"Femto-nomics"

Apologies for the radio silence....it is very easy to fall out of the habit of writing.

Let's talk about Femtocells. These small, low-cost indoor base stations promise substantial cost savings and new service opportunities and are generating intense interest from operators.

The main benefits of Femtocells are:
1. Fixed-Mobile Convergence (FMC): 3G femtocells enable MNOs to offer relatively inexpensive, high quality voice for users when they are at home. Also helps to maintain the "mobile premium" when subs are out and about.
2. Bundles and group subscriptions: to attract all household members to the network.
3. Compete effectively with WLAN/UMA: without the need for dual mode handsets.
4. Cheaper to deploy and manage than macrocells.

Some analysts predict that 3G femtocells have far-reaching consequences for the industry. Operators need to improve in-building coverage significantly, and 3G femtocells offer a practical, and potentially much less expensive, alternative to further investment in 3G macrocell networks. They believe that femtocells in sufficient densities could even make macrocell investment redundant. Note I said in sufficient densities.

Analysys Research claims that "Mobile operators could benefit significantly - particularly if they have a small number of customers. A typical small operator could save an average of about USD45 per customer per year by deploying 3G femtocells in 60% of customer households by 2012."

That's equivalent to adding around 10% to ARPU. Sounds pretty compelling. Let's buy a bunch.

Not so fast....They then go on to say that operators could end up shooting themselves in the foot: "Mobile operators that fail to adopt a large-scale approach may find themselves expending great effort on integrating a large number of 3G femtocells without avoiding significant macrocell investment, if most of their customers do not take up femtocells. 3G femtocell deployment to 20% of households by 2012 would only save about USD20 per customer per year, because significant numbers of macrocells would still be needed."

Sounds like an 'all or nothin' ' situation. No doubt operators will have to subsidize the Femtocells, quite likely footing 100% of the bill. At only USD45 per person savings in the best case, Femtocells won't make sense unless the sub signs up for some bundle or a family subscription. It will help the business case even further if the MNO is also the broadband provider. However, even with all these potential revenue sources, it still seems to me that the operator will have to more or less blanket a region for Femtocells to make economic sense.

Thoughts and comments welcome.