2015 promises to be the most successful year for residential femtocell shipments, with confident forecasts in the region of 3.5 to 4 million units shipped. We consider what's driving this market segment, the reasons behind strong demand for 3G and how the transition towards LTE will affect it.
A healthy 3G market
Speaking with several leading residential product vendors, the market for 3G femtocells remains remarkably buoyant. The primary use case remains dealing with poor indoor coverage for voice calls. Years of practical use, several large scale deployments and growing experience from the field has matured the technology, making it robust and predictable.
Existing vendors continue to find traction in this market - there are still operators issuing RFPs for solutions - and many predict a long life for 3G only product. For example, Greg Pannell, Senior European Business Development Manager for ZyXEL, stated the group have shipped significant volumes of residential 3G Femtocells in the last year and sees a strong demand for their 3G femtocells in 2015 and beyond.
They are compatible with the vast majority of smartphones, there are few frequencies or modes to choose from (almost all are in the 2100 or 1900MHz bands). Although they share the same frequencies as macrocells, the very nature of their use case (a lack of macrocell signal) radically reduces any potential interference with the outdoor network.
The largest deployments worldwide are probably in the US (e.g. AT&T) and Europe (Free France has been a major disruptor, Vodafone a strong proponent).
While I've recorded relatively few new public residential femtocell launches in the past year, it does seem that most of those who have invested in gateways and integration already continue to capitalise on that.
What's holding back LTE only residential Femtocells
From a technical viewpoint, the maximum data rate is constrained by the residential wireline broadband connection. In many cases, this will be less than 10Mbps – already far exceeded by 3G Femtocells and so 4G couldn't achieve a faster transmission rate.
With 4G, the end-to-end latency should be slightly lower, resulting in a better user experience including much faster voice call setup using VoLTE. Voice quality may also be improved but this can be matched by using the same HD voice codec available for 3G.
Unit cost will initially be much higher, perhaps 2x that of 3G only Femtocells. That's because of the additional complexity involved with 4G, including higher processing power. In the early years of any new technology adoption, component vendors (especially of the dedicated silicon SoC) will want to recoup heavy investments and so charge premium prices at the outset.
That could change if there was a radical disruptive market move, such as Verizon, China Mobile or NTT DoCoMo choosing to place a very large order.
Drivers for LTE-only Femtocells
Contrary arguments that encourage LTE residential Femtocells include those for brand marketing. Who wants to promote older 3G technology when LTE is all the rage? Some marketing departments only want to see superfast 4G on their marketing materials and will accept a premium cost to support that (justifying premium prices to their customers too no doubt).
Faster headline speeds are still attractive: Wi-Fi hotspots in our homes have far exceeded the capabilities of residential wireline broadband for some years. It's not uncommon to have 802.11n capable of 150Mbps or more connected to a few Mbps line. Customers value not just the higher speeds but improved performance and resilience of the later generations of the Wi-Fi standard.
3G CDMA networks, specifically Verizon, Sprint and KDDI Japan have stronger incentives to move more quickly towards an all LTE network. 3G CDMA Femtocells are considerably more costly than their 3G UMTS equivalents, reducing the price gap between LTE only alternatives. Adoption of VoLTE requires pervasive LTE coverage, encouraging widespread deployment of in-fill solutions.
MVNOs with their own dedicated LTE spectrum also have significant opportunity. Specifically in the UK, both BT and TalkTalk are actively trialling LTE only residential Femtocells with a view to mass deployment and market disruption. While TalkTalk remains an MVNO reselling mainstream mobile network services, it also has its own LTE-capable spectrum and substantial residential broadband customer base. BT had also been planning a similar strategy and its unclear how this will be affected by its latest purchase of mobile network EE. Definitely one to watch during 2015.
Does VoWiFi negate the need for residential Femtocells?
We recently featured Alcatel-Lucent's perspective on Voice over Wi-Fi, which suggested that while the technology has its place in the scheme of things, it isn't the nirvana in all cases. Call quality, phone support and transfer to the cellular network will play an important role. There will be a place for VoWiFi and it has significant long term potential, but the promise vs reality may be different for some time. The more robust technology today would use small cells.
What about dual-mode residential Femtocells?
Very few such residential products exist on the market today – multi-mode is much more common in Enterprise segment, which command a higher price point.
NTT DoCoMo's Xi dual mode 3G/LTE residential femtocell developed by the operator itself is probably the only commercially deployed example worldwide today. I don't think this down to a lack of technical capability elsewhere to develop such a product, more that the much higher price point (say three times that of a 3G only femtocell) wouldn't be justified in many markets.
Femtocell vendor roadmaps
Most of the existing 3G only vendors seem to have some LTE project in the pipeline, at various stages of maturity. We might expect them to launch 4G only products when the time is right, then later evolve to 3G/4G dual mode as and when the market demands them.
A few new entrants have appeared with 4G only products, especially from Asia. Qcell, Fujitsu, Aritel, Contela spring to mind. In the US, Airvana offer a single cell based on the Qualcomm platform. Several Chinese small cell vendors are at an advanced state with TD-LTE products that could later become attractive elsewhere.
The relatively healthy state of the residential femtocell market may surprise some. Gloom and doom has been partly based on outdated, highly optimistic forecasts and a view that Voice over Wi-Fi will suddenly remove the need for such products.
My observations are that 2015 will be another growth year for this established market segment. Shipments of 3.5 to 4 million units will contribute to a total market size worth anything up to $1 billion, where hardware, software, professional services are included. Ongoing support and maintenance for existing deployments (approx 10 million today) also provides a contribution.
This excludes small cell business in other market segments, such as Enterprise and Urban. While it may seem small beer compared to other inbuilding technologies (e.g. Infonetics recorded 161 million consumer Wi-Fi hotspots shipped in 2013), this segment satisfies a requirement that would require much larger investment with alternative technology to achieve similar results.