Femtocells: Boon, bane or benign for cable operators?

At their least intrusive, femtocells may be a technological Switzerland, neither favoring nor opposing the existing broadband infrastructure. At their worst, femtos, which should be in serious trials by the end of this year and on the market early next year, are the advance scouts for invading telecom forces that will use cable resources to improve in-residence mobile wireless broadband and insidiously infect consumer thinking.

The worst-case scenario might not materialize, but until MSOs build their own mobile wireless platforms (as Cox appears prepared to do) or find a favorable partnership (as Comcast, Time Warner Cable and Bright House have with cellular provider Sprint), the industry will have to keep an eye on femtos from a competitive perspective.

Femtocells are small cellular base stations that provide enhanced coverage at the far edge of the network to let mobile service providers shore up their in-residence coverage without needing expensive towers. They also help alleviate broadband wireless traffic congestion by using the in-residence wireline broadband connection for backhaul.

A telco like AT&T or Verizon would make a femtocell part of an overall consumer broadband offering, adding the mobile element to an existing fiber or DSL connection. This is where femtos pose the greatest threat to cable because they can entice subscribers with broadband mobility as part of a package of telco services.

Femtos have two major problems. They only work on the wireless provider’s spectrum and each wireless provider has its own frequency, placing a major hurdle to wide retail sales of interoperable products; and they’re still relatively expensive in the whole retail scheme.

“If you look at what’s being asked for, you’re really looking at $100 or $200. Vodafone threw out a benchmark of $100 or less to the vendor community to try to set the bar and some people are striving to meet that,” said David Readman, director of global business development for femto maker ZTE.

Samsung’s Airave Femtocell
Samsung’s Airave Femtocell

Compare that to more established wireless technology and it’s a hurdle.

“You can add Wi-Fi into a home gateway for $20 to $30; adding femto into the same home gateway, you’re probably going to be looking at over $100,” said Alan Lefkof, corporate vice president and general manager of Motorola’s broadband solutions group.

That doesn’t mean a subscriber with a weak in-residence mobile connection won’t shell out the bucks for the device, or that the wireless carrier won’t subsidize the expense to help subscribers get better service, but it does indicate that there won’t be a mass push to retailers to buy devices just to compete with cable with mobile broadband data and video services. Still, as prices come down, that’s exactly the path femtos are expected to take: compete with cable and satellite by adding a mobile component to the home communications package.

“It’s a little easier to understand the femto opportunity from a telco perspective, and especially from a telco perspective when the wireline telco is merging with the wireless mobile provider,” said Lefkof. “Cable is a little trickier because no cable operator owns its own cell phone operation.”

Cable has several wireless options. There’s the multi-billion-dollar financial investment Comcast, Time Warner Cable and Bright House Communications threw into the “new” Clearwire. That, though, is WiMAX, and WiMAX supposedly won’t need a femtocell signal boost.

Cox Communications provides a standalone view of what the industry could be doing. Cox had been part of the failed Pivot relationship with Sprint but didn’t renew its vows when its fellow members invested in Clearwire and WiMAX. Cox also went out on a cable limb by bidding for 700 MHz bandwidth that could be used for a wireless play either using conventional mobile technology or WiMAX. Cox is also still allied with Comcast and Time Warner in SpectrumCo, a joint venture that bid $2.37 billion for 137 wireless spectrum licenses.

Like all cable operators, Cox has its eyes on femtos if for no other reason than the devices could end up in Cox homes using the cable broadband network for backhaul.

“We evaluate a lot of different technologies and things that are happening in the marketplace (and) this is another one. If it starts to emerge, it’s something to watch,” said Michael Gillin, senior product development manager-wireless, for Cox.

On the other hand, watching and doing are two different things, as athletes often tell sportswriters.

“We can’t say it’s an area that we’re definitely going to delve into. We’re looking at Wi-Fi,” he said.

Cox figures Wi-Fi, an established (read cheap) technology that’s somewhat ubiquitous, might provide a better wireless broadband data play than a femto. The MSO has lit up an area in downtown Wichita to study how consumers use the service because “Wi-Fi was designed initially for more of a broadband extension,” he said.

. . .“Our business model has been... [that] the robust mobile Internet model is an extension of the Internet and the wireless; it’s not an extension of cellular going to the Internet,” said Atish Gude, senior vice president of mobile broadband operations for Sprint’s Xohm business unit. Sprint is making Xohm a cornerstone of the new Clearwire WiMAX initiative which should settle out by the end of this year.

