Close Message
None

M’aidez, M’aidez! 80-Page White Paper on the Port Bow!

Femto Hub Blog (May 1 2009)

Categories:
Hot Topics: 4G, Applications, Network, Standards
Regions: Americas, Asia-Pacific, EMEA
More: Femto Events, Market Research
Value Chain: Enabling Technologies, Femtocell Specialists, Network Equipment Vendors, Operators
Other: Jobs, Misc

Entities Mentioned


Authors


  1. By David Nowicki

    We have commented recently on the Femto Forum/Signals Research Business Case model and white paper.  Since the publication of the full version of the white paper a few weeks ago, some astute observers have obviously been giving the paper a careful read, raising issues, and suggesting refinements.  The purpose of the Femto Forum exercise was to move the business case debate forward, and make it more fact-based, so it’s encouraging to see this type of activity.

    I’d like to take this opportunity to offer our perspective on some of the recurring comments and questions we’ve seen relating to the model and white paper:

    The key operator benefits in the basic femtocell value proposition come from fees for femtocell coverage and discounted usage, churn reduction and to a lesser extent network cost savings from Macro off-load. Is it realistic to make these assumptions?
    The spreadsheet model includes at least 15 different ways that an operator can justify the business case. Different benefits will be more or less appropriate in different regions of the world. In most scenarios, only one or two of these benefits are required in order to justify the business case. The particular scenarios chosen in the white paper are most often representative of existing commercial deployments (i.e. Sprint, Verizon, StarHub) or derive from research conversations with a wide array of Femto Forum operators and vendors. However, other scenarios can be fully explored by adjusting the other parameters in the model. For example, one operator in Asia believes the critical benefits are adding a family member and offering an embedded platform for femtocell based services. Overall, the assumptions in the white paper were considered conservative.

    These operator benefits include but are not limited to:

    1. Network cost savings
    2. Revenue from upfront femtocell fees for coverage
    3. Revenue from monthly femtocell fee for coverage
    4. Revenue from femtocell discounted voice usage*
    5. Revenue from femtocell discounted data usage*
    6. Revenue from increased voice usage*
    7. Revenue from increased data usage*
    8. Revenue from better coverage (additional termination fees in a calling party pays country such as those in Europe)*
    9. Churn reduction
    10. Market share gain
    11. Revenue from Adding a family member
    12. Revenue from Enhanced Services
    13. Revenue from increased usage of existing services
    14. Benefits to converged services
    15. Additional cost savings from local breakout


    *The costs of the benefits above such as cannibalization and network usage costs are factored into the calculations.

    Why aren’t there more savings from network cost reduction?
    This depends entirely on how much data usage is assumed for the average user and the reality is that this picture is currently changing radically as consumers upgrade from feature phones to smarter devices that are capable of consuming more data from web browsing, email, video, etc. However, most scenarios in the white paper assume a modest amount of data usage since the “average” user today still only uses a relatively small amount of data (and the savings from voice usage are relatively insignificant). Other scenarios in the paper assume higher levels of data traffic (data cards and smart phone users) and then show much more significant effects of macro-offload.
     
    Churn reduction seems to be an important factor in the value proposition.  How realistic is this?
    Churn reduction is certainly not required to make the business case, but it is obviously helpful.  In the model, churn reduction is only applied to the target customer segment and not to the operator’s entire base.  In addition, the level of churn reduction in the model is far less than that reported by operators who have deployed femtocell-like home zone services. Operators who choose to subsidize femtocells will likely tie that to an implied contract extension, just as there is a contract extension with a subsidized phone upgrade.

    Coverage at home, whether relating to voice or 3G data rates, is a significant problem for many operators, even outside the U.S. At Femtocells Asia, one Asian operator reported that 85% of its help desk calls are related to poor indoor 3G coverage. In summary, the general belief is that some churn reduction should be expected for a femtocell customer relative to a non-femtocell customer.

    As a further step to keep the scenarios with churn reduction as conservative as possible, we decided to “turn off” the market share gain benefit. Although many femtocell enthusiasts are planning to gain market share (new customers) from offering a femtocell, they also recognize that their competitors can respond with femtocell offering as well and potentially gain back those lost customers.

    The model assumes that customers will pay a $/€ 15-20 fee for a free calling plan.  Is this realistic?
    There are two types of fees. The first is a fee for coverage which Sprint and Verizon include in their commercial offers today. This fee does not apply uniformly to every market and is largely applied to the North American market in white paper.  The second fee is for discounted voice and/or data. In Europe, where fixed and mobile phone usage is often provided at a premium price, $15 could be considered cheap if it allows someone unlimited usage for the entire family and perhaps the ability to “cut the cord.”  This amount is also consistent with what Orange is charging for its similar UMA Wi-Fi service.

    Does the model fully account for cannibalization, that is, the likelihood of subscribers to cut back on portions of their wireless plan as a result of taking the femtocell plan?
    The model does include a very sophisticated cannibalization model.  In almost every scenario there is some cannibalization included when the “free calling” feature is turned on.  At a minimum, incremental usage and incremental revenue which would otherwise accrue as a result of improved coverage are suppressed.  In the European scenarios the full value of the preexisting home-originated usage disappears.

    The model includes optional switches which in some scenarios limit the impact of cannibalization.  In the US and Asian scenarios cannibalization is limited by restrictions which limit the motivation for downward plan migration.  An attractive bundle is one which results in some modest increase in profit contribution (incremental revenue minus cannibalization minus incremental network cost) to the operator coupled with a big increase in perceived value by the consumer (the ability to dramatically increase usage, for a very small incremental cost).  The sample scenarios seek to deliver “big” consumer benefits for a modest bump in ARPU (the fee minus cannibalization).


    I saw the claim that an operator may be justified to give away a free femtocell to heavy data users. What does this mean?
    This means that the increased data usage increases the network cost savings to such an extent that it pays for the total cost of delivering the femtocell. Thus, the operator can justify giving the free femtocell based on the macro-offload alone. This analysis assumed a coverage-constrained network rather than a capacity-constrained network which would have made the femtocell benefits even more compelling. And this “heavy” data user is in fact a “regular” data card user or a “heavy” smart phone user. The data rates required to justify the free femtocell is 1.4GB per month which is considered to be an average or less than average level of usage in most countries. Consider this recent report from Frost and Sullivan which places average mobile broadband usage in Europe at 5GB per month.

    Clearly, the business case project has spawned an informed discussion that will continue to evolve.  Watch this space for further observations.

    Editor’s Note: David Nowicki is Airvana’s VP of marketing and product management, and a member of the Femto Forum Working Group 1 Business Case Model Committee

    Bookmark or Share this article


    Related Articles

Login to comment.

 
HomeAboutBlogAirvana Login Register Powered by HiveFire