Femtocells: Implementing a Better Business Model to Increase SP Profitability
Contributed by Richard Medcalf, Cisco Internet Business Solutions Group (IBSG) Global Innovations Practice
Buying flowers for your loved one is a great thing to do: it creates goodwill and strengthens the relationship and makes the house look and smell nice. Why would you not want to do that? The question is relevant because it seems to me that when it comes to femtocells, Service Providers are doing the equivalent of not buying their loved one any flowers!
A Femtocell is a small device that attaches to a consumer’s home broadband networks to provide superior cellular coverage in the home. Think of them as having your own personal cellular network dedicated to you and your family.
Whilst there have been several commercial femtocell launches and field trials, demand has been somewhat lackluster. The problem is that SPs are reluctant to actively market an offer that admits their coverage is less than perfect, and customers are reluctant to pay extra for what they see as the SP’s responsibility of providing good coverage.
However, adoption of femtocells can really improve an SP’s financial metrics. Femtocells can provide additional service revenues, help reduce churn, create upsell opportunities in mobile data, accelerate fixed broadband offerings, lead to market share gains and, by offloading traffic from the 3G network onto the consumer’s broadband connection, significantly reduce the cost of delivering mobile Internet traffic. Customers benefit from better coverage, improved performance and new service and tariff options. In other words, a femtocell is an investment that benefits both parties – just like the flowers I mentioned earlier.
Given these benefits, we believe that SPs need to take the brakes off adoption and stop asking their customers to purchase femtocells. Instead, SPs should subsidize the devices to provide them to customers at no additional cost.
By delivering a superior in-home experience to customers in this way, overall business results will improve: Findings from IBSG’s work with Service Providers suggests that this ‘push’ (subsidy) model results in more than three times the value creation when compared with the ‘pull’ approach of trying to sell the devices.