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Femtocell Business Case is scalable and attractive say Femto Forum

Femtocell Domestic Business Case The Femto Forum today announced release of a femtocell business case modelling tool for their members. They’ve also used it to prove an excellent business case, even with conservative figures. We spoke with Simon Saunders (Chairman of the Femto Forum) and Randy Luening (VP Wireless Economics at Signals Research Group) to uncover the facts.

Background

The Femto Forum spent much of 2008 working through the major obstacles against femtocell takeup, which were mainly technical and standards related. With uncertainty around the commercial business case, the Forum has been working on this for some months.

Recognising this is no small problem, they commissioned an outside consultancy, Signals Research Group (SRG), to create a tool that their members could use to justify the operator’s business case. SRG took input from the members to determine the parameters to use, and combined that with their existing inhouse models.

The modelling tool will be available for individual members to use and adapt to their own commercial and regional parameters. The Forum isn’t specifying what price point or type of commercial offer each member should make. Instead it’s enabling them to develop and validate their own plans.

Scope

The modelling tool can handle a wide range of technologies (CDMA, GSM, UMTS, HSPA, LTE etc.) as well as a wide range of ARPU levels. Many scenarios were run, but the ones which we’ll hear about in the coming weeks are based on the most common aspects:

  • Domestic (rather than Enterprise/Small Business)
  • Contract subscribers (rather than prepaid)
  • 3G UMTS (rather than CDMA  or GSM)
  • Initial deployment size targetted at 100K femtocells per operator

Simon claimed there were no “heroic” assumptions – if anything, somewhat conservative figures were used. As with any type of modelling, some sensitivity analysis was conducted. The cost of the device was significantly less important than the customer lifetime (good news for femtocell vendors).

Key Findings

Two primary scenarios are given

1. Customer Lifetime Value grows from 1600 Euros to 2500 Euros with a femtocell

I suppose this is saying “Give a customer a femtocell and they’ll be a happy customer”!

It is likely to change their behaviour, resulting in more calls (both in and outbound).

The model estimates that churn levels are reduced by 20%. When you take into account the cost of acquiring new customers versus retaining existing ones, then this is significant.Since we're only considering sales of femtocells to contract customers here, the higher churn levels of prepaid customers don't apply. Typical ranges for churn in European operators today are around 16-25% (so an average lifetime of 4-6 years). This is extended by 20% to something like 5-7 years.

The costs associated with the femtocell including that of the box itself, plus the cost of sale and backoffice aspects including provisioning and billing integration.

These values exclude additional potential revenues from adding new family members (it’s common for members of the same family to be with different operators/networks), or additional new services. These could grow the lifetime value to as much as 3500 Euros.

2. Improve coverage for mobile data

Many operators will want to build out reliable mobile broadband data services. They can do this by building more and larger outdoor macrocells (cell towers), or by giving away fully subsidised femtocells.

If we assume that an operator wants to achieve something like 2.5Mbit/s data performance everywhere, the model suggests that comparable costs between these two methods would be:

  • Fully subsidised femtocell 320 Euros
  • Outdoor macrocell only 900 Euros

With a femtocell to yourself, then much higher data rates (and/or lower latency) would also be a benefit. It just wouldn’t be commercially viable for an operator to achieve this level of indoor performance using macrocells.

Many other scenarios were considered including the data offload.

It’s not a massive initial investment – it scales with takeup

Femtocell investments have quite a different profile from large outdoor deployments. When 2G or 3G networks were rolled out, operators took a deep breath and wrote out cheques for very large sums – often billions of dollars. They gambled that the customers would signup and buy their service.

Femtocells aren’t a “build and they will come” type of investment. The initial commercial deployment is limited to installing femtocell gateways, some back-office integration aspects such as ordering/billing/provisioning and customer care. All other costs are then directly related to takeup.

Starhub rolled out their femtocell service with an initial maximum of 200 users, who could live anywhere in the country. You couldn’t take this approach with a macrocellular service – look at Clearwire which currently offers WiMAX only in two cities in the USA, compared with Verizon and Sprint offering femtocells almost everywhere for a fraction of the initial investment.

Where to find out more

You’ll have to join the Femto Forum if you want the full toolkit and modelling software. For the rest of us, we’ll have to be content with a White Paper due to be published on the Femto Forum website next week.

If you're visiting Mobile World Congress in Barcelona next week, pop along to the Femtozone where there will be (free of charge) presentations and knowledgable people to discuss this with.

In Summary

The Femto Forum have produced a toolkit for modelling femtocell business cases, intended for their own members. They have used it to demonstrate common scenarios for domestic 3G contract customers, showing that:

  • Customer Lifetime Value grows considerable where a femtocell is provided
  • It’s about 3 times cheaper to deliver 2.5Mbit/s data service everywhere using femtocells than simply increasing the traditional basestations.

Obviously, you’d expect the Femto Forum to provide supporting material for the wider adoption of the technology, and does provide some strong arguments.

As a sideline, the scalability of the business case (especially the low initial investment), makes this a more attractive solution in these times of economic uncertainty than some others requiring a higher initial ticket price. For me, this was a significant aspect I'd previously overlooked.

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