Is it viable for a new entrant to run a mobile network consisting only of femtocells? They'd need to buy some spectrum, arrange a favourable roaming agreement with an existing operator and ideally have a large installed base of wireline broadband customers.
Spectrum is fetching lower prices than before, and being sold in different ways
With governments keen to find ways of raising cash, one potential avenue is selling off any spare spectrum lying around. The French government didn’t manage to sell all 4 of its 3G licences back in 2001, just missing out on the bonanza of billions spent in the UK and elsewhere at the time. They are now proposing to sell this off during 2009 in smaller chunks.
What spectrum are we talking about?
Pretty much all 3G UMTS spectrum sold in the worldwide 2100MHz bands were bundled in lumps of 10MHz paired spectrum, with some operators (often the new entrants) winning 15MHz. This allows operators to run two separate 5MHz UMTS carriers, simplifying planning and allowing two-tier frequency design.
The French regulator is now proposing to split this unused 15MHz spectrum into separate 5MHz chunks, hoping that more than one bidder will be interested. It’s earmarked at least one chunk for a new entrant. Perhaps the sum of the parts will be greater than if sold as a single unit. It had failed to agree terms of a 619 million Euro (approx $800M) sale to Iliad. It’s therefore hoping to raise more than 200M Euros for each 5MHz carrier.
This led me to reconsider if there is a business case for an operator to launch with a femtocell only approach. Femtocells do require the operator to have licensed frequency spectrum in the standard bands that phones operate in.
Has it happened elsewhere?
There is a precedent for this. A few years ago, the UK regulator identified that the 3.3MHz guard band between GSM at 1800MHz and DECT cordless phones was wider than really needed. Splitting this up into very small chunks (GSM carriers are only 200kHz wide), it auctioned off 12 individual and identically sized parcels at prices ranging from around $75k to $2M. This was restricted to very low power (hence short range) and intended for indoor use with picocells/femtocells.
Typically using GSM picocells and a scaled down GSM core network, these can be installed in ships or small office buildings. Examples include a deal by Cable and Wireless (using Ericsson supplied equipment) to install GSM in all the offices and supermarkets owned by Tesco, a major UK and European retailer. Calls made “on-net”, including between their own offices are effectively free of charge. Calls made to “off-net” destinations are carried within the C&W network and delivered as local calls where possible. Outside the buildings, a roaming agreement with Orange provides national and international mobile phone coverage at commercial rates.
Other applications include an “instant GSM network in a suitcase”, which can be delivered to an emergency/disaster zone and be up and running in 5 minutes.
The primary focus for such an approach up to now has been the enterprise/business market. The cost of picocells, associated network management, installation and other operating costs hasn’t made it worthwhile for smaller scale use.
Femtocells change the economics
Femtocells offer to radically reduce the cost of deployment and associated operating costs of a 3G network, and enable new business models.
France already has one of the highest penetrations of VoIP usage. Wireline broadband penetration is very high, and innovative new services such as IPV are widely available. This is partly due to a strongly competitive market between the encumbent France Telecom/Orange and new entrants such as Iliad and others.
What would be needed to make this work?
A possible business model
- Buy a single carrier of 3G spectrum
- Arrange favourable roaming agreement with existing 2G or 3G operator
- Upsell to existing installed base as premium feature
A consortium could share a single carrier
Since this would be used indoors and at low power, it shouldn’t overlap between femtocells. It should be technically feasible for it to be shared by more than one operator (with some limitations). It would probably require regulatory approval, but if they’re going to make more money and it doesn’t adversely affect other users, then I can’t see why they’d object. Unlike the example of 2G spectrum above, where 3MHz was shared between 12 companies, a large chunk of 5MHz 3G spectrum is more difficult for smaller companies to swallow on their own.
Could this happen?
The limiting factor is probably whether an existing operator would agree to a roaming agreement with attractive commercial rates. We’ve seen several service providers use this model:
- “3” in the UK, Italy and Sweden has only a 3G network, so needs to offer roaming to 2G for users outside its area. After competitive tender, 3 UK switched their roaming partner to Orange a couple of years back. Nonetheless, 3 is still losing money because it hasn’t been able to capture the premium, high-value customers that are most profitable.
- Cable and Wireless implemented this solution for Tesco as part of an enterprise-wide deal as discussed above.
- Comcast plans to launch WiMAX femtocells which would roam to Clearwire’s outdoor network once nationwide coverage is in place.
There are also growing examples of collaboration between operators seeking to save costs by sharing 3G infrastructure:
- Telus/Bell Canada are jointly rolling out a 3G UMTS network across Canada
- “3” UK and T-Mobile UK have formed Mobile Broadband UK Ltd, pooling their joint 3G assets into a single company serving the needs of both
Aspects which would help this business model
- A captive customer base with wireline/cable broadband.
- Upgrading/replacing an existing box which includes a femtocell should be a feasible upsell
- Reduced customer acquisition costs compared to those high dealer bonuses paid to mobile phone shops
- Single Bill/Customer Care
- A tariff package which offers substantial discounts when using your phone at home/in range would both attract users and encourage them to use their phone in places where the discount applies
- Benefits for non-subscribers
- An ability to allow guests onto your femtocell (which could include other family members etc), so they could make calls at much reduced rates, may be quite attractive and encourage some viral marketing of the offer.
An alternative technical option would be to go down the WiFi/UMA route. Some major differences would be:
- No need to buy spectrum - WiFi spectrum is free/unlicenced
- Femtocells are more expensive than current WiFi routers/access points
- New dual mode WiFi/UMA handsets would be needed from the smaller range of products available
- Visitors may not be able to use the system because their phones are incompatible/not configured
A business case exists where an existing wireline/cable broadband operator buys a restricted/limited spectrum licence to operate a femtocell only service. It would require relatively low spectrum licence costs (but it’s possible these could be shared across a consortium), commercially feasible roaming agreement with existing outdoor network operator, and a captive installed customer base.
Comcast is attempting this with their WiMAX offering. Other countries which have mature/competitive mobile networks already may set the right conditions for this to become viable, but its not a straightforward case to prove.