New markets make femtocell economics more attractive than homezones

With majors like Vodafone and India's BSNL setting aggressive expectations on pricing, even at the pre-mass market stage, some equipment suppliers are questioning whether this will support a viable business. In particular Ericsson - with an obvious interest in slowing any tide towards commodity base stations - and Texas Instruments have been expressing their doubts, even as the surge of carrier interest suggests they will not be able to stay out of the trend for much longer. In the short term, hope may lie in the developing economies, where operators with little existing 3G buildout are looking to femtocells to support a new way of deploying next generation RANs, one that could impact their business cases significantly even at higher price points.

Examples of this include Vivo in Brazil (whose leading landline operator Brasil Telecom is also demonstrating high interest in 802.16e femtocells, if it gets significant WiMAX spectrum), BSNL itself and JSC Ukrtelecom of Ukraine, the latest in a line of carriers owning up to femtocell interest at various conferences held in the past few weeks. All these have in common that they have either not started 3G deployment, or have very made very little progress so far, and so have a relatively clean slate in deciding on their technologies and network designs. In addition, all are looking to deploy a combination of 3G and broadband wireless, to attempt to support a more profitable model than 3G alone, and to leapfrog the more developed countries in infrastructure terms. Key aims within this include rapid build-out of urban or high income population zones, to achieve short term profitability by delivering very high performance (a luxury denied to the European 3G cellcos); and the need to support superior indoor penetration in the absence of extensive DSL or cable build-out.

For such operators, the flexibility of a RAN that is heavily designed around femtocells can represent something far more disruptive than merely extending the network indoors at low cost and creating homezone structures (the key first phase objectives of the western femtocell supporters). Ukrtelecom only launched UMTS services last month, and so is looking to femtocells to accelerate its roll-out to key target user bases while improving quality of service and so increasing ARPU. The incumbent is trialling products from Huawei and Nokia Siemens.

In turn, this more visionary approach to femtocells - as a 'bottom up' entry to next generation networks and convergence - may support different economics, with greater margin potential for both operators and vendors, or failing that, massive volume (especially if BSNL's plans translate into dollars) and the chance for suppliers to take an early stake in a developing market, possibly without quite the level of bureaucracy and risk that have dogged recent major infrastructure awards in India and elsewhere, forcing some suppliers to withdraw altogether.

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