Competitive Intelligence Highlight
Why the Femto Forum Is (Somewhat) Important
Type: Advisory Report
Analyst: P. Jarich
Report Date: Nov 14, 2007
Module: Wireless Infrastructure
ID: CIR25727 |
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Summary
For the past year, femtocells have been a hot topic. As operators investigate FMC as a way to grow their ARPU and cut their OpEx budgets, femtocells represent an attractive option; deploying a “mini base station” into the house avoids forcing users to choose from a small number of dual-mode WiFi devices (often expensive, often poorly featured) while giving the operator deeper control (i.e., ownership) over the solution.
Against this backdrop, the recent ballooning of the Femto Forum’s membership ranks garnered a lot of attention… and rightly so. Seemingly overnight, the Forum grew from seven founding members to nearly 40. What’s more, the Forum grew from a group of small companies (mostly start-ups) to an organization backed by major wireless infrastructure vendors, femtocells vendors, software suppliers, core network players, and mobile network operators. The basic importance of this transformation is obvious. New members signal a growing interest in the femtocell industry… interest from a broad cross-section of the telecom landscape.
Yet, with femtocell trials ongoing (and more planned over the next year), a broad interest in the market was already well understood. So, beyond the fact that it now has a larger set of dues-paying members, is there any reason to care about the Femto Forum and its new composition?
Current Perspective
Before delving into the significance of the Femto Forum’s new member roster, it makes sense to consider its purpose. Only then can the value of its new members be put into perspective.
At a very basic level, the Forum, in its own words, “works to promote the uptake of femtocell technologies through open standards, market education, and ecosystem development.” To get more specific, we need only look to its working groups. The “Marketing and Promotion Group” does just what you might expect from its name: build use-cases, establish common industry terms, sell the broader femtocell vision, etc. The “Radio and Physical Layer Group” works on RF standards in terms of femtocell capacity, RF interfaces, and interactions with the macro-cell network. The “Networks and Interoperability Group” works on standards for integrating femtocells into an operator’s mobile core. Finally, the “Regulatory Group” conveys the promise of femtocells to policymakers in order to support successful deployments.
Why the Forum (and Its New Members) Matters
Again, the value of the added members is obvious. A larger, more diverse set of members, including Tier-1 vendors and operators, provides the Forum with added credibility. From a marketing perspective, new clout better conveys the commercial reality and promise of femtocells. From a regulatory perspective, bigger players carry more weight with national policymakers. Operators, in particular, wield incredible influence. In addition, as the Forum attempts to craft standards dictating femtocell operations (RF and core network) and marketing (naming conventions), broad participation from across the telecom industry ensures that these standards are actually accepted.
The concept of “clout” may seem fuzzy or only marginally important; clout itself does not solve real market or technology obstacles. In the case of femtocells, however, it cannot be taken for granted. The femtocell market, after all, is very much in its infancy. A lack of widespread service launches leaves would-be femtocell operators to discover the correct business models (i.e., how to sell femtocell-based FMC?) and how they compare with – already available – WiFi-based solutions (i.e., why wait for femtocells?). As trials begin to ramp up, the same confusion surrounds questions such as product capabilities (i.e., can femtocells live up to their promise?), impacts on health (i.e., are femtocells as benign as WiFi?), and integration with existing mobile networks (i.e., what is the best way to connect femtocells into the mobile core and ensure handoff to the outdoor cell network?).
To be fair, the Femto Forum has the mandate and the members to address these issues earlier. Composed primarily of start-up femtocell makers, however, it was at a disadvantage. Whether or not the femtocell opportunity was real, start-ups in the space had a vested interest in the Forum; they are obviously biased. At the same time, these smaller players could not claim expertise in commercializing new technologies or building successful service offerings around them. This is where the participation of vendors such as Alcatel-Lucent, Motorola, and NSN as well as operators such as Bharti, Orascom, Rogers, and Telefonica comes in handy.
Tempering the Recent Hype
Nobody would argue the importance of the Femto Forum. Nobody would argue that a broader set of big-name members should help the Forum to execute on its mission. Ultimately, however, the importance of the Forum and its new members should not be overstated.
Consider regulations. The Forum can educate policymakers about femtocells, encouraging them to be objective and to avoid unfairly favoring competing solutions. Competitors, of course, will be busy promoting their own agendas, and regulators will listen to them as well. The WiMAX Forum provides a recent example of the success industry bodies can have in lobbying regional and international organizations; fighting an entrenched 3G industry, the WiMAX Forum got WiMAX included as an IMT-2000 technology and got the EU to support technology neutrality, opening the door for WiMAX deployments in Europe’s 2.6 GHz spectrum. Regulators, unfortunately, often implement policy that does not make economic or logical sense, particularly concerning highly-charged, hot-button issues for consumers (RF radiation) and operators (net neutrality, device portability), all of which weigh directly upon the viability of femtocell services.
Consider standards. In telecom, the term “standard” is often used rather loosely. Industry standards, for example, are created by groups such as the IEEE, 3GPP, or 3GPP2. The Femto Forum is not an official standard setting body. Here, again, the WiMAX Forum might seem like a reasonable analog. The WiMAX Forum does not set industry standards. It does, however, set product profiles that narrow down existing standards, creating a de facto standard. Yet, where WiMAX was built from the IEEE 802.16 standard, femtocells rely on a number of diverse standards. Access depends on the 3GPP, 3GPP2, and WiMAX Forum; network integration depends on the 3GPP, 3GPP2, WiMAX Forum, and the numerous bodies involved with nailing down the use of SIP and IMS. Tying all of this together into a coherent set of generally accepted practices (or standards) would be difficult in an ideal world. Doing it when operators have limited operational femtocell experience to work from and vendors each have their own agenda (often based on different intellectual property holdings) could be a gargantuan task.
