From an RF propagation perspective, buildings and walls have never been friends to a radio signal. Physical structures cause RF signal attenuation because of reflection, diffraction, scattering and multipath signal fading, all resulting in poor radio signal reception in an indoor environment.

In some cases, virtual dead spots can occur inside buildings even though there is great coverage outside; walls can attenuate signal by 10dB to 20dB, depending on the type of construction. At the same time, studies have shown that an average consumer spends 50% to 60% of his or her time in an indoor environment, and 70% of wireless calls originate and terminate indoors. All put together, this begs a simple question: Are wireless carriers using their spectrum efficiently in indoor environments?

From an engineering standpoint, wireless system spectral efficiency is measured in bps/Hz/cell. From a carrier standpoint, this translates into the number of simultaneous subscribers that can be supported in one cell site (i.e. network capacity). From a consumer standpoint, this all translates into quality of voice, quality of video, dropped calls and high-speed packet access (HSPA) data rates. Poor indoor RF signal penetration has an adverse effect on the link spectral efficiency, which has a direct impact on system spectral efficiency. Simply put, carriers lose revenue as mobile minutes are lost to landline minutes when consumers experience dropped calls, poor quality of voice and lower data rates when indoors.

A femtocell is essentially a small wireless base station that resides in the consumer’s home or office. Femtocells transmit at very low power, yet create almost ideal indoor radio conditions. For backhaul, femtocells use an IP broadband (e.g., fiber/DSL/cable) connection. The very walls which are radio signals’ foes actually become their friend as they attenuate RF signal propagation out of the home and thereby minimize radio interference with an existing macrocellular network or another nearby femtocell.

In fact, femtocells not only provide excellent indoor coverage, but also by virtue of creating a small indoor cell site, they free up capacity in the macrocellular network – in other words, indoor subscribers’ cell-phone traffic is parked on the femtocell as opposed to a macrocell. Femtocells eliminate the need for dual-mode handsets as virtually any existing wireless handset should seamlessly work with a femtocell. And last but not least, one femtocell can support four to six simultaneous voice calls, which means that each member of a family of four can talk simultaneously as if they had four virtual landlines for the price of one.

So, if femtocells enhance coverage, increase network capacity and improve spectral efficiency, then why have they not been widely deployed already?

The femtocell is not a new idea; it has been around for a long time. Yet the catalyst for driving a commercially viable rollout for femtocells has only fallen in place now. In the earlier days, backhaul costs were a barrier for mass deployment, yet today the wide proliferation of IP broadband connections (fiber, DSL, or cable) means that the backhaul infrastructure already exists. In the United States alone, more than 52% of homes now have broadband connections, and the figure is growing. Femtocells leverage consumers’ IP broadband connection to backhaul voice, video, SMS and data traffic from millions of homes into an existing wireless core network.

Furthermore, thanks to Moore’s Law, we are now at the point where integrated custom silicon parts for femtocells are widely available. One silicon part integrating the required compute, digital signal processing, encryption and various other key features for a small wireless base station is key to drive the bill of materials (BOM) cost down for a commercially viable femtocell deployment. Lastly, with roughly 3 billion wireless subscribers worldwide, the economy of scale to justify femtocell deployment is finally in place.

BUSINESS CASE
The business case for femtocell rollout is straightforward and can be summarized in three key parts. First, consumers today are paying for landline connections; those landline minutes and average revenue per user (ARPU) are up for grabs, but only if wireless carriers can provide reliable indoor coverage. In the United States, the number of cell phone-only homes exceeded the number of landline-only phones in 2007, and household cell phone spending has exceeded landline spending. With femtocells, carriers can provide a robust wireless alternative to landlines and accelerate this social phenomenon of consumers replacing their landlines.

Second, the demand for mobile broadband is on the rise, as fueled by the YouTubes and Facebooks of the world. In the first half of 2007, U.S. data revenue represented 15.5% of all wireless revenue. For AT&T, data ARPU now constitutes more than 18.4% of its total ARPU, and Vodafone’s data revenue grew 49% over the past year. Femtocells add network capacity and make it possible to deliver 7.2 Mbps and 14.4 Mbps HSDPA data rates to consumers in indoor environments.

Third, femtocells deliver Capex and Opex savings. Adding a new macro base station costs roughly $0.6 million depending on site geography, technology, supplier cost model, etc. Add to this roughly $15,000 per month for operations cost, such as leased lines, electricity and cooling, etc. For the cost of one macrocell site, a network operator could potentially cover 6,000 homes assuming $150 femtocell price per unit and operator subsidies of $100 per unit. For $0.6 million, assuming 7.2 Mbps HSDPA rate, one cell site would add an aggregated 7.2 Mbps bandwidth capacity, as opposed to 43 Gbps with 6,000 femtocells. This is a big difference – especially if revenue is accumulated on a usage basis.

First-mover advantage will make a big difference for carriers as the turf battle for owning consumers’ homes unfolds. The carriers that roll out femtocells first will benefit from reduced churn as subscribers will not struggle with dropped calls; quality of experience will improve significantly as clear voice and HSPA data rates are delivered, fulfilling wireless’ original promise. Most importantly, the first-movers will benefit from “reverse-churn” as femtocells enable home-zone “family tariff plans” and entice all family members to switch to one carrier in order to take advantage of packaged bulk service benefits.

Looking further into the future, femtocells will be more than just access points. This year, the market will see more converged customer-premises equipment (CPE) devices with femtocell functionality embedded into a residential gateway, an IPTV set-top box or a cable/DSL modem. These converged CPE devices will enable carriers to deploy true quad-play services – voice, video, data and mobility – all out of one box.

And let’s not forget that 3G Long Term Evolution (LTE) standardization work already is being influenced architecturally as eNodeBs are also expected to be deployed as home base stations. Carriers already having branded CPE real estate in consumers’ homes will continue to have an advantage long into the next decade.

MUTALLY BENEFICIAL
Both carriers and consumers will benefit with femtocell rollouts. Carriers will accelerate return on investment (ROI) on spectrum acquisition by efficiently using this scarce and costly resource in indoor environments, while at the same time monetizing mobile minutes substituting for landline minutes, thereby creating pull for new customer acquisitions through family tariff plans and aggressively growing the data ARPU.

Consumers will benefit as they jettison their landlines and become accustomed to their existing cell phones working seamlessly with femtocells while enjoying better coverage, HSPA data rates, no more dropped calls and multiple virtual connections.

And this is all just the beginning – for in the future, femtocells are poised to play a key role in delivering converged services via IP Multimedia Subsystem (IMS) – a topic for another day and another article.

Singh is vice president of Product Line Management for Continuous Computing.