WiMAX supposedly will be powerful enough to easily penetrate the residence and deliver high-speed data connectivity along with fixed voice-over-IP. It will also evolve to mobile as chips become smaller and consume less power and end devices migrate from laptops to PDAs to cell phones. WiMAX is one vision of fourth generation mobile technology; LTE, which stands for long term evolution, is the other that is being pursued by most mobile operators who will drag their existing mobile infrastructure into high-speed mobile broadband. Time wise, Clearwire’s WiMAX play is already up and running and should start to get traction next year; LTE is still two years out.

To offset this time differential, mobile providers are increasingly offering a form of broadband – not the blazing speeds of cable modems, DOCSIS 3.0 or fiber, but enough to push Internet services over mobile devices using third-generation technology. The speed bump for so-called smartphones that get Internet broadband is in-residence reception and traffic congestion, and that’s where femtocells have an impact.

This early lead with 3G as WiMAX gives telcos a “minor advantage,” said Readman. “In areas where they can bundle those things and they have the subscriber on both sides (wireless and wireline) there’s an opportunity, but the overlap is quite small.”

Readman estimated that AT&T and Verizon have one-tenth as many broadband subscribers as they do wireless

Motorola’s 8000 series Femtocell
Motorola’s 8000 series Femtocell

subscribers, and only a minority of those have both services. Still, it’s a foothold for both AT&T and Verizon and even Sprint, which, sans Clearwire, is exploring.

Even if cable doesn’t cooperate with Sprint, and the new Clearwire relationship does call for use of the mobile carrier’s 2/3G networks, there’s a good chance that some wireless carrier is going to invade the cable residence with a femtocell and there’s nothing the cable operator can do about it.

“By the time it gets to the gateway and backhauls on the cable line, it’s just another IP packet. It would be a little hard to lock it out not knowing which packet is which, and consumers would be in an uproar,” said Lefkof.

It not only would be unwise to try to block femto traffic, it would be relatively impossible, said Jim Parker, senior manager of Samsung Telecommunications America, which builds femtocells.

“It’s using IPsec, and IPsec is a tunneling mechanism used for corporate e-mail,” Parker said.
IPsec allows a corporate user to bring home a laptop and log onto the company network using the cable broadband connection so “the person that owns the wireline infrastructure that you’re using to piggyback this femtocell offering on top of would not be able to differentiate traffic from a femtocell versus someone like myself taking my corporate laptop home and checking e-mail,” he said.

In other words, the enterprising wireless provider can use the cable broadband connection to boost its broadband service. More likely, that wireless carrier would work some bundle with a wireline partner to make mobile broadband an element of a four-prong voice, video, data and mobility package.
It all depends on what the user wants from the provider, and what the provider wants to give to the user.

“In the U.S., a lot of people do not get very good cell phone coverage in their home so the femto gives you better coverage because your cell phone would look to the antenna in the gateway instead of looking to the macro cell tower,” Lefkof said.

It’s not the same for Europe, where in-residence cell coverage is more than adequate.

“The new devices that are going crazy in Europe are 3G USB sticks to plug into your laptop. When you start uploading and downloading big files with those USB sticks, you’re starting to clog the 3G macrocell network,” he said. “The operators are very interested in getting extra 3G capacity leveraging the home broadband because their own marketing has been too successful with the USB sticks on the laptop.”

In short, the value of femtos will be whatever the mobile operators make it. The knee-jerk cable reaction is to dismiss this new device as no threat to cable’s powerful broadband throughput. The more reasoned approach is to consider what impact it might have on overall subscriber numbers – especially if improved in-residence mobile drives subscribers away from digital landline phone – and what impact those increasingly heavy loads of data will have on the cable backhaul.

“We’re in the early stages of the whole femtocell environment...but it provides the vehicle to start linking together the wireless/wireline environment, and given the amount of wireless traffic that occurs from consumers in their home...using a DSL or cable high-speed connection for that call in the home environment has some economic appeal,” said Dan Moloney, president of Motorola’s home and networks mobility group. “For those who own DSL fixed line networks, obviously, it’s simple. For those who don’t, the ability to team up either with a fixed line carrier or a cable operator to leverage that backhaul capability is something that’s being very actively explored.”