Industry leaders clockwise round the table from the left: Roberto Vannini and Holly Kramer, Telstra; Cynthia Gordon and Garrett Johnston, MTS; Xu Ming, Eric Sun, and Donglin Shen, ZTE; Lars Stork, Celtel Nigeria; Alan Burkitt-Gray, GTB; Mike Short, Telefónica O2; Andrew Parkin-White, Analysys. Mike Grant of Analysys arrived after the picture was taken
|Industry leaders take part in GTB's femto debate|
The roundtable was chaired by Alan Burkitt-Gray, editor of Global Telecoms Business.
Global Telecoms Business held a roundtable on innovation at Mobile World Congress in Barcelona in February. At the event, sponsored by ZTE, senior executives from the industry discussed innovation and the relationship between operators and vendors, and what operators are looking for. This is an edited transcript of the debate.
To give the discussions a particular focus they gave some attention to femtocells, as a particular instance of innovation that vendors are offering and some operators are trying out in different applications. Femtocells were one of the hot topics at the Mobile World Congress.
Andrew Parkin-White: We've published some 15,000-word-plus reports on femtocells, one looking at the consumer market and one looking at the enterprise market. In the consumer market there are a number of strategies starting to emerge. If you look at the US, indoor coverage can be a big issue.
One of the immediate things the vendor side is pushing is a cheap voice product that can compete with fixed-network tariffs. But a lot of the time people are already using cellular services in the home and this risks destroying a premium revenue stream.
Where we did see femtocells really coming into their own in value-added services — mobile broadband, mobile TV, and so on.
The enterprise market is completely different. One of the major issues is coverage in the workplace. By offering a femtocell-based fixed-mobile convergence solution we ran into a whole set of issues to do with integration of telephony into the company communications system — the PBX or a hosted VPN. The practical difficulties there are the cost of transmission, which can make or break the business case.
Cynthia Gordon: My perception of a lot of vendors is that they don't understand enough about the market we operate in.
Typically the senior executives don't live in those markets. They fly in for two or three days and then think they understand Russia or wherever. They couldn't possibly understand it.
We're launching 3G in three of our countries during 2008. We're launching it in Uzbekistan where we only have 16% mobile penetration — that's because we think we can take people straight into 3G. Fixed internet usage is below 10%, so that's a great opportunity.
Femtocells: yes, we're very interested. In the territories we operate in, people need entertainment because they're spending a lot of time indoors. Because of the characteristics of the housing, getting penetration indoors is even more challenging.
Garrett Johnston: Innovation, vendors and technology are only loosely associated. If I was to look at the sources of innovation in MTS, vendors wouldn't come in the top three.
If I walk into a leading operator store in Dublin or London, they will ask me if I want to pay as you go or pay monthly. Would you really want to mould your customer round the billing system? Or would you prefer to mould your billing system round the customer?
If you come to MTS, our value propositions are all about children, they're all about women, about single entrepreneurs, about immigrants, emigrants, families, and so on.
The reason for the interest in femtocells is very simply not so much the indoor coverage, though that is interesting, but the opportunity to personalise the service down to someone's bedroom and use that as the fingerprint — the imprint of a person's personality and their usage profile — and carry the profile across the network for the 30% of usage that remains outside the bedroom.
Alan Burkitt-Gray: You know when they're doing something at home.
Garrett Johnston: Because 70-80% of usage in Russia is at home, because of climatic conditions and lack of disposable income to go to pubs and restaurants: people do their entertaining at home.
The kid wants to look at The Simpsons and doesn't want his mum to see he's been on The Simpsons website, so he goes to his bedroom and does it on his own. Two or three of the teenagers in the same apartment do the same thing. Then when they're out and about we know they like The Simpsons because the bedroom usage gives us the fingerprint of how they think and we can pile on other experiences that are relevant.
For us innovation is all about customers, all about segments. The femtocells is a very interesting instrument to help us execute against those insights.
Lars Stork: Nigeria has a population of around 143 million people and the current penetration is around 30% — around 40 million. It's expected that that will grow to 90 million by 2011.
We've gone through a major segmentation process over the last six months, focussing on two major segments: one is the youth — around 50% of the population — and the second is the rural poor. Around 70% of the population lives in rural communities.
