But the first wave of small cells mounted on outdoor street poles and ceilings could just be the beginning. A consortium of technology companies and universities brought together by the European Commission is investigating a concept called the super-dense network, which could put multiple tiny cells in every room. We’re not just talking networks on the small scale, but on the human scale.

The consortium has the rather ungainly name of Mobile and wireless communications Enablers for the Twenty-twenty Information Society, but thankfully it’s using the moniker METIS for short. With the help of a €16 million (U.S. $21.2 million) grant for the European Union, METIS is tasked with identifying the network technologies beyond the LTE-Advanced standards being developed today.

These so-called 5G technologies could take the form of new radio air interfaces, new cellular architectures like heterogeneous networks and wide-area mobile mesh, and even the virtualization of the network itself, said Jan Färjh, Head of Standardization and Industry for Ericsson, the network vendor spearheading METIS. Färjh uses the word “could” because no one in consortium knows what form the network of 2020 and beyond will take. These new technologies are on the bleeding edge and it is METIS’ goal to determine which are technically and commercially feasible.

“We have to be prepared for the world 10 years after LTE and LTE-Advanced,” Färjh said. While vendors and the standards bodies have some good ideas about what the capabilities of our networks should be in 2020, Färjh said, it’s not obvious what those networks should look like.

Jan Färjh

To that end METIS is opening up multiple fields of investigation, digging into research projects in the labs of academic institutions like Aalborg University in Denmark and Poznan University of Technology in Poland. Though the big vendors and carriers like Alcatel-Lucent, Nokia and Telefónica are all there, Metis is also reaching beyond the traditional wireless industry to include companies like BMW. One of the big areas METIS will explore, Färjh said, is vehicle-to-vehicle networking; one day, cars won’t just be end-points in the network, they’ll be nodes within it.

Another field Färjh said METIS will delve into is the possibility of moving baseband processing to the cloud. Today’s radio access network (RAN) is all designed so that every base station processor can handle its cell’s peak load, but most cells are only at peak capacity for a small portion of the day. That’s a lot of processing power that’s just sitting idle throughout the network. Vendors like Intel have proposed moving those base stations into the cloud, creating a set of shared processing resources.

“What if we had a flexible architecture in which you can move around processing power to wherever its needed in the network,” Färjh said. “We could take the virtualization model and apply it to the mobile network.”

In addition to car-to-car connectivity, METIS will also look into making devices nodes in ad hoc networks, Färjh said. Instead of communicating directly with a tower, our phones and gadgets could relay their data between one another in a giant mesh, eventually offloading their data into the mobile network proper through the most efficient connection or combination of connections. These are concepts being explored by startup Open Garden and the open-source mesh-networking initiative Commotion.

Whether all or any of these technologies make it into METIS’s final set of recommendations 30 months from now is hard to predict, Färjh said. The technologies themselves might be viable on their own, but their practical implementation is another story. For instance, backhaul is very real obstacle to super-dense networking and Cloud-RAN, both of which would need to be plugged into huge transport pipes. We can’t just plan future networks. We have to plan the networks that will support those networks.

Photo courtesy of Shutterstock user higyou

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Big LTE wins in Japan and Korea have turned Asia into NSN’s biggest market region, surpassing Europe and accounting for €1.27 billion of its €3.5 billion in sales last quarter. What’s more, some of these Asian deals make use of some of LTE’s most sophisticated capabilities. SK Telecom is building an LTE-Advanced network that incorporates new small cell and self-optimizing network (SON) technologies unseen on any other 4G network globally.

NSN has tried to cultivate that burgeoning reputation of being on the cutting edge of 4G. In recent weeks it’s launched a slew of new services and products, all designed to transform the network from today’s grids of spaced-out towers into future heterogeneous networks. These HetNets will combine big and small cells, mix and match different radio technologies ranging from cellular to Wi-Fi and provide a dense layer of capacity under the macro network’s coverage umbrella.

