Genuine Disruption from PicoChip

Clayton Christensen turned business thinking upside-down in 1997 with his book “The Innovator’s Dilemma” where he popularized his term “disruptive technology” in an analysis of the disk drive business. Since then abuse and over-use have rendered the term a meaningless cliche, but the idea behind it is still valid: well-run large companies that pay attention to their customers and make all the right decisions can be defeated in the market by upstarts that emerge from low-end niches with lower-cost, lower performance products.

PicoChip is following Christensen’s script faithfully. First it made a low-cost consumer-oriented chip that performed many of the functions of a cellular base station. Now it has added in some additional base station functions to address the infrastructure market.

Traditional infrastructure makers now face the prospect of residential device economics moving up to the macrocell.
From Rethink Wireless

Femtocell pricing chutzpah

It’s like buying an airplane ticket then getting charged extra to get on the plane.

The cellular companies want you to buy cellular service then pay extra to get signal coverage. Gizmodo has a coolly reasoned analysis.

AT&T Wireless is doing the standard telco thing here, conflating pricing for different services. It is sweetening the monthly charge option for femtocells by offering unlimited calling. A more honest pricing scheme would be to provide femtocells free to anybody who has coverage problem, and to offer the femtocell/unlimited calling option as a separate product. Come to think of it, this is probably how AT&T really plans for it to work: if a customer calls to cancel service because of poor coverage, I expect AT&T will offer a free femtocell as a retention incentive.

It is ironic that this issue is coming up at the same time as the wireless carriers are up in arms about the FCC’s new network neutrality initiative. Now that smartphones all have Wi-Fi, if the handsets were truly open we could use our home Wi-Fi signal to get data and voice services from alternative providers when we were at home. No need for femtocells. (T-Mobile@Home is a closed-network version of this.)

Presumably something like this is on the roadmap for Google Voice, which is one of the scenarios that causes the MNOs to fight network neutrality tooth and nail.

Self-configuring Femtocells

Rethink Wireless reports that picoChip has added cognitive capabilities to their femtocells. Related “sniffing” technology is used in White Spaces radios and in the UNII-2 band by Wi-Fi. The idea is to check to see how the spectrum is currently being used, and to arrange matters to interfere as little as possible. With White Spaces and Wi-Fi the sniffing is used to avoid spectrum occupied by a primary user. PicoChip uses it to create self configuring networks:

As well has handling configuration, synchronization and hand-off – and reporting metrics on the cell to help network planning – the sniff function will support entirely self-organizing networks of the type Vodafone has outlined in recent presentations. Currently, most of the interference management these require are handled in different ways by the femtocell OEMs, but each has its own proprietary algorithms, making mixed-vendor networks difficult. The picoChip designs also allow the femto silicon to run the manufacturer specific code.

FMC success factors

An excellent blog posting by Alan Quayle discusses the reasons for the failure of FMC services from Korea Telecom and Deutsche Telkom, and the relative success of Orange’s Unik.

He concludes:

The critical lessons are: keep the service as transparent as possible with respect to user experience; keep the saving as simple to understand and as significant as possible for the customer.

Quayle thinks that FMC will come in the form of femtocells bundled into single boxes from converged consumer service providers like Verizon. His comments are spot-on, for example concerning who benefits from network off-load:

Femtocell enables mobile broadband traffic to be off-loaded in the home and office, this is an important benefit for the operator not the customer.

Quayle mentions “and office,” but while Wi-Fi FMC seems to compare unfavorably to femtocells for consumers, the picture for offices is more ambiguous. Businesses that want PBX features on their phones have two choices when it comes to FMC. They can keep their PBX and extend its features to the mobile phones, or they can use a Centrex/hosted PBX service from their mobile provider. In both cases, particularly the first, dual-mode phones will be preferable to femtocells for many customers.

There are several reasons for this. First, Wi-Fi in cell phones is becoming common – IDC predicts that by 2011 30% of phones sold will be smart phones, and Wi-Fi is fast becoming a must-have feature in smart phones. Second, handset Wi-Fi technology is improving, particularly battery life. Third, Wi-Fi coverage good enough to support voice is becoming more common in businesses. Fourth, many companies prefer to maintain control over their internal voice networks and network client devices. Put these together, and the motivation to spend on femtocells is weak.

Femtocell versus Wi-Fi

Rethink Research has published an interesting article relating the new Wi-Fi voice certification to the outlook for femtocells.

The idea of the article is that voice over Wi-Fi for cell phones is competing with femtocells, and that femtocells may win out. The article distinguishes between business voice and consumer voice, saying that service providers see femtocells as “an important stalking horse for greater control of corporate customers. ” This gives a hint of why femtocells may be unattractive to businesses: many of them would rather not yield this control.

Consumer voice service is controlled by service providers. They have three options in this space: do nothing, deploy femtocells or deploy Wi-Fi. Do nothing is the obvious best choice, since neither of the other options carries a revenue upside. But poor coverage in a home discourages usage and risks cancellations of subscriptions. So in areas of poor coverage something like femtocells or UMA (voice over Wi-Fi) is attractive to service providers. For both technologies the service provider subsidizes the wireless router, but femtocells will remain more expensive than Wi-Fi routers because of their lower sales volumes, so Wi-Fi is more attractive on this count. But UMA requires phones with Wi-Fi, while femtocells will work with any phone in the service provider’s line-up, including legacy ones. So the customers’ experience of femtocells is better – they can choose or keep the phone they want and still get improved coverage at home. This benefit of femtocells clearly outweighs the marginal price advantage of Wi-Fi routers. Femtocells may help subscriber retention in another way: a Wi-Fi router is not tied to any particular cellular service provider, while a femtocell only works with the carrier that supplied it.

The situation in businesses is different. They generally prefer to control their own voice systems, which is why they have PBXs. But a substantial number of business calls are now made on cell phones, even on company premises. These calls don’t go through the PBX, so they are not least-cost-routed and they are not logged or managed by the IT department. Femtocells don’t fix these problems, but Voice over Wi-Fi does. Not service provider Voice over Wi-Fi, like UMA, but SIP-based Voice over Wi-Fi from companies like DiVitas and Agito. What about phone choice though? Won’t corporate customers be stuck with a limited choice of handsets? The answer is yes, only a limited number of phones have Wi-Fi: less than 10% of those sold in 2008. But in the category of enterprise smart phones, like the Nokia Eseries and Blackberries, the attach rate of Wi-Fi will soon be close to 100%.

So femtocells are a good way for service providers to remedy churn caused by poor residential coverage for consumers, but Wi-Fi may be the better option for businesses that want to regain control over their voice traffic.

Femtocells, FMC, Wi-Fi

There’s an interesting article on femtocells in EETimes. It mentions the Femto Forum. It is a thoughtful look at the prospects for femtocells, a welcome counterbalance to the hype. The most telling quote is from the CTO of Ubiquisys:

We—that is, the femtocell ecosystem—probably have a two-year window to make our mark, ensure we come up with standard interfaces, and, above all, avoid fragmentation.

The two year comment is about beating Wi-Fi dual mode phones to the punch. But currently the primary driver for Wi-Fi in cell phones is feature inflation in high-end handsets, not FMC. In other words, there are really two dynamics driving Wi-Fi into handsets, FMC is the minor one and feature inflation is the major one; femtocells don’t affect the latter.

So if femtocells overcome their numerous challenges, FMC services for consumers will come mainly through femtocells. Femtocells will not impact Wi-Fi attach rate much, since Wi-Fi is becoming a checklist feature on high end phones. How useful the Wi-Fi in these handsets will be depends on how successful the phone makers are at keeping them open.