Mobile phone operators will reap big benefits when Femtocells hit European markets – while wholesale broadband providers do all the work

Tajinder Jagdev, Head of Communications, Media and Entertainment Practice at SAS UK, argues that wholesale broadband providers need to think 'inside' the Femtocell box if they are to take advantage of what is tipped to become the Femtocell 'gold rush'

07 October 2009 -  According to analyst group, Juniper Research, Femtocell subscriptions are predicted to surpass the 15 million mark worldwide during 2012 and exceed $9 billion in revenue by 2014, as more and more people access the web on their phones and embrace services such as music and video downloads. Femtocells – mobile phone base stations that plug straight into a residential Internet connection – hit Asian and North American markets in 2007 and are currently being trialled across Europe. A Femtocell base station can currently accept up to five handsets and ensures excellent indoor reception and data transfer rates.

As a result, broadband service providers are going to have to cope with a huge amount of extra traffic being driven through their networks. Unless changes are made, wholesale broadband providers, such as BT, won't see a single penny for carrying this additional traffic - mobile phone operators will be the sole beneficiary.

Mobile phone operators are essentially piggy-backing on wholesale broadband providers' existing infrastructure in order to offer this new Femtocell service. Mobile phone traffic is being carried by the broadband providers’ network from the subscribers’ home. This way, mobile operators avoid the cost of carrying the Femtocell subscribers’ data on its own backhaul network to its core network because the traffic is carried on the existing wholesale broadband service providers' network.

More business for mobile operators, more congestion for broadband operators As a result, if more mobile subscribers access services via Femtocells, the existing mobile backhaul network will become less congested, in turn allowing mobile operators to serve new customers without investing in extra backhaul capacity. Therefore wholesale broadband providers will be expected to handle the increased traffic generated for no extra revenue, whilst mobile phone companies will significantly increase their margins. In the long-term, broadband service providers will gradually see increased traffic and even congestion in their networks and may have to invest in extra capacity.

How can broadband providers take advantage of the market opportunities created by Femtocells?
Despite increased traffic and possible investment in extra network capacity it is very unlikely that broadband providers would start charging consumers a flat fee for connecting a Femtocell to their network because the traffic generated from the Femtocell hits the wholesale broadband network in the home and the consumer already pays for this service.

Technically speaking, because the broadband service provider transports the mobile operator's traffic to its core network it therefore enables the possibility to bill the mobile operators for its services, although this is not as straight-forward as it sounds.

BT is petitioning to lower 'Mobile Termination Rates' (MTR) to reduce the cost for its customers. MTR is applied when someone makes a call to a different mobile network, or calls a mobile from their landline, because the mobile phone operator charges a fee for carrying the call – a cost which is passed onto the consumer. So can a broadband provider, such as BT, realistically impose a similar billing system onto mobile phone users who use their broadband service via a Femtocell?

Think inside the Femtocell box
Broadband providers may have to think outside the box to generate their share of the revenue. They have the option of bringing advertising into the equation as a source of revenue because Femtocells resemble a small broadband router and create a point of presence in consumers' homes. Manufacturers of the device could implement an LCD screen with the view to play out relevant advertisements. This could generate a significant amount of revenue by advertising products and services that are relevant to the owners of the handsets. This is achieved by building a profile of the people connecting to each Femtocell. For example, do they make a lot of international phone calls or do they download a lot of music?

“By collating these simple data fields, broadband providers can analyse how consumers are utilising their Femtocells. This knowledge creates opportunities for them to commercially exploit the demand for Femtocells – which could actually result in substantially higher margins than those achieved by the mobile phone operators."

Tajinder Jagdev is Head of Communications, Media and Entertainment Practice at SAS UK, leader in Business Analytics software and services. If the above comments are of interest to you and you would like to speak to Tajinder Jagdev, please contact Manuela 

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