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Femtocells: Implementing a Better Business Model to Increase SP Profitability

May 20, 2010 - 6 Comments

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.

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  1. Whoopieeee, good news, thanks. Broadening this discussion beyond femtos, as broadband adoption reaches saturation and the margin safari shifts to apps and content, SP ‘infrastructure’ such as boosters (femtos), handsets and network features… should come down. Does Cisco see a price squeeze for its products (but not managed services)?

  2. We are starting to see a rethinking by many of the SPs that have introduced the technology where they are now beginning to lean toward the SP Push model. If you check out ATT and Vodafone’s promotions, they are getting much more agressive. They too must be realizing the value of the femto and baking into the price point. My opinion is that targeted full subsidy is not too far away.

  3. ATT needs younger MBAs to do their pricing! This pricing ‘solution’ of accommodate conflicting goals is a relic from Ma Bell days. Femtos can alleviate the coverage problem for motivated subscribers but then to force those high-margin customers to unlimited service is, well, greedy. Younger MBAs may position femtos as leading edge technology to solve a coverage problem that really isn’t the fault of the SP. Cell towers and geography are controlled by someone else.Are femto cells that expensive to make? They reduce dissatisfaction and hand-holding so those cost savings should be subtracted from the retail price… Well, Cisco is not an SP, but you can advise your SP customers and use the OEM price of femtos as incentives.

  4. I agree AT&T should give the 3G microcells to customers for free who are suppose to have good coverage but actually don’t. You can get 100.00 rebate when you buy the microcell but you have to buy the unlimited talk plan on top of it for $20 a month. This to me is B.S. In the meantime I’m paying for AT&T service and can’t use my cell phone at home.

  5. Good question. I believe the difficulty for SPs is driven by a challenging marketing message that does not lend itself well to mass distribution. Most SPs don’t want to publicize that they have coverage challenges and therefore have been very tight lipped about their offers. In addition, to date, femtocells have represented an emerging and unproven technology in the field and most SPs have been reluctant to offer in an uncontrolled environment. When sold directly, they have the ability to monitor and maintain who is using, why they are using, where they are using, etc. In the other extreme, if bought at Radio Shack or Best Buy, there would need to be an additional layer of handholding that the SP would need to initiate in order to properly activate and deploy the Femtocell. Not unachievable, but added effort that they would just assume ignore for now. With all that said, it would seem much easier to take the challenge of marketing off the table and simply offer to those customers they are trying to add the most value to.

  6. Why are femtos reliant on SPs promoting them? Why are they not marketed commercially, like so many antennae and dishes? They are in the consumer electronics price range and their value is easily understood. Surely in Asia where the ramp and adoption rate for consumer electronics are steeper, they are promoted independently of the SPs and sold as consumer items. No?