9 Feb 2007

The advent of Femto Cells

Home base station solutions, also called Femto cells have recently attracted a lot of attention. The idea is to give the mobile user a small box similar to wireless routers, which provides mobile cellular coverage at home. But why would mobile operators want to do that?

In order to answer this question, one has to look at what mobile operators are competing against. Fixed line carriers and DSL service providers are seriously threatening the mobile business by offering new products centered around Fixed Mobile Convergence, which in essence utilises wireless access technology to capture mobile users when at home, and divert their mobile originated voice and data calls to the fixed line network.

Mobile operators found themselves in a predicament: the traditional Macro cellular networks are not able to compete with what DSL service providers can offer, neither from a cost structure point of view, nor in terms of access speeds. (of course the mobile operators are partly to blame because they picked the wrong battle by trying to compete on the basis of access speeds rather than mobile centric applications).

A home base station or femto cell can help mobile operators in many ways. First they can compete directly with other home access solutions which rely on other types of access technology such as WiFi or WiMax. This is because low cost mobile handsets are widely available, whereas dual mode handsets with WiFi capabilities are pricey and still limited in variety.

The femto cell will also enable the operator to cater for subscribers where the service is most needed. Compare this with traditional macro deployment where the infrastructure is first built in places where subscribers are "likely" to appear and even before subscribers start using the network. A femto cell also circumvents the issue of outdoor-to-indoor propagation which typically kills the capacity of 3G and 3.5G systems.

The deployment costs associated with a femto cell are marginal in comparison with Macro cell deployment. This is because the customer is providing the "real estate" to keep the box, the power, as well as the backhaul (e.g. DSL subscription). I don't assume here that Femto cells will replace the macro layer, nevertheless the extent of investment in the macro layer will be considerably less.

Femto cells will also enable the operator to offer creative and disruptive tariffs to directly compete with fixed line. Home zone offers can also be more effective than traditional home zone offers using macro cells which extend for kilometers sometimes (because they rely on a cell ID parameter).

So where is the catch? I will discuss the downside in a future post.

9 comments:

Epen said...

As an end user, what I am getting by using the home base station with the same technology (say UMTS) as my cell phone? Hopefully I will be charged less for incoming calls. It looks like most of the benefits (like reduced interference on macro cells) goes to the service provider. Will the service provider absorb most of the costs?

By the way if I have a multi-technology phone with UMTS and WiFi, I would be able to use WiFi for outgoing calls.

Some observations:

1) The DSL provider may want a piece of the pie for providing the backhaul.
2) What if a court rules that the cell phone number is owned by the subscriber (and not the service provider) and the subscriber can ask to reroute incoming calls to another network (say Skype)?

Martin said...

Housam,

good post! I think femto cells will face fierce competition:

- Mobile phones with built in WLAN are becoming cheaper by the week. Take a look at Nokia's E-Series phones for example. For about 350 euros (unsubsidized) you get a S60 phone with Wifi.

- Quite a number of operators have started to buy DSL assets or do DSL reselling themselves. Once they've found the right business strategy femto cells will face stiff competition if operators throw Wifi phones into the equation. I've blogged about this before: http://mobilesociety.typepad.com/mobile_life/2006/11/opportunities_f.html

As always, time will tell :-)

Cheers,
Martin

Anonymous said...

I agree with Epen about DSL/Cable operators may like to get piece of the pie. Otherwise no one is stopping them discriminating against data packets coming /to the 3G cell phone.

I believe femtocells increase interference into macro-cells by hurting macro-cell users located close to femtocells (In CDMA - pilot pollution). Inconsistent traffic patterns (users entering and leaving femtocells), etc.

Housam Housami said...

Epen,
You are right in that most of the benefit goes to the service provider. However, putting voice service aside, one of the limiting factors of data over UMTS/3G is the high penetration to reach users in doors which means that either the users get lower throughput indoors or that the operators has to deploy more sites to compensate.

Most of the bussiness models I have seen/heard assume that the provider will absorb the cost of the femto box. The femotcell is also a "convergent" solution. In the future, users will go to one provider for everything: cellular, Internet/DSL, TV ..etc. In the UK for example, Orange has started selling DSL service together with mobile contracts. Virgin is another company that specialises in "quad play": TV+telephony+internet+cellular. For those kind of bussinesses the Femtocell can be an ideal solution.

Housam Housami said...

anonymous,

first, you are assuming that femtocells will use the same frequency as the macro layer, which does not have to be the case.
Second, even if they use the same frequency, the femtocell will reduce the overall interference in the network:
- Without the femtocell the indoor user will need lots of power to have service using the Macro layer.
- With a femtocell, the power transmitted to the user is much less, and furthermore is contained within the bounds of the building where the user is.

Furthermore, the power of a typical femtocell is in the order of 1mW, that is 100 times less than a typical UMTS mobile... so what interference are you talking about?

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