Small networks mean big capacity gains

Nokia Siemens Networks’ conception of a heterogeneous network

These technologies, which NSN calls Flexi Zone and Liquid Net, may sound like strange engineering concepts, but Nokia Siemens is trying to define them in ways that has meaning to the average consumer. It’s set a goal of creating a network architecture that will increase the overall capacity of our mobile networks by 1,000 times. Simultaneously, the cost of delivering that capacity will drop to the point that they typical consumer can increase their data usage by a factor of 10 for the same costs they pay today, said Bill Payne, NSN CTO for North America.

“We’re saying by 2020, we’ll have 1 GB per day per user for under $1 in cost,” Payne said. That amounts to 30 GB a month for $30, which is the price a typical U.S. consumer pays for a 2 to 3 GB data plan (though they actually consumer less than 1 GB each month).

Talking about 1,000x increase in network capacity is nothing new. NSN’s archrival Ericsson has been talking up the concept for years and Qualcomm recently detailed the chip vendor’s own “1000x challenge” in a GigaOM post. But NSN is laying out a detailed path on just how the industry gets there. According to Payne, the industry will achieve that kind of capacity in three stages:

• A 10x increase from better cellular technologies. “The first order will be spectral efficiency,” Payne said. “It’s the logical starting point because that’s the work people in this industry has[HAVE?] been doing most of their professional lives.” CDMA and HSPA networks are giving way to LTE networks, which will themselves give way to LTE-Advanced networks. There are limits to how the industry can innovate in this direction though – only so much data that can be shoved into a hertz of spectrum, Payne said.
• A 10x increase from new spectrum. While this aspect is out of NSN’s control, carriers worldwide are working with regulators to devote new airwaves for mobile broadband. AT&T just cleared its 2.3 GHz licenses for LTE use, and the FCC is working to clear more broadcast spectrum for cellular use. Dumping more frequencies into our networks may not be the most elegant solution, but it’s definitely the direction most carriers would rather grow in.
• A 10x increase from small cells. Changing the fundamental topologies of our networks will allow carriers to make that final critical leap to 1,000x, Payne said. The principle is a simple one. By putting 10 cells in the space occupied by a single big one you get close to a 10x increase in capacity. By layering in Wi-Fi and other radio technologies you get even bigger gains. And by creating a network in which a single device can link to multiple radio nodes, the capacity consistently available to individual users increases dramatically.

Building on NSN’s LTE gains

NSN is pushing its LTE-Advanced and HetNet concepts hard, promising its customers that it can not only build their 4G networks today but turn them into the 4G networks of tomorrow. In Arlington Heights, Ill., it’s built a live small cell test network using public safety spectrum to test out the HetNet’s performance in real-world environments.

Its efforts seem to be paying off. Though Ericsson and Huawei still dominate the global telecom infrastructure market, ABI Research recently ranked NSN the world’s leading vendor in LTE contracts, intellectual property and, most notably, its progress in small cells.

LTE image courtesy of Shutterstock user Inq

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LTE isn’t just a faster technology, it’s a more efficient technology – carriers can pack a lot more bandwidth into any given chunk of spectrum with LTE than they can with older generation technologies. While many of you will laugh at this next statement, the large-scale adoption of LTE will make mobile data cheaper. It won’t happen immediately, and yes, most carriers will resist lowering prices with every fiber of their being, but it will happen. That’s simply the way competition works.

By 2013 we’ll have four nationwide carriers with LTE networks. Given all four LTE networks will have the same ingrained data-delivery efficiencies, it’s only a matter of time before one uses that advantage to start slashing per-gigabyte rates, thus setting off a price war. The carriers may not be saints, but they’re not idiots either. If they can halve their data plan pricing and still make a profit, they will – they just need competitive pressure to help that decision along.

Furthermore, the move from 3G to LTE isn’t a one-time bonus. LTE will beget LTE-Advanced. LTE-Advanced will beget new network topologies like small cells and heterogeneous networks (HetNets) all aimed at pumping gobs of cheap localized capacity into the network. The industry will add more parallel antennas to devices and towers, carriers will design their systems so phones can connect to multiple towers, even multiple networks simultaneously, and interference coordination technology will allow cells to be grouped together in huge clusters without canceling out each others’ signals.

