivery and connectivity in the home.

The operator may choose to promote the femtocell as an extra capability because:

  • There are demonstrable savings in their macrocellular network which no longer has to provide large amounts of data connectivity, saving both cellsites/basestations and their own transmission costs from basestations back to their switching centres (termed cellular backhaul costs).
  • There is demonstrable additional revenue compared with not doing so. Cellular networks are under ever increasing competition from long distance and international telephone operators, VoIP providers including Skype, Fring, Truphone etc. Making it easy to continue using your mobile phone for all calls and data would reduce loss to these other services, and capture calls previously made on fixed lines – so called fixed to mobile substitution (FMS).
  • There is reduced churn (and thus savings by not having to pay to attract new/replacement customers through dealer commission, customer signup subsidies and advertising/marketing campaigns). Studies have shown that customers with multiple services are less likely to churn to other suppliers, presumably because it’s a lot more hassle.
  • There is greater ARPU (albeit at lower profit levels) if the mobile operator can sell a package to the entire family which includes both voice calls and data delivered via wireless and DSL/Cable broadband.

Fixed line unbundling has made it a lot easier for mobile operators to offer DSL broadband packages to their customers than for fixed operators to extend their offer to mobile as an MVNO (Mobile Virtual Network Operator). The large mobile operator groups, including Vodafone who previously discounted offering DSL, are now racing to provide this service in many European countries. The combined DSL modem with 3G femtocell is a logical progression of this marketing strategy in these countries.

So if the mobile operators can get the numbers to add up, we can expect to see their advertising offering DSL services “with fries” in the not too distant future.

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