A large ecosystem has developed around Femtocells, and
significant capital has been raised and deployed to develop these products.
We're now at a critical point. Most of the technology and usability challenges
have been solved:Femtocells work.
And many major operators, across numerous geographies, have committed to
deploying Femtocells. But with few exceptions, it is a "small c" commitment. I
believe there will only be pockets of success unless two things happen: first, operators should market, position,
and price femtos differently than they are today; and second, we must think of
the broader opportunity for femtos, rather than their being merely a solution
to improve coverage in the home.
First off, Jon Pelson, former Chief of Convergence
Strategy for British Telecom, writes about his experience with AT&T's 3G
MicroCell in a rural suburb of Washington, D.C. I'll then offer some additional
Experience with AT&T's 3G MicroCell (Jon Pelson)
Jon Pelson is Managing Director of TAP Advisors, a
boutique investment bank focused on Telecom and Technology markets. Until
recently he was Chief of Convergence Strategy for British Telecom, and has been
involved in a number of fixed/mobile convergence initiatives over the past 15
years while at Nextel and Lucent.
I was surprised to receive a letter from AT&T two
weeks ago, offering a free "3G MicroCell." It turns out I wasn't the only
one who was surprised; the sales rep at the AT&T store didn't know anything
about the program, wasn't aware of the letter, and was out of the MicroCell
anyway. I put my name on a waiting list and a few days later took home the
package. I used the MicroCell with my iPhone and connected my wife's iPhone to
it as well. The femto was free and the monthly charge is $20 for unlimited use
of voice on the MicroCell. Data use on the femto is charged against AT&T's
new usage-based data plans.
I've been doing work on femtocells since before they had a
name, so I was interested to see how this worked. The directions were
simple and the set-up was straightforward; connect the unit to my Wi-Fi router
with the included Ethernet cable, plug into the electrical outlet, and set up
near a window for the GPS verification (it uses GPS to verify your physical
location for E911 security and to make sure you're in an area where AT&T
can broadcast (FCC approved)). After set- up, it can be moved elsewhere in
the house. The only complication came when I needed
to log on to the AT&T website to activate my service. If you don't
have a U-Verse account and password (am I really the only one?) you need to
navigate a web maze that doesn't seem to be prepared for the flood of consumers
it's facing. The directions seemed targeted at business customers, with
questions about whether I am the main administrator for my account, etc. I eventually secured a U-Verse account and quickly completed the set up. The
directions warned that it could take three hours for the system to be ready,
and it took almost that long before all the proper lights lit up.
And then I had a remarkable experience; "five bars" in my
home office. And in the basement. And just about everywhere else in my
home. The call quality has occasionally been clippy, like IP calls in the
early days, but most of the time I can't detect any difference from the regular
mobile sound quality. The range is okay, though I sometimes lose the
signal when I'm up two floors from the microcell and on the far side of the
house. As for hand-off to the macro network, it has been successful when
leaving the house mid-call, but it won't switch over to the MicroCell when
entering the house mid-call.
For data, like most users I switch the phone over to Wi-Fi
in the home and that is my iPhone's default setting for data. However, if Wi-Fi
is turned off the phone will use the femto instead. I noted modest improvements
in data quality when using the cellular network in my house. Before the
microcell, I only got Edge in my house. With the Microcell, I was on 3G,
averaging a decent 1.1 MB upload and a paltry 60 kb upload, with latency
ranging from an OK 547 ms to a (curiously) poor 9475 ms.
I can't tell yet whether the battery life is improved
though my handset should be able to power down and last longer. With an
iPhone, battery drain is too unpredictable to venture a guess.
The bottom line on the AT&T 3GMicrocell: I can now use
my AT&T phone from home, even relying on it as a primary business
line. Not bad for the price.
Additional Commentary (Mark Lowenstein)
A Wall Street Journal
piece on the Femto market a couple of weeks ago did not do the femto market any
favors, positioning the product as primarily a coverage solution. I have done
quite a bit of work on the femto market over the years, including the business
case analysis when I was at Verizon Wireless (before femtos were really ready
for prime time). So, a few observations:
First, this will be a very limited market if femtos are
positioned as primarily as a coverage enhancing solution. You gotta do the
Percent of people whose coverage in the home is poor x have
broadband (65%) x willing to pay for femto device/service x willing to commit
to that operator (femtos are specific to an operator) for all members of the
household if all want the femto's benefits.
The total addressable market
shrinks pretty quickly.
