Femtocells--big market, bigger questions

The analyst community is in overdrive with viewpoints on where the femtocell market is headed. If these industry watchers are to be believed, then vendors of these micro base stations are on the edge of something big.

According to ABI Research, the femtocell market is primed to grow from just under US$72 million in 2008 to over US$1.8 billion in 2013--a compound annual growth (CAGR) rate of over 300 per cent. Forward Concepts, another market research firm, claims that global revenues generated by the femtocell equipment vendors are forecast to grow at a CAGR of 126 per cent from 2008 to US$4.9 billion in 2012.

Whatever the discrepancy over the market size, these numbers illustrated the potential opportunity. But both firms also point to some significant issues...

Firstly, ABI warns that the femtocell market should be approached with caution. "Semiconductor vendors will bear the brunt of huge pressures from price declines," said Stuart Carlaw of ABI. "In order to meet those price declines there is actually a paradoxical need to invest huge sums in designing optimised and dedicated silicon for the femtocell market. Questions of technology, air interface, semiconductor approach, multimodality, integration, route to market, business model, and more all remain unresolved."

Forward Concepts forecasts that femtocells will capture a dominant share of the FMC market by 2010, consigning UMA to the dustbin as cellular operators transition to IMS-enabled femtocells. But, it also warns that the most significant technical challenge for femtocell operators will be RF interference which will require proper frequency planning by the operators.

Offering a pragmatic viewpoint, Sid Chiru, business development director for NEC, stresses that femtocells are still very much an embryonic technology, albeit that his company is struggling to cope with European interest.

"The major attribute of femtocells is improving coverage, and there's no doubt that 3G services don't have the depth of coverage that is provided by 2G. Operators can't charge for this additional coverage, but can benefit from it by reducing customer churn and also acquiring new subscribers."

Forgetting the technical hurdles for the moment--such as interop testing and network integration, Chiru maintains that operators in Europe and the U.S. are looking at innovative business models with regard to femtocell deployment.

"We've been talking to operators about a 100 per cent subsidy for femtocells, depending on who the customer is--perhaps those with consistent high usage who the operators don't ever want to see churn. We also believe femtocells will attract new subscribers--the €250 price (an estimated average) for a femtocell will look good compared with the €300 cost, according to Vodafone, of acquiring a new subscriber."

The price for the femtocell will be key to its success, and it's the involvement of the bigger technology vendors, such as Qualcomm--which recently purchased a chunk of the femtocell developer, ip.access--that will have the market muscle and cash to make this happen. -Paul

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