In the past few months, femtocells have become one of the most talked about topics in the wireless industry. Femtocells, often described as small, low-power and low-cost cellular base stations (similar to WiFi APs), can be used as integrated into home gateways or used as standalone devices. Unlike WiFi, femtocells can operate in licensed spectrums. While many carriers in the U.S. and elsewhere have already jumped on the bandwagon, several issues still need to be overcome before the femtocell market reaches a critical mass.

1. Competition in the U.S. femtocell market set to be fierce in coming years. In the past few months, three of the major leading U.S. carriers have already jumped on the femtocell bandwagon. A year ago, Sprint was the first carrier to do so with the launch of its femtocell device (the Airave). Verizon followed suit in January 2009 with its own femtocell device (Network Extender), available for US$249. However, while Verizon’s solution does not require any monthly fee to use the service, it is quite expensive and does not support 3G EV-DO. By comparison, Sprint’s femtocell device is available for US$99.99, but requires users to pay a US$4.99 monthly service fee for basic coverage, and up to US$20 per month for unlimited calling on multi-line family plans. T-Mobile, while it does not offer a real femtocell solution, offers a service called Unlimited HotSpot Calling, which allows users to make unlimited calls over Wi-Fi for US$10 a month. AT&T is currently lagging in this space as it is still testing a 3G microcell set to be launched by YE 2009. At the world level, the most active carriers in the femtocell space include ChungHwa Telecom, NTT DoCoMo, SFR, Softbank, Orange (France & UK), Vodafone, O2 Telefonica, Maxis, among others. While LTE is set to become the primary network used to deploy femtocell solutions in the coming years, we expect WIMAX to have a role to play as well. Samsung recently demonstrated its latest Mobile WiMAX femtocell solution at the WiMAX Forum Congress Asia 2009. Clearwire is already offering a forerunner of such technology: a portable WiFi router that distributes the WiMax connection among multiple devices. Sprint Nextel is also set to offer a WiMAX femtocell solution in the coming years.

2. Femtocell for wholesale, a viable business model? Offering femtocells for wholesale partners could become a valuable business model for many carriers. Multinational carriers like Vodafone, Orange, Telefonica, and 3, are well positioned to take advantage of this new opportunity based on their large number of resellers and MVNOs. Many of them will probably keep an eye on Sprint Nextel, which recently announced its plan to move into the wholesale market through select MVNO partners and resellers. Using such model makes sense as it could help those resellers improve their coverage, launch new products, attract new customers and reduce churn. For the carriers like Vodafone and Orange, this could potentially mean more customer adds (through those resellers), higher revenue, higher EPS, and better customer satisfaction.

3. Focusing on user experience likely to be key. Google backed femtocell startup Ubiquisys is set to become key player here as it has teamed with Intrinsyc Software International Inc to develop a presence app (UX-Zone) to be used for Android handsets. Through this app, the screen on an Android handset will be able to change its appearance when users get near to his/her femtocell at home or in the office. The handset will also systematically detect the home base station and make calls through it rather than the macro network. Clearly, using smart UIs and adding presence capabilities to existing femtocell solutions could open the door to a new generation of services for femtocells.

4. Femtocells, a future low-cost, low-risk approach to upcoming 4G deployments. Ultimately, femtocells could be used by 4G carriers to smooth the transition to the upcoming 4G networks. For instance, LTE femtocells could become a low-cost and low-risk approach to their upcoming LTE deployments. We expect femtocells to become a core component of the 4G ecosystem - expected to be a combination of network technologies- as it would also help carriers to make the best use of their LTE spectrum depending on the environment. Femtocells would then be ideal to provide the best indoor experience and could reduce battery consumption, and provide lower-latency data connections.

Bottom line: Femtocells present a new revenue opportunity for carriers. They could also become a direct path to the carriers’ future 4G networks, and help service providers improve the user experience and coverage within homes and offices.  That said, figuring out the right business model and pricing while setting up standards around femtocells, and educating consumers about the best way to use femtocells in the coming years will be key. Some reports even suggest that femtocells might not even be needed in the 4G world if the spectrum used for LTE deployment is strong enough to offer better in-building coverage. Today the industry is moving forward as the Femto Forum, 3GPP and the Broadband Forum recently created the first femtocell standard, but figuring out the best way to drive consumer adoption remains unanswered.