With each new 4G iteration, networks will enjoy accompanying boost in capacity and efficiency. The costs of planning and deploying these networks will be enormous, but so will then increase in bandwidth available to any given subscriber. The same operational cost that goes into delivering a gigabyte of data today will deliver 10 GBs in the next few years. Ten years down the road 100 GBs could be delivered for the same price.

Why Apple is critical to this transformation

Without Apple embracing LTE that shift to cheaper mobile data isn’t going happen. Yes, LTE networks have started popping up all over the world without Apple’s help, but carriers can’t realize their operational efficiencies until they move the majority of their traffic and devices onto those new 4G networks.

The iPhone’s data hunger is ravenous. Network optimization and analytics firm Arieso estimates that the introduction of each new generation of iPhone produces a 40 percent increase in traffic over a carrier’s mobile network. If the iPhone 5’s data deluge doesn’t hit a new LTE network, it doesn’t just evaporate — it floods onto carriers’ 3G networks.

By placing even more burden on 3G, carriers would be forced to keep investing in them their legacy networks. Instead of plowing their billions of investment dollars into 4G networks, they would have to add more 3G capacity and devote more spectrum to maintaining older technologies. And once those investments are made, they’re sunk. Any megahertz devoted to 3G is going to remain 3G for the foreseeable future.

In Europe and other regions of the world behind the mobile broadband curve, a sans-LTE iPhone lessens the urgency to deploy the newest network technologies. If your single best selling smartphone model for the next nine months doesn’t support 4G, why should you? Android handset makers like Samsung should be lauded for their efforts in propping up the LTE ecosystem, but Apple was the missing, critical strut. (For a more detailed analysis of Apple’s impact on LTE check out my GigaOM Pro report on the topic, though a subscription is required).

If Apple failed to produce a 4G iPhone, LTE’s progress – and the progression toward cheaper data – would have been hindered, not just for another twelve months but possibly several years. What radios the in the iPhone includes have a big impact on CTOs’ network decisions and CFOs capital investment decisions for the next year. The wireless industry isn’t the internet industry. These are big iron deployments we’re talking about, and those decisions have long-term consequences.

It’s going to get worse before it gets better

Unfortunately, carriers have taken advantage of transition from 3G to 4G to pull some pricing shenanigans. Verizon and AT&T both recently launched shared data plans, which lets their customers pool their devices into a single plan (a good thing), but also forces customers to double down on the voice and SMS services they’ve long been abandoning (a bad thing).

Wireless Intelligence’s global breakdown of LTE subscribers

In Europe, there are indications that carriers will charge a premium for LTE access following the logic that faster connection speeds demand higher rates. It looks like carriers are milking their new investments for all they are worth, which is hardly surprising to many observers of the mobile industry. But I don’t think any of these business models are sustainable in the long-term.

It won’t be AT&T or Verizon, but we have two other nationwide operators in the US with plenty of initiative. Sprint has already extended its unlimited smartphone data plans to LTE where its customers can do far more damage than over its old CDMA networks. T-Mobile hasn’t yet released its pricing plans for LTE, but you can bet it will either match or discount the already cheap buckets of HSPA+ data it offers today (while T-Mobile didn’t get the iPhone today, it’s inevitable it will land the device). At that point we can leave it up to the market to do its work.

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The Alliance also revealed that access points, devices and software clients from BelAir/Ericsson, Broadcom, Cisco Systems, Intel, Marvell, MediaTek, Qualcomm and Ruckus Wireless have all received their official Passpoint seals. In truth, all were pre-certified months ago since their equipment will serve as the test gear for all future Passpoint submissions.

Passpoint/Hotspot 2.0 is the first step of many that will eventually integrate Wi-Fi hotspots seamlessly into the carrier’s mobile networks. Networks will be able to pass subscribers from cell site to hotspot and back again as Wi-Fi gets incorporated into the increasingly diverse array of small cells that will make up future heterogeneous networks, or HetNets. That’s still a long time coming though.

