Technology | Media | Telecommunications

Friday, August 22, 2008

Femtocell Market Segmentation Advantage

Informa Telecoms & Media expects the number of femtocells deployed by the end of 2013 to exceed the 40 million mark, with 22 million net additions in 2013 alone. This installed base could help mobile operators to offload up to 8 percent of total mobile traffic to fixed networks via the customer's wireline connection.

This could enable service providers to attain significant savings by reducing the need to create additional macro-cell capacity to cope with this traffic.

However, whether these savings materialize depends on a number of factors -- the nature of the operator, the mobile access technology involved, the value proposition to the end-user, the region targeted, and the level of investments the operator has already made in upgrading its mobile network.

According to Informa, to handle the same amount of traffic carried by the 22 million femtocell deployments in 2013 would in theory require a $13.8 billion investment in macrocell capacity. This is the potential sum if one takes into account capital expenditure related radio access infrastructure, operational costs and the mobile backhaul cost required for adding new macrocells to handle a traffic capacity equivalent to this carried over the new femtocell installed base.

However this theoretical figure assumes operators have no spare capacity in their existing networks and they have to build this capacity from scratch. In practice, when operators invest in widening the coverage of their networks they systematically create capacity redundancies, probably enough to handle a big part of this traffic anyway.

Assuming that 33 percent of the required capacity is provided by the existing macrocell coverage, then macrocell infrastructure expenditure investment required to handle that amount of traffic is likely to be closer to $9 billion.

"Deploying femtocells requires a good understanding of market segmentation of both mobile consumer and household markets, meticulous planning and targeted marketing campaigns, which mean operators will have to invest substantial amount of money if they want femtocell services to gain popularity" said Malik Saadi, Principal Analyst.

Whether operators make savings in terms of capital and operational expenditure will depend considerably on the individual operator, the mobile access technology supported, and on the region and type of area targeted.

This means that operators will have to find ways of increasing both revenues and ARPU from femtocell services in order to make femtocells profitable.