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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Femto cells pose challenge for traditional telco vendors

Monday, May 12, 2008

The emerging femtocell market has so far been dominated by specialist start-ups, but as major carriers start placing contracts for equipment, the momentum may swing to major vendors who can deliver the volumes and pricing that the carriers will demand. The problem for the traditional mobile equipment suppliers is that they are unlikely to be the winners, because the femtocell logically fits better with the business models of consumer and internet product suppliers.
Internet product suppliers have dominated Wi-Fi access points and DSL modems, rather than Ericsson and Alcatel-Lucent, with their proprietary, high margin solutions. Most of the mobile infrastructure makers have partnered with a femtocell pioneer but the market is likely to be dominated by the likes of Cisco, which recently took a strategic stake in the UK-based ip.access and Nokia Siemens, which plans to expand its supply chain to the new Taiwanese OEMs.

ip.access beat Motorola, Alcatel-Lucent/Sagem, Nokia Siemens, Airvana and 2Wire to the AT&T contract for 7m units, which has not been officially announced but follows a lengthy evaluation by the US carrier which has proved most enthusiastic about femtocells. Sprint Nextel has gone to market first, with its launch of the Samsung Airave in limited markets, and recently Verizon Wireless has also expressed its interest. TMobile however remains primarily focused on its Wi-Fi convergence strategy, Hotspot@Home.

The five-year AT&T deal calls for ip.access to eventually price its Oyster3G units at less than $100, a price that US operators believe is essential to make a femtocell convergence and coverage strategy price competitive. As with Wi-Fi access points, there is likely to be a shake-out among the start-ups as the femtocell market matures. These integrated devices, controlling the entire networking requirements of the multimedia, broadband home, are what will appeal to the consumer and therefore allow carriers to infiltrate the home via the femto, gaining enhanced account control and the chance to provide the hub technology, and the primary point of contact, for the residential user base. This type of control has been threatened by Wi-Fi and other approaches controlled by the user, but carriers have recently been showing renewed determination to fight back, with indoor base stations and carrier-driven home media network standards, such as the Orange-backed Soft at Home venture, which also includes Thomson and Sagem.