In search of the femtocell market

ABI Research last week revised downward [1] its target for femtocell shipments in 2009 by 55 percent. It now predicts that about 350,000 femtocells will ship by year-end, down from its April prediction of 790,000.

ABI said it is changing its prediction based on slow uptake of the home base stations. The firm speculates the slow uptake is due to a few factors, including a weak economy, which may discourage customers from splurging on a femtocell; concerns at carriers over how to devise pricing plans; and a fear that a rapid increase in the number of femtocells could disrupt the macro network.

Talk to many femtocell vendors, and they'll most likely tell you that marketing is the biggest hurdle at this point. Mainly, how do operators entice their customers to pay $100 or more (Verizon charges $250) for a device that is supposed to make their coverage better. Shouldn't carriers already be providing better coverage?

There is no doubt that femtocells have value in extending coverage and bolstering capacity for mobile networks, many of which are beginning to experience a flood of data traffic. Moreover, femtocells are seen as an important element in rolling out LTE and WiMAX because smaller cells will be required in more dense urban environments in the long run. LTE is approaching the theoretical maximum information transfer rate (otherwise known as Shannon's Law) and further improvements will only be possible by rolling out smaller cells. But that's down the road.

How do carriers prime the market? I believe carriers will never be successful with a marketing message that touts the coverage extension advantages of femtocells unless they are willing to offer these devices for free, or at least significantly subsidize them. Clearly, carriers need another hook. The Femto Forum recognizes this and established a Special Interest Group [2] this past summer to promote and develop a wide range of femtocell apps.

The objective of this new SIG is to develop a framework to speed the development and deployment of femto applications that provide services other than simply improving indoor coverage. Earlier this year, vendors showed off applications that leveraged presence information to trigger activities. For instance, a text message could be sent to a parent when his teenager returns home. Or podcasts can be automatically downloaded to a user's phone when she walks through the door. TVs and other appliances can be controlled with a mobile device.

Obviously, it will take time for a volume of applications to ramp up, but carriers could easily coalesce around a couple key applications from the start by working with their femtocell vendors.

There's also another market many carriers are ignoring in the present: the enterprise market, which values in-building coverage and isn't as price sensitive as the consumer market. Vendors have begun rolling out products for this segment.

In a recent research note, Peter Jarich, research director with Current Analysis, correctly highlights the reasons why an enterprise femtocell is more important than ever. In addition to helping carriers dig deeper into the enterprise, an enterprise femtocell has the power to drive femtocell volumes up and costs down. Moreover, adoption should cross over into the consumer market.

The onus primarily lies with carriers to get this market moving. It's just not clear how aggressive they are willing to move beyond the consumer coverage game in the near term. That, of course, creates a dangerous situation for all of those start-up femtocell vendors.--Lynnette [3]