The Femtocell Market: Big or Small?

Femtocells are cellular base stations roughly the size of a Wi-Fi router. Their diminutive size belies the market opportunity for apps that use femtos to enable services that otherwise would be difficult or impossible with other technologies.

Mobile operators such as AT&T and Sprint have spent the past couple of years offering femtocells to consumers and enterprises as a way to improve coverage, capacity and performance around a home or office. Part of the “small cell” category, femtos complement big, outdoor sites known as “macrocells.” Many mobile operators, analysts and vendors believe that small cells will be key for delivering the multi-megabit speeds that customers expect from 4G/LTE while reducing traffic loads on the outdoor sites.

But femtos also can facilitate moblie apps, particularly those that provide location-based services. One example is a child-location service: When a latchkey kid steps inside her home, her cell phone automatically switches its connection from the macrocell to the femtocell. That change triggers a text message to her parent that she’s home.

Why wouldn’t an app just use a traditional location technology such as GPS to facilitate that service? One reason is because a femto can be tuned to cover an area much smaller than GPS can pinpoint. That granularity is a potential market differentiator versus GPS-based child-locator apps.

“If we were relying on location-based services and an accuracy of plus or minus X meters, it might send the SMS when the user is still outside the house,” says Malek Shahid, joint chairman of the LTE SIG of the Small Cell Forum. “Small-cells-based apps can cater to legacy UEs [and feature phones], as well as for smartphones with GPS enabled. Another major drawback of GPS-based services is that GPS might not function as well inside building."

Femtocells are Nascent and Niche -- for Now

The market opportunity for femto apps depends partly on the installed base of femtos. Currently there are more than 6 million femtos and other small cells installed worldwide. Although that’s already more than the number of macrocells, collectively it’s still a tiny addressable market because each small cell serves only a handful of potential mobile app customers.

That will change as small cell deployments continue to mushroom, according to analyst predictions. In the meantime, finding the market opportunities for app development means focusing on what specific operators are doing.

“What the developers want to see is individual operators with large volumes,” says Andy Germano, Small Cell Forum vice chairman. “Sprint, for example, has more than 1 million deployed. That’s a pretty good-sized market for an app. AT&T is estimated to have over 600,000. Vodafone has hundreds of thousands.”

The Small Cell Forum is creating APIs that help app developers create femto apps. There are multiple options for implementing a femto app, and they don’t all require a smartphone. For example, virtually every smartphone and feature phone sold over the past five years supports SMS. So in the case of the child-locator example, one way to cater to all phones is to have the message sent from the cloud rather than relying on an app on the device to trigger that.

“These are all Web-based REST APIs that application logic would consume,” says Tom Lismer, vice chair of the forum’s services group. “This logic could easily reside on smartphones, cloud-based servers or any other client that can send and receive HTTP requests with JSON payloads.”

The forum also offers a portal -- www.SmallCellForum.org/Developers -- where app developers can access an emulator for testing femto apps virtually instead of buying the necessary hardware and software. That’s because the forum wants to seed the market now so that when the installed base of femtos tips into mass-market adoption, app developers will already have the experience necessary to start cranking out apps. Currently there’s a limited selection.

“I’d say maybe half a dozen to a dozen commercial apps today,” Germano says. “We’re at the early stage of the market where what we’ll see is a little more mobile operator involvement in new small-cell-based applications. Some of these applications will be unique to specific operators or for specific enterprise customers.”

For now, the scarcity of femto apps could be a way for a developer to make its app stand out in a crowded category, such as by presence-enabling a popular social networking service that already has dozens or hundreds of coattail apps. Operators, meanwhile, could use femto apps to create additional revenue-generating services.

“Almost all [operators] that have launched femtocell services -- including most of the 10 largest mobile operators in the world -- are interested in such applications,” says Richard Webb, an Infonetics Research directing analyst who tracks the femto market.

“Femtocells give those operators [opportunities] to deliver a ‘home network’ product, which had previously been the domain of DSL/cable broadband providers selling a fixed-line service with a Wi-Fi router so that multiple users in a home can share that connection. A femtocell offers mobile operators an opportunity to go further. It can provide a small group of users -- in a home, in a shared apartment, student house, small business, etcetera -- with a shared mobile broadband connection but with added applications, making it potentially far more interesting than the ‘plain vanilla’ data of Wi-Fi in the home, for example.”