Femtocells: making the economics of convergence work

October 22, 2008 — 11:29am ET | By Sangit Rawlley

Indoor telephony is under renewed attack. Emerging coverage enhancement solutions such as femtocells threaten to further erode the already declining market for fixed-line phones. But with adversity has come opportunity. Femtocells mitigate many of the historical challenges that lead to the failure of MVNO's set up to offer converged services and provide another opportunity for wireless and fixed line operators to work together.

The significance of having high quality voice telephony inside the house cannot be denied. According to the Bureau of Labor Statistics 76 percent of an average person's "awake hours" resides indoors. Of that time, 61 percent is spent in the home vs. a separate building.

Indoor telephony has traditionally been the stronghold of wireline and cable (fixed line) carriers. However, in the last few years cord-cutting has emerged as the primary threat for fixed line carriers. Declining mobile price is the key driver for this trend. According to CTIA, around 15.8 percent of U.S. households were wireless-only in 2007.

But there are limitations to using the cell phone inside the house. Bad indoor wireless coverage is one of the key barriers to cord-cutting.  According to a Harris Interactive survey, 62 percent of cell phone owners have done something special to improve signal reception in an attempt to make or receive a cell phone call at home. 30 percent said they used their fixed-line phone.

Today the question that is top of mind for all fixed line operators is how best to deal with femtocells. The situation is grimmer for operators such as British Telecom, Embarq, and Qwest that don't own wireless assets. Their past attempts to reduce cord cutting by offering wireline-wireless bundles and converged services through wireless wholesale (MVNO) deals have failed. 

But there is a glimmer of hope. Femtocells require a broadband connection to operate. Fixed line carriers can leverage this dependence of femtocells on DSL and cable in two ways--obstructive or constructive. The obstructive approach revolves around non-cooperation with wireless carriers and FUD (fear, uncertainty and doubt) marketing. Such tactics are not sustainable in the long term. The constructive approach is difficult, but if implemented correctly can reap long term benefits. This approach involves setting up mutually beneficial partnerships with wireless carriers to revive the convergence play.