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August 5, 2010

Thought Leadership for the Wireless Industry
In This Issue
Latest Views on Femtocells
Book a Fall Strategy Session
Mobile Directions: Planning for 2011
M-Eco/Fierce Webinar
Sept. 1, 2pm ET

Open Mobile Summit
Nov. 8-10, San Francisco
Panel Session

Nov. 3-4, New York

4G World
Oct. 18-21, Chicago
Executive Operator Round-Table

Presented by Rutberg & Co.
June 16, San Francisco
Invite-only event

TieCon West
May 13-14, Santa Clara
Mobile panel

The Google Effect
Tie Boston panel
May 4, Boston

Future of Mobile
April 29, Tuck School at Dartmouth (private)

Crystal Ball Conference
April 7, Montreal
Speech on wireless

Mobile Madness
Presented by Xconomy
March 9, Boston

Presented by AlwaysOn
Feb. 1-3, New York
Mobile Apps & Ads Panel

Hello all,

Hope you are all having a pleasant summer. Here in New England, we've had the best weather in years.


This month's Lens features some commentary on femtocells, including the actual experience with AT&T's 3G MicroCell.


Also, I'd like to invite you to join me for an exciting Webinar, Mobile Trends and Directions: Planning for 2011, on Sept. 1, at 2pm ET, in partnership with Fierce Wireless. I'll be joined by an analyst all-star team, including John Jackson on devices and Phil Marshall on network evolution. We'll also feature compelling data on mobile internet usage from Ground Truth and consumer insights from TNS. Enter VIP code Lens for a discount rate.


Finally, please note two events I'd highly recommend for your fall calendar. 4G World, Oct. 18-21 in Chicago, is the most comprehensive global event on next generation technologies enabling the mobile Internet revolution. I'll be moderating the executive operator roundtable. Enter VIP code Lens for a discount. The following month, join me at The Open Mobile Summit in San Francisco, November 8-10 - where CEOs and top strategists from operators, device manufacturers, Internet, media and publishing companies meet to explore how to build and monetize the open mobile Internet economy. I participated for the first time last year and was highly impressed by the quality of speakers and discourse. 

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Latest Views on Femtocells

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 commentary.


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 math:


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 future point.
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