Femtocell can be thought of as the “son of FMC,” rather than using a Bluetooth or WiFi air interface and a specialized phone; it re-uses the GSM or CDMA air interface and potentially your existing mobile phone.  But given FMC’s (Fixed Mobile Convergence) poor market acceptance; why should femtocell be any different?  Reviewing femtocell against the FMC service models discussed in this previous weblog article on FMC, it can be thought of as a hybrid of the dual mode and substitution models.  In that, a short-range wireless system is used in the office/home, however, that interface is the same as the wide area network (GSM/CDMA).  It enables all communications to be managed by one converged operator and hence does not require the enterprise to maintain existing PBX equipment.

Examining some of the FMC failures we’ve seen in the market.  Both Deutsche Telekom (DT) and Korea Telecom withdrew their FMC services, blaming poor service take-up.  A critical issue was the price paid for the service was not significantly lower than the savings incurred by the customer.  This was then compounded by the usability issues around calls being made at home or in the office and not being charged at the cheaper FMC rates; as well as the teething battery life issues.  There was a period in 2006 when it appeared every DT employee was looking for a power socket to recharge their T-One phone.

When T-One was launched a T-One customer paid about €70 per month to get the full range of services, after having paid connection charges of €185. The absolute minimum spent, forgoing the DSL connection, came to about €55. But even this was expensive compared to E-Plus’ flat rate charge of €25 per month with unlimited calls to national fixed and E-Plus numbers (calls to other operators cost 25 cents) – and hence Fixed Mobile Conversion won out!

BT Fusion Plus’s old pricing was 12.50GBP per month plus call charges, so for calls to a UK landline, standard pricing was 80p for one hour, with BT Fusion Plus that dropped to 10p for one hour.  Definitely cheaper, but to recoup the 12.50 per month fixed fee, required about 18 hours of calls (over 1000 minutes).  It didn’t take customers long to work out that wasn’t entirely a good deal.  Today BT bundles the Fusion cost into the minutes plans.

However, a notable exception to these failures is Orange Unik.  France Telecom benefited from a large retail base of broadband customers, and was able to exploit the success of its home gateway, Livebox, which supported Unik (avoiding multiple boxes).  When launched the Unik service offered unlimited, flat-rate calling to all national PSTN numbers for €10 per month, or unlimited calling to all national PSTN numbers and Orange mobile numbers for €22 per month.  Which is a significant value given the penetration of Orange customers for fixed, mobile and broadband is significant in France.  It was also a fraction of the cost of Deutsche Telekom’s T-One service.  This enabled Unik to achieve a penetration of 500k customers in Feb ’08, see this weblog article from SofNet.  Though this remains a small percentage of FT’s total 25.3M customer base; and even in this success-case, the business case is slight as it relies heavily upon the inclusion of savings in retention and acquisition costs.

The critical lessons are: keep the service as transparent as possible with respect to user experience; keep the saving as simple to understand and as significant as possible for the customer.

So now let’s examine some of the hurdles femtocell is climbing:

• Interference between with macrocell and with neighbouring femtocells (especially in flats/condos/apartments) in real-world deployments.
• Quality and range. If a femtocell operates at the same frequency as the macrocell, the range could be as low as 10-20m.  If on clear spectrum, the range can be as great as 150m.  But many operators are not in a position to offer clear spectrum.
• Network management.  A similar problem to DSL modems or VoIP terminal adapters, which has recently been addressed by the adoption of the TR-069 family of specifications.
• Handover.  Macro-to-femto handover is tough (Sprint’s AIRAVE femtocell trial does not do such handover).  Femto-to-macro handover is easy, perhaps too easy; if there is a charging difference the FMC billing problems previously described may recur.
• Tolerance to broadband backhaul limitations.  Latency, synchronization, and limited uplink, especially in rural locations where customers may be inclined to adopt femto to improve their in-home mobile performance.  It likely requires the femtocell provider to also provide broadband to ensure end-to-end quality of service.
• Billing.  Critical issue for previous FMC services, as it resulted in many complaints and high churn
• Security.  Opportunities for fraud increase as the operator extends their mobile network into the public domain.
• Network integration and evolution.  Operators will likely use the Iub interface, other approaches are also possible but costs/performance/evolution complicates the decision (e.g. just voice support, or voice and data).

So femtocell will need to be integrated into the broadband modem provided by the converged operator, and its cost will likely need to be borne by the operator not the customer, else the customer will choose a cheaper service.  The proposition needs to be very simple, e.g. unlimited calling at home for all your phones and 80% off international calls for only 10 GBP per month.  The user experience must also be simple; when the customer is at home they just call like anywhere else, the calls are just cheaper; no checking for signal levels or listening for multiple tones when dialing.

Femtocell enables mobile broadband traffic to be off-loaded in the home and office, this is an important benefit for the operator not the customer.  Operational and commercial issues need to be resolved, as described above.  But once solved, and its operation is transparent to the customer, we will likely see femtocell bundled in all converged operator broadband modems.  The main challenge facing femocell technology is the timing of when the operational and commercial issues can be solved to meet the conditions necessary for market success not technology trial success.