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Femtocells can deliver higher ARPU for telecoms

Telecoms need to target the most profitable markets with femtocells while avoiding service cannibalization, and stop focusing on them as cost cutters.

Femtocells can best help telecoms boost revenue if providers avoid positioning them as major cost-cutters and instead use them to increase usage, a recent report published by telecom consultancy Analysys suggested.

The report, which took a broad look at possible consumer market business cases for femtocells, cautioned that any subsidies for either equipment or services should come with a very strong case that higher average revenue per user (ARPU) will result.

"It's dangerous to focus on [cheaper] basic services," said Mark Heath, an analyst at Analysys and co-author of the report.

Two potential global femtocell markets

Heath said the potential global market for femtocells could be broadly divided into two categories. First, there are those households with poor signal quality. Analysys found that these customers, common in the United States and parts of Europe, would be likely to pay much of the femtocell equipment cost in return for clear, consistent quality.

With this model, basic voice services remain profitable while the burden of hardware expenditures is placed on the user.

Once the femtocell unit is in the home, Heath said, providers should push 3G networks with advanced connectivity so users can experiment with -- and hopefully get hooked on -- premium services like video. The home area is often the hardest to connect consistently with 3G networks and advanced features, and the femtocell units represent a perfect opportunity to provide that connectivity without expensive build-outs.

"There's a need to use femtocells to stimulate the usage of non-voice services," Heath said. Reaching consumers at home with these features is key because that is where they spend the most leisure time. "People don't have the time to play with these services when they're out and about."

Analysys' research suggested that once users become familiar with these services, they become much more likely to be active, regular users in and out of the home, boosting revenues in the long term.

Operators would probably be able to continue charging these users full price for phone service, Heath said, while reducing their own capital and operating costs.

The other market segment that could be attracted to femtocells is the consumer who is looking to cut costs. Here, Heath said, the business case is not so clear. These consumers would be likely to demand subsidies on the femtocell units while lowering their expenditure on calls in the home zone, which could be made at a reduced price.

The femtocell rollout quickly goes from being a win-win in the first case (better service for the consumer and higher revenue for the provider) to a dubious investment at best for the telecom.

Quality of Service differentiates

Instead of price, Heath argued, the primary differentiator should be quality of service (QoS), followed by the additional push of advanced, premium services like video, radio and mobile TV, all of which can greatly increase ARPU.

Along with the market segmentation, several other key factors should be kept in mind when developing a femtocell strategy, Heath said. One is the possibility of traffic shaping or interference on behalf of the consumer's landline Internet service provider. For some mobile operators, he said, this could be avoided by bundling services to the home -- by offering both the wireless and wired connections, providers can ensure consistent quality levels and proper provisioning.

Other operators will not have this luxury, however, and Heath suggested that providers take this into account when planning and testing rollouts. At this point, he said, such interference is an unknown factor that could go either way.

Another external factor Heath warned about was a possible health scare. Already, people worry about the dangers of cellular towers in residential areas, and it is not much of a stretch to see media outlets creating a panic when "mini towers" are brought into the home.

This factor can be mitigated with enough research and preparation undertaken to show that femtocells pose no health risk, but Heath said that planning and public relations are best done before any public-health frenzies give the technology an undeserved black eye.

With all the considerations in place, however, many markets could benefit tremendously from the technology, Heath said, particularly as it becomes simpler and less expensive. Early deployments would probably be tightly monitored or even installed by the provider, but eventually it is likely to be a mainstream, consumer-installed technology bought at the store.

Already, Heath said, prices are rapidly dropping, with the cost likely to hit $150 by mid-2008 for some offerings, greatly reducing subsidization concerns.

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