Hotspot 2.0 only takes care of the discovery and authentication of carrier-owned or managed hotspots. If you’re an AT&T or an SK Telecom with tens of thousands of hotspots under your control, then Passpoint will be a boon, as certified devices will automatically connect to any carrier access point in range.

But there is a long list of capabilities that are subject to standards still in development: getting hotspots to cooperate with one another as part of larger coordinated network, direct hand-over between hotspots and seamless hand-off to and from cellular, direct integration of Wi-Fi into the carrier’s network and roaming between different Wi-Fi operators. Each iteration is the purview of a different standards body, and it could be several years before the full range of technologies is commercially available.

After Passpoint complete its leg the baton gets passed Wireless Broadband Alliance. The WBA is in charge of the Next Generation Hotspot standard, which will begin integrating hotspots into carrier networks. The WBA said on Tuesday it would launch its next phase of carrier trials in the first half of 2013 using the first wave of Passpoint-certified gear.

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LTE and HSPA+ require fat backhaul pipes. Operators have managed to handle those demands by laying fiber to their towers, but that option won’t be available in a hetnet world. Those small cells will be mounted on street poles, building walls and every manner of urban fixture where access to fiber isn’t ready available and the cost of laying it is prohibitive.

But there’s an emerging group of wireless radio vendors such as Siklu, BridgeWave, and, soon, E-band Communications that think millimeter wave technologies will provide both the reach and capacity at the right prices to backhaul the hetnet. E-Band this week said it raised new funding – though it didn’t reveal how much and from whom – to develop millimeter wave small mesh radios.

Millimeter waves technically encompass a huge swath of spectrum from 30 to 300 GHz, but for wireless backhaul purposes, regulators have designated three big blocks of licensed spectrum in the 70-95 GHz range for point-to-point high-bandwidth radio links. According to E-Band co-founder and CEO Sam Smookler those frequencies are ideal for small cell backhaul for two reasons:

• It’s relatively easy to get licenses for big blocks of millimeter wave spectrum, which would allow carriers to deploy large backhaul pipes over 1 Gbps in size. While a single small cell may not need that much capacity, the complexity of hetnets will require daisy-chaining many small cells together, each cell passing its load down the line. The final backhaul link in such a mesh or chain winds up handling dozens of cells worth of traffic before it can dump it onto a fiber network, Smookler said.
• Small cell backhaul makes the best use of millimeter waves’ high frequency characteristics. The higher the frequency the shorter distance a wave propagates unless it gets a serious power boost. But the hetnet by definition will be composed of densely packed cells in urban environments, meaning no millimeter wave will have to travel far between hops, Smookler said.

Plenty of alternatives

E-Band and other millimeter vendors aren’t the only ones trying to solve this small cell backhaul problem. Microwave is the traditional powerhouse of wireless backhaul technologies, using its longer range, lower frequency links to connect far flung towers back to the network proper. Microwave equipment vendors like Ericsson, NEC, Aviat Networks, DragonWave, and Ceregon Networks are retooling their long-haul radio designs for small cell deployments.

The lightRadio Cube, Alcatel-Lucent's vision for the small cell.

Like the millimeter folks, the microwave vendors are focusing on higher frequencies, where spectrum is plentiful enough to support ultra-fat links. The problem is those 60 GHz airwaves are all unlicensed, meaning no single operator will have proprietary use of them in any given area. That means there is the potential for interference between radios in areas where multiple carriers are running multiple hetnets of small cells.

Interference is also the knock on probably the hottest technology in small cells today: Wi-Fi. Metro Wi-Fi equipment makers Ruckus Wireless and BelAir Networks – just acquired by Ericsson – are not only building small cells that pair Wi-Fi and LTE together as access technologies, they’re also using Wi-Fi mesh architectures to backhaul those cells.

The big advantage of such an approach is its cheap: the 802.11n gear may be souped-up for carrier networks, but it’s certainly not the highly specialized equipment used in microwave systems. The problem is that everyone and their dogs, cats and hamsters are using the unlicensed airwaves of Wi-Fi. Operators will need to fight interference not just from one another, but home and business wireless networks.