Also, factor in the marketing conundrum for operators: how
much are they going to promote a product that is, in essence, admitting to not
fulfilling on a core aspect of their mission --- providing adequate coverage.
Really, the business case for femtos varies significantly by
geography. In the U.S., outside of the perhaps 20% TAM for the voice coverage
benefits of femto, the main beneficiaries of femtos are operators, who need are
all too happy to have the capacity offload and broadband for backhaul. In other
geographies, data service the larger benefit. In Japan, arguably the largest
femto market to date, Softbank is giving femto away as part of selling its ADSL service - you get
the twofer of fixed broadband and mobile data service improvements.
Second, the pricing, at least here in the U.S., is off. Is
the femto free, as in Jon's case, or not? It seems that this is a discretionary
call, and varies by operator. In my view, if you can prove to your operator
that you are getting less than three bars in your house, they should GIVE the
product and femto service away, provided you are on a post-paid plan of a
certain level. I also think the fee for unlimited voice using the femto in the
home should be optional, positioned as an "upgrade". The default should not be charging for a service that solves
their problem as much as yours.
Operators should see the potential to use the femto as an incentive to
commit to an operator's family plan, or to consolidate services in a household
around one operator. For example, the femto could be offered free for a commitment
of two or more lines in the household. A happy family getting good coverage off
the femto is exactly the sort of stickiness operators are looking for (OK, bad
1950s-style jingle: "We're a Femto Family"). Plus, family plans could use an
additional differentiator these days.
Third, we need more serious thought about the data aspect of
femtos. Since a broadband service is needed for the femto, there goes any
marketing of the data benefits of the femto as a "broadband displacement"
service. If the household has broadband, it likely has Wi-Fi, hence that will
be the default for data using smartphones. And in AT&T's case, there's a
bit of a hidden risk. The data improvements provided by the MicroCell might
tempt you into laziness in not switching over to Wi-Fi in the home, but data
usage on the femto is counted against the data usage plan. There's been quite
an outcry on the blogs on this one, but AT&T is quite clear on its website,
recommending Wi-Fi be used for data. Note, not all femto products available
today support 3G (Verizon's Network Extender does not support EVDO for data).
Fourth, I'd posit that while Femtos are available, they're
not being actively marketed. My own channel checks indicate store and service
reps are not knowledgeable about these products. They're not being actively
merchandised in the stores. And they're sort of buried on operator web sites
(especially Verizon). This is not necessarily accidental.
So, bottom line, am I pessimistic about the potential for
femtos? Short-term yes, long-term no. Presently, they are being pitched as a
product of last resort, are being poorly marketed, are mis-priced, and, in some
cases involve major compromises (for example only 2G for data). How to turn
this around? Three thoughts:
1. Market femtos as a "coverage optimizer". Since femtos are specific to an operator, use them
as a carrot to obtain additional commitment to that operator, a la online
banking. Give the product away if there are less than three bars in the home
and subsidize it for post-paid users. Use it as a differentiator/value-add for
family plans. If you've got a family of four on five bars using a femto, that
will create a loyalty few other products will buy.
2. Market the data improvements. Sure, a lot of data use will default to Wi-Fi. But
a significant percentage of the installed base still does not have a Wi-Fi
enabled phone, so the data improvements will help, especially downstream in
family plans. Operators will also shoot themselves in the foot if users are
penalized for using the femto for data, as in AT&T's current pricing. There
are carrots/messages that can be used to get customers to switch to Wi-Fi for
data when in the home - just don't penalize them for it if they forget, and let
non Wi-Fi-enabled phones use the
femto for data for free, as these devices won't consume that much data anyway
(maybe there's a billing challenge in all of this...).
3. Think about the longer term potential for femtos. I think there's a substantial market for femtos if,
over the longer term, they are considered as more than just coverage enhancers.
When heavyweights such as Cisco involved in
this market, there's the potential for a much larger concept. More tactically,
this is a way to optimize the wireless network experience, for voice, data, and
even power management. More strategically, I see the femto as part of a
next-generation combination router/residential gateway, helping to optimize and
manage how voice and data traffic flows among the many "screens" that a typical
household has today. This gateway concept could be one way to more effectively
connect and manage media content coming off the Internet and onto other
devices, such as TVs, tablets, and mobile devices in the home. It could be used
to distribute and optimize content delivery to these screens, manage what
network it's going over on a dynamic basis, and have hooks into the various
billing and payment systems. There's some sort of router/residential
gateway/set-top box of the future, and the money and effort that's gone into
developing Femtocell technology will find it's place in this realm at some