Beware the femtocell con game

There is something terribly wrong with the current femtocell business models. The Big 3 all have some kind of femto offering, but they all seem to be making the same huckster proposition: Got lousy indoor coverage? Well, for an investment of $150 or more you can have four bars in your home or business all the time. For a lot of Americans that doesn’t sound like a bad deal — until you realize that the reason you signed up for wireless service in the first place was to have ubiquitous coverage. Apparently the term “nationwide” doesn’t apply to your patio.

At a femtocell round table at CTIA Wireless last month, Rob Riordan, executive vice president for Cellcom, summed up the irony of the situation best: Carriers are saying “Buy my femtocell services because I built a crappy network.” The concept doesn’t sit well with customers, and it doesn’t sit well with Cellcom, a small wireless provider serving Michigan and Wisconsin.

To make the femtocell business model feasible, operators have to offer some kind of tit for tat — a benefit or service that compensates the customer for subsidizing the build out of the carrier’s network. I’m sorry, but $20 unlimited voice plans don’t count. (They add insult to injury actually. By taking all that voice traffic off the macro radio and backhaul networks, you’re really doing the operators a favor.) Cellcom has something else in mind: femto applications. If you can give customers something above and beyond mere home coverage, then a femtocell becomes a legitimate service rather than just a Band-Aid for the network.

The concept of femto applications is nothing new. The Femto Forum and femto-makers for some time have been promoting the idea of the “femto hub,” which could act as a central fixed/mobile convergence gateway for any manner of applications: the automatic synchronization of media between home network and mobile device, home security, and family tracking capabilities. The femtocell, in essence, functions as private cellular network and could be used to link the phone to the stereo, TV, digital video recorder, even kitchen appliances.

The problem is that the femtocells are still in the early stages of development. The Femto Forum just succeeded in getting femto interfaces standardized last year. The guts of the femtocell are a different story, each with its own proprietary operating system and widely divergent computing capabilities. The Femto Forum is working on developing a common set of application programming interfaces that would allow for the creation of femto services across platforms, but the development of a common operating system, on which to hook a developer community, is probably a long way out.

But Riordan said Cellcom isn’t deterred. The femtocells can be opaque as long as their interfaces are clear. Network-based applications, such as the presence-based apps Cellcom supplier Airvana demoed at CTIA, work independently of any femto platform. The femtocell would detect when a family member or guest entered the femto zone, then signal the network, which would send off SMS messages to parents telling them the kids are back from soccer practice, etc. “We plan on fully taking advantage of presence,” Riordan said. “It’s the easiest because presence is only a trigger.”

Operators could also choose to go the opposite route. They could give the femtocells away for free, which a few operators have indicated they’d eventually like to do. (The customer would still be on the hook for the backhaul component, but most people who would buy a femtocell probably already have a broadband connection.) The issue right now is price. If they gave away a femtocell to every customer who dropped a call in their basement they’d quickly go broke. But femtos are starting to come down in price. Ubiquisys just announced a blueprint for a sub-$100 femtocell, which would make the carrier subsidy much easier to swallow.

The femtocell market is still small, so the “right” business models have yet to emerge. But if femtos are to move beyond the early adopters, something has to change. Carriers can view them as extensions of their networks and invest in the femto network just like they would the macro network. They can use the femtocell as an entry point into home services. Or they can do a combo of the two. But the way they’re approaching the femto market today, they’re essentially shirking their responsibility. Rather than pay to build and maintain the macro network, they’re asking their customers to do it for them.