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The February study “turns the conventional view of wireless competition on its head,” according to its authors. It does so, however, by seemingly ignoring trends in mobile network architecture that intended to address the capacity crunch the author’s see, thus undermining the assumptions on which the theory is based.

The study raises questions.

The conventional view of more wireless providers as better for competition — and consumers– is based on the Cournot competition model, under which prices and profits intuitively decline as the number of firms increases. The authors start with this and make some tweaks for the wireless case.

First, they assume the amount of capacity is not linearly related to the amount of spectrum an operator has — capacity is assumed to increase at a greater rate than spectrum is added. This can be seen as an economy of scale.

Second, the authors look at what happens when all operators in a market have reached the point of so-called “spectrum exhaust” — when they’ve maxed-out spectrum use and are running at maximum capacity. Under spectrum exhaust, according to the theory, the operators with the largest spectrum assignments enjoy the largest economies of scale, which become even bigger if they can get more spectrum. These economies, ideally, make their way to the customer in the form of lower prices.

Split the exhausted spectrum up among more operators and economies of scale go down, prices go up. The authors give this example in an accompanying blog post:

Say you have 100 MHz of spectrum and you divide it among 4 firms so that each gets 25 MHz. Say this generates 100 units of capacity. If instead you divided 100 MHz among two firms, so that each gets 50 MHz, then the amount of total capacity would be something like 150.

Why 150 instead of, say, 105 or 200? We aren’t told. How few operators are optimal? We aren’t told that either:

We cannot and do not reach conclusions about how many competitors is the right number under existing market conditions. What we do demonstrate is this: if it is true that there is spectrum exhaust, then the argument that more competitors leads to lower prices is not true.

Again we’re left with a question: More than what? Though they don’t reach conclusions about the right number of competitors, they present a model that happens to show two as optimal, for what they say is an arbitrary set of input assumptions. Presumably a different set of assumptions, equally arbitrary, could indicate a higher or lower number than two.

What about the new wireless reality?

In light of their findings, the authors say the U.S. Department of Justice’s and the FCC’s reliance on traditional market concentration measures, such as Cournot model and the Herfindahl-Hirschman Index, is misplaced.

It’s encouraging to see some fresh, thought-provoking thinking on mobile competition analysis. One concern I have with the study, however, is the need for there to be a condition of “spectrum exhaust” for the model to work. Does an operator ever reach the point where it “runs out” or is exhausted of spectrum? I think not.

This is because capacity — what the operators are really selling, not spectrum — can be increased without using new licensed spectrum through a variety of techniques including Wi-Fi and small-cell offloading, or increased antenna sectorization at the base station. What happens to this, or any other, competition analysis when the customer can access an operator’s network using no licensed spectrum, or bypass that network completely for some services?

Some other concerns:

• In setting the background for the report, the study invokes a discredited FCC technical report that uses invalid assumptions and is reported to be disowned by the FCC staff that prepared it.
• After relying on the Cournot model, the authors caution that it has several practical defects.
• The authors say some analysts think there’s too much competition “today,” citing articles that are two or more years old.

I don’t doubt the authors’ belief that mobile-broadband competition analysis can be improved, but I don’t think this analysis, in its present form, is ripe for influencing policy. Perhaps the research could be extended to take into account the move toward heterogeneous networks, severing the notion of spectrum and capacity, and looking at the issue as an optimization problem in terms of size and location of licensed spectrum, number of operators, and use of unlicensed spectrum and other techniques to increase capacity. Then we may have a better handle on what is the optimal number of mobile broadband operators.

In one study of 40 international markets, 36 have three operators that control 85 percent of their market. That same study observes that this follows the Rule of Three, which states that there are three significant competitors for any mature market. Maybe two, as shown in the Phoenix Center model, isn’t that far off. In the face of disruption from offloading, heterogeneous networks, and over-the-top content, however, the mobile-broadband market is losing its mature status. The Rule of Three may become less applicable as traditional notions of a mobile-broadband industry fade.

