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Analyst: Femtocells Aren't Dead Yet!

Here at GigaOM we’ve pretty much decided that the femtocell market is dead. At the very least, it’s significantly smaller than what was forecast (GigaOM Pro, subscription required) when these tiny base stations for the home first started garnering attention last year. However, analysts at Deutsche Bank beg to differ, arguing in a new report that femtocells will be necessary to deliver fat data over mobile broadband networks. It comes just days after Atlas Ventures, Highland Capital Partners and Pond Venture Partners put $20 million into PicoChip, a maker of femtocell silicon.

The report says that femtocells, which use a consumer’s home connection to provide a stronger cellular signal inside a home or office, are merely at the trough of the S-shaped technology hype curve. It goes on to speculate that the carriers listed below aren’t the only ones conducting femtocell trials as all carriers will have to use them in order to keep up with the demand for mobile broadband. From the report:

One of the dark secrets of mobile technologies is that we are nearing the physical limitations for the speeds we can pump out of mobile networks. Cellular standards manipulate the timing, frequency and amplitude of radio waves. As we move into LTE and its enhancements, we are starting to maximize all those manipulations. Companies like Qualcomm have talked about this publicly, highlighting that the next major wave of improvement of cellular network performance will have to come from in advances in what they call ‘topography’ – the physical planning of network elements. Translated that means a larger number of and more sophisticated base stations. A big part of these topography improvements will come from femtos or some form of in-building coverage.

I’m willing to be surprised by the femtocell market opportunity, but without a compelling business model and consumer price point, the industry won’t make it very far trying to improve carrier networks by using femtocells to ride over consumer’s broadband connections. And even if systems makers can build a cheap femtocell and carriers offer them for free, carriers are already using Wi-Fi to ease the strain on mobile networks, and consumers have already bought into using Wi-Fi as an alternative to 3G in their homes and other settings. The number of Wi-Fi phones rose 177 percent between 2007 and 2008, according to a recent report by In-Stat, a number that’s expected to continue to rise.

So while the carriers and the several companies like PicoChip are probably right with their assertion that some type of network offload will be necessary, the carriers will have to play a huge role in making femotcells acceptable to users. After all, consumers with WiFi-enabled phones are already boosting their in-home data coverage and taking a load off of carrier networks with their in-home Wi-Fi networks. So in order to be viewed as a worthy competitor to Wi-Fi, the femto industry needs to do two things: make a really complicated piece of telecommunications gear cheaply and find some way to sell it to consumers.

Right now, carriers are pretty much charging consumers the price of the base station and a monthly fee to improve the carrier network. But consumers — understandably — aren’t terribly jazzed about paying too make life easier for carriers, especially given some of the limitations on what the femto actually offers. The dark secret here may be that carriers are going to have to improve their networks in a way that doesn’t pass on the femtocell cost to consumers. Are they ready to do that?

8 Responses to “Analyst: Femtocells Aren't Dead Yet!”

  1. Good! I’m looking forward to the AT&T Femtocell. I make a lot of calls from home but before 9pm. Another $19.99/mo for unlimited voice & data (via my own femtocell) might sound like a rip off but when you babble like my family does, it’s a huge cost savings over the standard unlimited plans. And the added bonus of always having coverage. This is good because we’ve had problems with cell networks during severe storms but my FIOS has never gone out because the fiber is all underground and my ONT & router are on a UPS. I’d have cell coverage in my own home during severe weather. This is something else to consider. People are getting way too hung up on the “Waaah why don’t they just fix the network?!” argument. A femtocell is an excellent solution for many customers.

  2. Just give me a good SIP application for my smartphone, and I’ll send all my calls out through my wi-fi with the low cost VoIP provider of choice. The call quality will be better than if I were sitting right under my 3G provider’s tower.

    The only reason femtocell might work, is because many folks have no clue about alternatives. They only hope to get that crappy or non-existent signal at the house pumped up so they can use the device they were told would “work just fine” when they picked it up at the “_____” store. Now, if they were able to get rid of that $40/mth. landline by getting a femtocell, that might provide a little incentive too.

  3. On the issue of cell ‘topography’: Cellular technology and consumer demand has advanced so fast that cell planning tools and techniques are playing catch up. I have 10 years experience of cell plan optimization, and we typically see 30% improvements in throughput for the same infrastructure when applying cutting edge optimization technologies (such as automatic parameter planning). There is latent capacity in most networks that can be mined out with a modest investment in better tools and processes.

    Disclosure: I run a company that makes cell planning software.

  4. vijaygill

    one item that I really like is the UMA work that t-mobile has been doing – quite interesting from a setup perspective and it doesn’t cause 3g signal pollution (imagine I get a femto cell and put it in my living room – now my neighbor, if they are on the same network, is getting signal pollution (I am making the terms here as layman friendly as possible, but inter-cell interference would be closer to the mark) from my femto cell and it is making their network experience worse if they are on things like umts.


  5. residential seems to be a tough nut for femto to crack. although that is where vendors want them to go..time will tell but wifi is pretty strong and getting in all sorts of things from gaming stations, to cameras and memory cards….