Study Projects Positive Femtocell Business Case
Published on: 10th Feb 2009
Note -- this news article is more than a year old.
The Femto Forum has published the results of research into the femtocell business case that it commissioned from Signals Research Group (SRG), a US based wireless telecommunications consultancy. The report found that femtocells can generate attractive returns for operators by significantly increasing the expected lifetime value of a subscriber across a range of user scenarios. Subscribers in turn could realize cost savings and other benefits from femtocells.
The research analyzed the potential lifetime value generated by each customer for a 3G operator using femtocells under a range of scenarios, including; regional-specific assumptions, macro network assumptions, usage profiles, and femtocell-specific assumptions such as the cost of the femtocell and associated network elements and support. For this analysis, SRG leveraged its proprietary macro network economics model, which supports network modeling capabilities across sixty-five countries. With this approach, it was possible to model the relationship between the macro network and the femtocell network in order to quantify cost-savings, such as the impact of macro network capacity offload or of coverage enhancements.
The research found that even with conservative assumptions, the business case for femtocells is attractive with the customer lifetime value increasing by as much as 125%, and even higher in certain user scenarios.
Significantly, the work done by SRG forms a modeling tool that can be used and adapted by carrier members of the Forum. Although the examples created to date are representative, they are of necessity generic. Much of the value will come from how operators can use this tool to model the business cases for the actual situation in their markets and geographies, and determine which segments are most suitable.
In one representative example - a European household with two subscribers and moderate voice and data usage - the projected lifetime value of the household increases by 56%, from €1,600 to €2,500 based on operational savings alone. When including less immediate effects, such as attracting other family members and selling new services, the projected lifetime value grows to €3,500 - a 120% increase.
Overall, the study found that the business case for femtocells is driven more by customer longevity and revenue effects than by variances in the cost of the device itself.
The study also found that operators can use femtocells to provide deep in-building mobile broadband coverage in a very cost efficient manner. For example, the study found that a European operator wanting to provide a reliable 2.5 Mbps in-building service for the most coverage challenged households, could do it for €320 per household if it used a highly subsidized femtocell strategy, whereas providing similar in-home service with the means of a macro cellular network would cost €900.
The study additionally concluded that offloading voice and data traffic from the macro network will become a more important factor in the business case as mobile data traffic continues to grow rapidly around the globe. For example, the cost savings associated with offloading data traffic generated by heavy users more than justifies a fully-subsidized femtocell business model.
The research focuses on the business case for specific consumer propositions targeted at defined customer segments, rather than averaging across the entire customer base. This approach helps operators identify propositions for target segments where the business case is clear, and avoid propositions to market segments where the case is less obvious. Through these consumer propositions, the study implicitly highlights the many benefits of femtocells to the consumer: fewer dropped calls, better voice quality, higher data rates, and - depending on the decisions of a carrier - attractive tariffs or voice and data bundles. The model considers several of these bundles and can be used to analyze precisely what discounts or packages are attractive to consumers while still being profitable for the operator.
Finally, the study finds that value-added services - made possible by the presence of the femtocell in the home - will strengthen the business case, but are not necessary to provide a positive outcome.
"The question is not whether operators in mature mobile markets should deploy femtocells, but in which segments. The financial and network benefits are clear. The real issue for operators is finding the recipe that delivers optimum financial and network benefits as well as finding a compelling subscriber proposition," said J. Randolph Luening, Vice President of Wireless Economics at SRG. "Our research not only demonstrates the financial benefits of femtocells but it also provides a model that operators can use to fine-tune their propositions."
"There has been plenty of hype surrounding femtocells, and our operator membership has consistently called for reality checks. We decided to commission in-depth business case research and asked our operator members to participate in the project to ensure it reflected the practical realities of their working environment," said Simon Saunders, the Femto Forum's Chairman. "We know that femtocell technology works; now these results show that femtocells can have a very positive impact on the operator's balance sheet. In times when financing is constrained, operators need to focus on reducing OpEx and optimizing how they invest CapEx: this research comprehensively demonstrates that, even in a difficult environment, the cost savings and other benefits of femtocells create a powerful business case.
"Crucially, operators who are members of the Forum get access to the full, detailed tool. Every operator is different and must create a specific business case, but the SRG model allows carriers to analyze particular scenarios and segments that are appropriate to their own situation and environment. The first phase is 3G focused, but this can be extended to consider other air-interfaces, including WiMAX and LTE," he continued.