Steven Crowley is a consulting network engineer, who blogs here. He can be found on Twitter @stevenjcrowley

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Such architectures speak to the growing complexity in cellular networks as more people use more devices on them. Plus, the very mobility of such devices makes building out a network even more of a challenge. Base stations are fixed devices with fixed characteristics. Turning them into something that can scale to deliver capacity on command isn’t easy. But NSN thinks it has found a way.

Called Flexi Zone, the network looks a bit like the distributed antenna systems (DAS) operators have deployed at sporting venues and in office buildings to spread the normally circular cell into indoor nooks and crannies. But Flexi Zone goes far beyond the mere redistribution of coverage. Instead it allows an operator to densely pack 100 cells’ worth of capacity into a confined area, while shaping the network’s coverage to the exact contours of the shopping mall or stadium it inhabits.

Flexi Zone’s many, many pieces

Flexi Zone is actually an amalgamation of several technologies, all of which have yet to be implemented in any mobile network on a large scale. Let’s tick them off one by one:

• Small Cells. Imagine femtocells and Wi-Fi access points having a big party where everyone is hopped up on speed, and you get the idea. Hetnet aims to create a multi-layered network, in which traditional macro-cellular towers provide a blanket of coverage, while underneath that umbrella hundreds of thousands of small cells in high-traffic areas do the heavy bandwidth lifting. NSN’s Flexi Zone, however, uses small cells for both coverage and capacity. Macro cells often can’t reach the indoor environments Flexi Zone is designed for, so the small cells pull double duty.
• Cloud RAN. Perhaps the most far-out concept in Flexi Zone’s architecture, NSN’s Liquid Radio concept would decouple the base station from the radio. We have written before about Intel and other vendors’ attempt to move the radio access network (RAN) into the cloud, where the processing resources and intelligence of the network can be pooled and then applied wherever they’re needed at any given moment. Flexi Zone would leave a limited amount of baseband capacity at each small cell to support normal capacity conditions. But when things get hairy, the cloud kicks in, taking over much of the computational load of a congested cell. This allows operators to scale their networks more efficiently by not having to overbuild each cell for peak traffic conditions.
• Mesh Networking. One of the biggest limitations of small cells is backhaul. A high-capacity LTE radio can’t be backhauled with string and twine, but connecting hundreds of thousands with fiber links is a daunting if not impossible task. So NSN is taking a page from the metro Wi-Fi’s book, using radios to backhaul other radios. High-capacity 802.11n links and even LTE will connect the closely spaced nodes together. To deploy a small cell, the operator just needs to find a wall power outlet.
• Self-Organizing Networks. When you have a hundred densely packed cells all running on the same frequencies, you have the potential for an interference mess, and operators can’t do the careful testing and tuning they perform on the macro network at the scale small cells require. NSN is using self-organizing network, or SON, technology to give each cell enough self-awareness to identify its neighbors and keep its own transmission power in check, thus avoiding chaos over the airwaves. This kind of network self-management is pretty nifty, but things get really exciting when the equation includes dynamic SON, which allows individual cells to grow and shrink as traffic patterns change.

Sounds neat, but why does this matter?

NSN said the benefits of the technology would be multi-fold. Flexi Zone not only provides a solution for indoor coverage – where most mobile data traffic is moving these days; it can also supply orders-of-magnitude more capacity than a macro cell over the same square footage. And because of the Cloud-RAN and mesh techniques, infrastructure costs drop. NSN concluded that operators can use Flexi Zone to cut in half the cost of delivering a bit of traffic.

Whether operators would pass those savings on to their customers in the form of cheaper data plans is another question, but more efficient network technologies are definitely key to propelling the mobile data revolution forward and offsetting the need for operators to secure more spectrum in the future. Because Flexi Zone makes extensive use of Wi-Fi, operators can also tap into free unlicensed spectrum and cheap Wi-Fi networking gear, adding gobs of capacity to their networks for little cash.

NSN’s Flexi Zone is definitely the most ambitious hetnet proposal we’ve seen coming out of Mobile World Congress so far, but it’s not the only one. Alcatel-Lucent’s lightRadio architecture already uses many of the same Cloud-RAN and small cell techniques as Flexi Zone and Liquid Radio, and at MWC the Franco-American vendor is adding Wi-Fi to the mix. At the event, InterDigital plans to show how Wi-Fi can be wedged into the white-spaces spectrum between TV broadcasts to add more oomph to mobile network connections.

