Editor's note: This is the second article in a two-part series about the evolving wireless business model and growing adoption of two approaches to 3G network offload:
Femtocell technology and Wi-Fi hotspots. In the first part of the series, learn how smartphone traffic is forcing carriers to hasten deployment of these alternative telecom network management tools.
The pressing need to offload 3G traffic from overloaded cell towers and backhaul networks has led carriers to incorporate both Wi-Fi hotspots and femtocells into their overall telecom network management programs.
Although carriers have previously been slow to deliver femtocells to the market, their pace is quickening in light of escalating 3G traffic strain, according to Simon Saunders, chairman of Femto Forum, a U.K.-based global industry group promoting femtocell deployment.
Research from London-based analyst firm Informa Telecoms and Media reported a 63% growth in operator commitments to femtocells from November 2009 to March 2010, bringing the total of committed carriers to 13, Saunders said. Nine of them have live femtocells on their networks.
Once a femtocell skeptic, Rob Riordan, executive vice president at Cellcom, a private regional carrier based in Green Bay, Wis., said he became a convert after realizing its competitive edge.
"We have capacity issues," Riordan said. "We need to solve those capacity issues, and I look at it and say, 'The whole idea of telling people to buy my [femtocells] because I have crappy service doesn't seem to make a lot of sense.'"
His view changed after he was approached by an enterprise customer that was experiencing poor coverage from every carrier because it was situated at the bottom of a hill in a rural area.
The company was dropping its corporate cellular contracts and telling employees to pick up their own. Riordan saw an opportunity and offered to put a femtocell in the building.
"Then everybody with Verizon, AT&T, Sprint, you name it … is going to walk in the building and they're going to say, 'Oh, I have crappy service. I have to go to the window to make a phone call,'" Riordan said during the panel discussion. "[If they] hop on Cellcom -- and they'll be able to do that in the middle of the building -- that's actually kind of compelling."
Many operators are discounting the device by bundling it with other services, Saunders said. Vodafone offers them free to customers in the U.K.
Offloading traffic via femtocells can save carriers cap-ex dollars by alleviating the pressure for further network infrastructure investment, according to Roland Guegel, group manager for in-building solutions at Sprint Nextel Corp. Attaching applications to them encourages use, which in turn saves carriers more money and enables them to drive down femtocell prices for customers, Guegel said.
"We've got great macro coverage, but there's really no means of providing more cell towers. It doesn't resolve the problem," he said during the discussion. "I think the whole goal for every operator is, at some point, to be able to offer their femtocell for free. The challenge is in the beginning -- actually making the business model work."
Wi-Fi offload: Another telecom network management alternative
Although 3G laptop dongles may have been the impetus for hotspots, smartphones are driving carriers to adopt these alternative telecom network management tools for offloading, according to Selina Lo, CEO of Ruckus Wireless, which markets wireless access points to service providers.
"Historically, [carriers] looked at hotspots as just offering their subscribers casual Internet access," Lo said. "For a long time, they were saying, 'Well, we don't make enough revenue on the hotspot network because it's really only tailored to people who carry a laptop around.' But now all that has changed."
Customer demand is there. Between the fourth quarters of 2008 and 2009, AT&T reported its Wi-Fi hotspot usage grew from 7.4 million to 35.3 million connections – more than quadrupling.
All mobile operators are "taking a new look at Wi-Fi," Lo said. In years past, they saw it as competing against their mobile networks. Then, she said, they were skeptical of its meager revenue offerings. Now, they are making peace with Wi-Fi offload.
"Three years ago, you talked to any hotspot operator and they looked at the hotspot as a P&L -- profit and loss [statement] -- on its own, so [it] needed to generate revenue. But now the carriers are looking at it differently," Lo said. "For them to keep up with user demand, they're going to have to build more base stations, they're going to have to upgrade all their backhaul [and] they're going to have to add capacity continuously to the core. That's all very expensive."
Go back to part 1 of this series: Telecom network management: Pace quickens for Wi-Fi hotspots, femtocell technology to offload 3G traffic
Let us know what you think about the story; email: Jessica Scarpati, News Writer