Femtocell: Hurdles to SuccessNovember 8, 2008 at 4:59 pm | Posted in Uncategorized | 3 Comments
Tags: Femtocell, Wireline replacement
Femtocells are a big, long-term winner if vendors can deliver a solution that is technically and operationally simple for the operator to deliver and maintain. The opportunity is big, since operators spend a large percentage of their capital budget on base stations, and if Femto is successful, it could replace the existing macro network architecture: an opportunity of hundreds of billions of dollars. This opportunity is long-term because there are significant hurdles that the vendors must overcome, which will not occur overnight. For a Femto vendor to really succeed, they must provide a solution that integrates with the operator’s existing infrastructure. This is not trivial, as it will require that the consumer-deployed device meet many requirements for the operator (Update: I see that ABI Research makes this same point in their ongoing Femtocell research here and here). The analogy (made by The Economist) of Femtocells to PCs is apt: consider the difficulty that an IT department has in managing thousands of PCs vs. a few mainframes. Did that revolution occur overnight? This is one of the major hurdles that Femtocells have to overcome.
Who Can Succeed? Cisco Looks Good
Femtocells looks like a great, long-term opportunity for Cisco (Linksys), in particular. They can readily obtain the radio and chipset technology (they recently acquired a strong interest in Femtocell vendor ip.access), have demonstrated the ability to make the solution consumer-friendly, and can leverage their strength in managing a large network of devices (think large Aironet Wi-Fi networks and Navini Networks WiMax deployments) and their strength in Software-Defined Radio (SDR). The future of Femto could look a lot like the evolution of Enterprise Wi-Fi (proprietary solutions, standardization enabling mix-and-match of best-in-class components, simple and powerful network management solutions, and consolidation). The snag here is that this is not a greenfield deployment: Femto must operate in synch with the Operator’s existing macrocells, which creates additional complexity in RF Engineering and Maintenance (e.g., updates), in particular. It will be a challenge for a Femto operator to work with the existing infrastructure, but they may succeed by adapting to it (hence the utility of SDR), which would make the Femto solution more flexible (and valuable) than the existing macro solution. (I can relate to these difficulties, as I pioneered the use of a mix and match infrastructure in the CDMA world while at Qwest Wireless. Although this allowed us the choice of best-in-class price and performance from all base station vendors, our Engineering and Operations teams had to manage a network with a mixture of base stations from multiple vendors).
Other companies could deliver an excellent product, but I think that Cisco has the right mix to win here. I expect that success will most likely come from a vendor outside of the mobile space, instead on inside it (and having to reinvent themselves). Further, many challenging aspects require skill in delivering a consumer product (in massive volumes) instead of big gear that sits in an enclosure. Some mobile network vendors are already placing bets to get in on the action by investing in femtocell start-ups (Motorola and QUALCOMM have invested in ip.access, for example).
High Ground Belongs to Incumbents
As with other major changes in technology, the incumbents have the high ground, but the start-ups have the innovative technology. It’s up to the incumbent to recognize the change, reinvent themselves (the really hard part) to the detriment of their existing products, often acquiring the start-up companies. The major network vendors did just this with VoIP, and I expect them to do it with Femtocells. The network equipment providers have major advantages that will allow them to best serve the customer: embedded systems, ability to integrate the new with the old, cash flow, customer relationships, and more. So the new vendor is severely disadvantaged, and may be forced to work with an incumbent to deliver the goods.
Opportunity: Huge Savings for Operators. Needed (note that Operators will be increasingly squeezed, as Data Use Explodes, but not Data Revenues, discussed here). We saved over 50% on CAPEX just from the ability to create competition and select the best product (in our industry-leading implementation in 2000), so I anticipate at least this level of cost reduction, if not a lot more, due to the scale (just as in millions of consumer devices, such as DSL models and wireless routers). Winners in the vendor space would include ip.access, RadioFrame, Ubiquisys, and losers would include Nokia Siemens Networks, Ericsson, and Alcatel-Lucent (unless they acquire and deploy these as well, which they probably will).
Forecast: Already … I don’t even have to say this, do I, as there is always someone who think that there is a great growth in this or that product. But one can always weigh the value of the opinion based on your trust in the source, right? Well, anyway … some analysts are already predicting a huge market for femtocells: a recent report from IDATE forecasts that 10 million UMTS femtocells will ship worldwide in 2010, rising to 18 million in 2011 (approx. $3 B revenues in 2011).
For reasons that I’ve stated, I doubt that Femtocells will catch on that fast. Supporting my perspective on the immaturity of Femtocells, a major operator voiced similar concerns about the viability of Femtocell technology: SFR (44% owned by Vodafone) stated that the lack of a standard will slow the deployment of Femtocells. [Femtocell Europe 2008 conference, October 2008] This represents the latest opinion from a major Operator group that has all of the facts collected during a recent Femtocell RFP assessment.
The race starts now, as major operators are trialing Femtocells (lots of announcements reported here, on the ip.access Blog). Although some will have limited deployments in 2009, the real success will come only over time, as operators become pleased with the simplicity of the solution.