Ericsson is buying its way into Wi-Fi. We broke the story of its purchase of metro Wi-Fi vendor BelAir last month, and on Tuesday Ericsson confirmed the deal. Next week in Barcelona we’ll probably hear the first details on how Ericsson will incorporate BelAir’s hybrid Wi-Fi/cellular technology into its portfolio. BelAir competitor Ruckus Wireless plans to unveil its first hybrid Wi-Fi/LTE small cell at show, using the same mesh-networking techniques as Flexi Zone to create dense capacity clusters for outdoor environments.

As I wrote last week, for a show focused on cellular networking, MWC is taking on a strong Wi-Fi tone this year. Not all operators have gotten Wi-Fi religion yet, but their vendors certainly have. By weaving Wi-Fi more intimately into the network fabric, NSN may gain some converts.

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Networking silicon vendor Mindspeed Technologies aims to become a big player in wireless infrastructure in a very small way. It is purchasing femtocell system-on-a-chip (SoC) maker Picochip for $51.8 million, creating what Mindspeed hopes will be a powerhouse in the so-far disappointing but still potentially lucrative miniature base station market.

Femtocells are essentially private cellular nodes that carriers give or sell to their customers to improve their coverage and provide additional 3G and 4G capacity. They use the same frequencies as the overall macro network, but they link back to the carrier’s network through the customer’s home or office broadband connection. Mindspeed estimates that its Trancede and Picochip’s PicoXcell SoC lines command a combined 70 percent of the HSPA femtocell semiconductor market and has the biggest exposure to femtocell manufacturers developing the next generation of LTE femtocells. Those would be some impressive stats if there were more of a femtocell market to speak of. The demand among operators for home and business base stations didn’t exactly go gangbusters.

In June, Informa Telecoms and Media reported that 2.3 million femtos had been installed in homes and businesses around the world. That may seem like a large number, but not when you compare it to the 1.6 million macrocells deployed at towers and on rooftops globally. Femtocells were supposed to webscale the cellular network, turning a network of a few big public nodes into a network with millions upon millions of small private nodes. The carriers’ lackluster enthusiasm for femtos, however, soon became apparent due to the interference problems. And as the smartphone gained popularity, Wi-Fi became a much cheaper and easier way to offload mobile data and voice traffic.

The femto vendors haven’t given up. They’ve changed tack, positioning their formerly private femtos as public “small cells,” which can be used to used to offload data capacity in congested outdoor and indoor networks. They may be on to something here as small cells fit nicely with the emerging wireless design concept of the heterogeneous network (or het net). The basic idea of het net is that the single monolithic wireless network will devolve into multiple networks, some providing an umbrella of persistent coverage while others focus solely on packing tremendous amounts of capacity into small areas.

Even if Het Net takes off, femto makers won’t necessarily be the benefactors. As you move into the public wide area network, you venture into the domain of the big telecom vendors, who tend to be very tight with their carrier customers. Ericsson, Alcatel-Lucent, Nokia Siemens Networks and Huawei are all developing small cell solutions of their own and they’re bringing established telecom silicon vendors such as Texas Instruments and Freescale along for the ride. Here Mindspeed may have an advantage. It isn’t a small specialist company like Picochip and has a established portfolio of ARM-based processors used throughout the telecom infrastructure market, counting Cisco Systems, NSN, Huawei, Alcatel-Lucent and Samsung among its customers.

Mindspeed is paying $27.5 million in cash and issuing 5.19 million new shares to Picochip’s investors. Mindspeed will also pay up to $25 million in cash by 2013 if Picochip meets certain unnamed financial performance objectives. Mindspeed expects to close the acquisition this quarter.

Picochip isn’t the femto vendor that’s attracting attention. Femto maker and software developer ip.access in December raised an additional $15 million in venture capital. Last year, Radisys bought femto software developer and designer Continuous Computing. The femto market seems to be heating up, but let’s hope it doesn’t flame out.

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