Consider marketing. As with regulation, it is fairly obvious what the Femto Forum will want to (or, at least, need to) do on the marketing front. Business cases will be constructed positioning femtocells against WiFi-based FMC. Common terminology (i.e., is it a femtocell, a home gateway, a home base station, a 3G node?) will be endorsed. The media and operators will be educated on the merits of femtocells. Progress with “standards” creation will be highlighted, as will successful trial and commercial launches.
The problem is that vendors and operators alike will want to differentiate their offers, and each will have their own vision for doing so. Returning, one last time, to the example of the WiMAX Forum, the group has tried to promote the term “personal broadband” for the services WiMAX operators will offer. The term does not get used much. Likewise, despite forbidding vendors to use the term “WiMAX” in product naming, they continue to push the limits (witness Airspan’s “MiMAX” device). At the same time, many femtocell vendors also support WiFi-based FMC, making it hard to argue against the technology. The bigger problem is that, absent major femtocell proponents such as Ericsson, Huawei, Samsung, SoftBank, Sprint, and Vodafone, it is unclear how well the Forum can control industry messaging or get access to the ingredients of a successful femtocell business model.
Of course, competing interests and competing market visions are common in any industry association. In addition, this almost always runs the risk of derailing marketing, regulatory, and standards efforts. That said, these conflicts were much less of a problem for a Femto Forum comprised of seven like-minded vendors than they are for a Forum of nearly 40 members comprised of operators and vendors, big players, and small players. New members may improve the prospects and credibility of the Femto Forum, but as a proverbial mixed blessing, they will make it harder for the Forum to execute on its goals.
The Road Ahead
Forgetting about industry associations for a moment, one point bears repeating. The femtocell industry is still very much in its infancy.
This means that someone needs to do the marketing, standards, and regulatory work. It also means, however, that it will be impossible to execute perfectly on this work before we know what customers want, and what works in terms of business models and network architectures. While not impossible, it will be difficult to figure this out and get the industry aligned unless the Femto Forum can recruit a few conspicuous holdouts into its ranks.
In the meantime, the Femto Forum still needs to get to work on its agenda items. With nearly 40 members and femtocell trials imminent, the Forum has clear insights into the market. Even lowly journalists and analyst firms understand the basic marketing and regulatory arguments. Almost five months since the founding of the Femto Forum, the group has working groups in place and a strong member roster. Now, it must leverage these assets to produce actionable, pertinent results if it hopes to kick start (or at least support) the femtocell market.
Recommended Vendor Actions
• While its members begin hashing out initial standards work, the Femto Forum needs to begin releasing white papers that set out its position on various fronts. The safety concerns of deploying a 3G base station in the home need to be dismissed… for the benefit of operators. The potential business models and various core integration options (and their advantages) need to be detailed… for the benefit of operators. Besides setting the foundation for future marketing and regulatory efforts, initial collateral would provide the Forum with forward momentum and prevent the paralysis that can set in when member ranks swell.
• Beyond whitepapers, initial Femto Forum marketing efforts need to target WiFi as a competitive threat. Yes, it will be difficult for some vendors to argue against the technology and its capabilities. It will be easy, however, to highlight the differences between femtocell and WiFi-based FMC: potential synergies, femtocell advantages, etc. Today, WiFi dominates the FMC space. The Forum needs to address it directly in order to showcase the value of femtocells and sway operators in their favor.
• As soon as possible, the Forum needs to begin highlighting ongoing operator trials (lab, commercial, etc.). Vendors have individually been talking up the value of femtocells for the past 18 months. Today, a key part of the femtocell value proposition is that they are nearly ready for widespread commercial deployment. Where individual vendors will continue to document their market success, the Forum needs to detail broader market success to prove the viability of the business model, showcase best practices, point to global momentum, etc.
Recommended Vendor Actions
• Operators interested in femtocells should consider joining the Femto Forum. Again, the effectiveness of the Femto Forum is still unknown. Yet, to the extent that it could be important for shaping product features or detailing best practices, operators cannot ignore it. The fact that SoftBank, Sprint, and Vodafone have not joined – despite their well-known interest in femtocells – argues that this potential value may not be fully believed.
• WiMAX operators should move cautiously on femtocell launches. As with 3G, femtocells could help to ensure ubiquitous WiMAX coverage, extending services into hard-to-reach areas. Early-on, however, they could deflect resources from broader network deployments, and it is unclear that WiMAX femtocells will even be widely available. What’s more, high-end WiMAX devices will likely include WiFi, ensuring in-building coverage for most users.
• Operators should drive the Forum to focus on picocells as well as femtocells. Where femtocells will address residential opportunities, picocells will be important for enterprise applications. To be sure, the enterprise opportunity will be smaller than mass-market residential launches. It could, however, be more lucrative in terms of margins; yet, it will come with its own issues in terms of marketing, regulation, product specifications, etc.
• In terms of standardization, operators should push the Forum to focus on the radio layer initially. The importance of network integration standards is easy to grasp. However, with multiple standards strategies jockeying for position, progress may be slow. Radio layer standards – handoff, interference mitigation, etc. – are equally important and may be easier to build momentum with.
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