The global market is expected to rise from infancy today to $1 billion by 2012.

As wireless carriers migrate to 3.5G networks, they must meet requirements to support 41-45 dBm at the antenna mast for delivery of HSDPA and HSUPA coverage in indoor locations. This is driving these carriers to consider solutions such as pico base stations, femtocells and remote radio units to deliver enhanced coverage in indoor cell sites.

Picos are indoor cellular base stations that are intended to provide 3.5G coverage in enclosed public environments such as malls, subway stations and airports. Using picocells and radio repeaters, wireless carriers are trying to drive increased wireless data service usage in public indoor environments.

During the past two years, there also has been rising interest in femtocells. These are home-based cellular base stations that are intended to provide 3.5G coverage inside a home. Using a DSL or cable-modem broadband Internet service as a backhaul to the cellular operators’ core networks, femtocells would operate in the same manner and in the same frequencies as the large tower macro and micro base stations – but with very low output power to suit for small spaces such as apartments or houses.

Femtocells offer several advantages for indoor coverage when compared to macro base stations, including:

• improved signal quality inside homes or offices, places where 3G signals from macro base stations tend to be weak due to the distance from cell towers or because of signal interference from the building materials.

• They allow service providers to offload cell tower traffic by using subscribers’ existing DSL or cable-modem broadband connections.

• They use the same spectral frequency as carriers’ cellular networks, so an additional radio is not needed in the mobile handset. Consequently, the subscriber can use existing 3G handsets.

• The superior signal strength in indoor environments will allow subscribers to access capacity equivalent to a full 3G network sector at very low transmit powers, dramatically increasing the battery life of existing phones.

However, several challenges must be overcome before femtocells are widely deployed. These include:

• Competing technologies such as UMA-enabled handsets allow subscribers to have broadband wireless coverage in indoor environments through Wi-Fi access points. Presently, Wi-Fi access points are widely deployed in consumer residences and their pricing is well below $50. Femtocells will need to have a significant amount of processing power built in, increasing their complexity and the cost of their semiconductor solutions. It will be difficult for semiconductor suppliers to develop viable silicon solutions that can enable equipment average selling prices of $50. iSuppli estimates that prices for current femtocells are upward of $200.

• Femtocells operate on the same spectral frequencies as macro and micro base stations. Thus, interference problems between femtocells installed on neighboring residences, the femtocells themselves and the macro/micro base station will need to be resolved.

• Femtocells use the subscribers’ broadband connection for backhaul into the core network. If the wireless carrier does not provide broadband service, then this cannot work.

Over the past few months, several operators around the world have issued Requests for Proposals (RFPs) or are actively investigating the technology. Efforts in this area include:

• In the United States, Sprint Nextel is working with Samsung on commercial trials of femtocells in Indianapolis and Denver.

• Vodafone in Europe and AT&T in the United States reportedly issued formal RFPs for femtocells in 2007. Vodafone reportedly is seeking femtocells priced at less than $100 by mid-2008 and is currently looking at numerous suppliers including ip.access, Ubiquisys, Nokia-Siemens Networks (NSN) and Motorola. AT&T is believed to be interested in developing an integrated femtocell/residential gateway product for launch by early 2008.

• Softbank of Japan is now actively conducting proof-of-concept demonstrations with eight femtocell makers.

• Several other operators including France Telecom, O2 and Telefonica are investigating the technology. Several large and small equipment vendors have announced femtocell solutions, including:

• Smaller players like Ubiquisys and ip.access, which now dominate the market.

• Airvana and NSN, which in July announced that they plan to collaborate to offer an end-to-end femtocell solution for mobile operators worldwide.

• Ericsson, which introduced its new Femto Cell Solution in 2007.

• Several vendors have announced or firmed up their product plans over the past few months, including NSN, Motorola, Alcatel-Lucent, Huawei, NEC, Samsung, Sonus and ZTE.

Figure 1: Global femtocell infrastructure equipment market forecast (revenue in millions of U.S. dollars)

Furthermore, a cellular industry group known as the Femto Forum has been established to develop industry standards and promote adoption.

iSuppli believes that the deployment of femtocells will not be part of the infrastructure capital spending plans of the carriers. Rather, carriers will subsidize the sale of femtocells to the subscribers who will own and install the femtocells themselves.

The deployment of femtocells will gain traction as wireless networks evolve to all-IP cores. The market will reach approximately $1 billion in 2012, up from virtually zero this year.

Rebello is a director and principal analyst with the market research firm, iSuppli Corporation.