Mobile Operators Seek a Home for Cost-effective 3G Services

By: Tam Harbert, Contributing Editor, Electronic Business
(Business News & Technology News, 5 Mar 2008)

Mobile telecommunications vendors are trying different tactics to encourage consumers to use their mobile phones at home, with the end goal of hooking customers on revenue-generating 3G data and multimedia services. The big question, however, is what these vendors can offer today to spur consumer enthusiasm and generate volumes high enough to bring costs down.

One approach uses a femtocell, a small router that connects to a home's broadband connection. It's basically a miniature cellular base station that uses GSM spectrum to enable cell phones to work within the home and the broadband connection to carry the phone call, said Keith Nissen, an In-Stat analyst. With femtocells, operators can keep their subscribers on their own proprietary network and phones, he noted. Such vendors include AT&T, Verizon, and Sprint.

The other approach is to use Wi-Fi-enabled handsets for mobile calls at home and a specially designed Wi-Fi router connected to the Internet. T-Mobile, for example, favors this approach because it would leverage its investment in more than 45,000 Wi-Fi hotspots around the world, noted Nissen.

Operators in both camps have just started to launch consumer trials. Last fall, Sprint launched a femtocell trial in several US cities. In February, T-Mobile introduced a service in two US cities, called Talk Forever Home Phone, based on the Wi-Fi approach. In both trials, consumer must pay around $50 for the router and an additional $10 to $15 each month on their service plan. Also in February, Telefonica O2 Europe launched trials of a femtocell service in the United Kingdom. Commercial launches of all these services are expected later this year or in early 2009.

But Nissen questioned whether either approach offers an immediate benefit that will attract consumers. The initial selling point is to provide reliable, clear mobile phone coverage at home, where cell coverage is often spotty or plagued by interference, at price parity with fixed-line calls. Mobile operators would like to see more users rely on their mobile phones rather than their fixed-line service. But the ultimate benefit for mobile operators is that the use of these devices in homes will create additional capacity on their networks. Particularly as networks move to 3G spectrum, which operates at a higher frequency than 2G, coverage area is likely to decrease, said Nissen. "So that means that in order to provide improved home coverage for 3G, they would have to invest huge amounts of money to put in many, many new macro cell towers."

"Roughly speaking, for every one user that you put on a femtocell, 10 outdoor network users get better service," said Simon Saunders, chairman of the Femtocell Forum, a group of vendors promoting the femtocell approach.

Eventually, operators want to use that additional capacity to deliver all sorts of new 3G services.

"Adoption of femtocells would mean that finally carriers would be able to offer proper, media-rich services with data in a cost-effective way," said Mark Kennan, general manager for Europe, Middle East, and Africa for RadioFrame Networks. RadioFrame provides picocells (slightly larger versions of femtocells) to the small- and medium-business market and plans to ship femtocells commercially later this year. "When you've got femtocells in the home, then that capacity is in effect free, so carriers can start providing services like mobile TV, movie downloads, video clips, and video calling. That's what's got the operators excited."

For chip vendors, femtocells could open up a new market if they can integrate the chips required and thus lower costs. "Literally just a couple of years ago you simply couldn't have built a femtocell," said Saunders. "A femtocell's got to do all the things from a signal processing and RF point of view that a big-scale base station needs to do."

In addition, it has to be lower power and have enough smarts to enable a "no-touch" set up in consumer households, he added. "The big challenge is to bring the level of integration to a point where it has that functionality at a consumer-grade manufacturing scale and price point," said Saunders. "So far, it's been a lot of repurposing of devices intended for the bigger base stations or for the handsets."

Mobile operators say they need femtocells to cost less than $100—some say much less. As of last summer, the semiconductor content alone was probably around $100, according to Sean McGrath, senior director and general manager of NXP Semiconductor's RF power and base station products. But the hope is that further integration and volume shipments by 2010 could get the semiconductor bill of materials (BOM) down to $30, he said. "By 2010 our vision is to have more integration of RF and mixed signal on one chip." In-Stat predicts that by 2011, more than 100 million consumers will have access to femtocell-enabled gateways.

Meanwhile, femtocell vendors are using varying semiconductor solutions. Many femtocell vendors, including ipAccess and Ubiquisys, are using silicon from picoChip, a company that claims to be the first to have developed a chip specifically for the femtocell market. RadioFrame has developed its own software-definable chip, called the OmniProcessor, which Keenan said gives the company a cost advantage over other approaches.

But even if costs are reduced, operators need a solid business case that will encourage adoption by consumers. "The operators are going to have to try different things," said Keenan. "Will they charge 100 percent of the cost up front, or do they subsidize it or give it for free and recover the cost through contract fees?"

But is the ability to use a mobile phone for inexpensive calls at home enough to win over consumers? "It's very good for the operators ... but neither technology provides much value to the customer," said Nissen, adding that consumers would have to pay for the router. "What's the business case for making this happen?"

Saunders said the strongest business case is delivering rich applications that will wow consumers. With femtocells, he said, customers will have a personal bit-pipe delivering 3G services like streaming video. "That's an experience that's compelling and worth paying for."