We've done some interesting things with the rural community — we're not only running a telecoms business in Nigeria, we are also running a power company. We have around 3,000 base stations and we expect to end up with 4,000-5,000 this year. Every base station has two generators, so the consumption of diesel every year is more than 70 million litres. People turn off the generators and steal the generator — that's a daily occurrence.
We have come up with a model that's quite innovative: we try and share the ownership of the base station in those local communities where the local entrepreneur — the son of the soil — becomes our strategic partner and gets a share of the revenue from these rural community sites. That's worked very well. We are rolling that out big time across Nigeria this year. Every time we put in more capacity it is immediately consumed.
Alan Burkitt-Gray: Mike, you have a diverse mix of companies in Telefónica O2 — highly developed Germany and the UK and the not-quite-emerging markets of the Czech Republic and Slovakia. What are your views on femtocells?
Mike Short: In western Europe we are in many countries where there are more phones than people. We see growing voice, substitution for fixed in favour of mobile. There's a lot of growing data and those data requirements predominate in a lot of our thinking. A lot of our femtocell thinking is much more about ways of handling that.
In Latin America the issues are more how we can keep the costs under control. It's a cost reduction challenge in low GDP markets — it's quite a big challenge in high GDP markets.
We need to think about cost before we add any more investment. We'd rather reduce the number of suppliers we use first before adding any more infrastructure. We have too many suppliers. Our cost base is under pressure.
We can only cope with the data wave when we think about cost very clearly, but our primary driver is demand.
Holly Kramer: Typically this is a technology-driven business and always has solutions in search of needs, so that technology is often conceived before the need is fully identified.
We're doing deep, intensive customer segmentation work. We have a dream that one day all our products will be driven by the customer insight — we're not really quite there yet.
We're interested in femtocells: everyone's talking about them — there must be something to it.
In Australia we don't have so much of an in-building coverage issue as a driver. Our 3G network, which is now ubiquitous, covering 99% of the population, is on the 850 spectrum so it has better penetration in-building coverage. So it's not a sufficient driver.
What's appealing about femtocells is if you do that on wifi the whole family has to go out and buy the same device from the same manufacturer and that's unrealistic. With femtocells it makes sense but we still don't know enough about them to see if it's realistic.
Fixed-mobile convergence for us has always had the objection of potentially network efficiency. If we can take traffic off the wireless network and leverage the fixed infrastructure that's probably from an economic perspective the most appealing potential.
Alan Burkitt-Gray: Eric, can you respond and talk about how you understand what the operators need.
Donglin Shen: I have to disagree with those opinions that femto technology is a technology looking for a market. There is a market need.
US operators have been searching for solutions to resolve the coverage issue for people living in suburban areas. In some areas there are only a few families and to build a base station to cover them is sometimes economically not a viable solution. It's too expensive.
In the US, broadband — with fibre, cables or DSL — is everywhere, in dense urban or suburban areas.
Femtocells are a way to offer mobile coverage in isolated areas: you provide a phone and you have service at home with the same device. There is a market need.
US operators have been searching to find the solution. Before I joined ZTE I was working for AT&T Wireless and we spent a lot of time searching for all kinds of technologies to find a high sensitivity receiver to provide service in the home.
There's Bluetooth, but the problem is you need a special terminal to support that and that's not economical for the operator. That's why UMA comes into the picture — but for wifi you need extra modules in the handset and that increases the cost for the handset. Turn on the wifi and the power consumption is huge, and the battery doesn't last as long.
This is where the femtocell comes into the picture. In the US and Canada where broadband internet is common the femtocell can resolve the coverage problem — this looks a nice solution.
The problem is handover. From a femtocell you can hand over to the main network but the main network handing over to a femtocell is a problem because the cell is very limited in size. It's hard to support a lot of femtocells. If you have only a few femtocells in the area, I think that would be OK.
Alan Burkitt-Gray: Is it a specific problem in North America, the way they built mobile networks — they saw them as in-car networks?
Donglin Shen: About three years ago the US cellular operators were looking hard for the solution. T-Mobile has deployed a UMA network to offer residential coverage.
In the US with femtocells you have to meet FCC regulations. You cannot transmit on frequencies that do not belong to the operator. You have to get that problem resolved first.
People think femtocells can be used to offload the network traffic, especially in high density urban areas but that is really debatable. GSM is a narrowband system and you can always choose an idle channel to do that, but for WCDMA there's an interference issue, a technical issue that needs to be resolved. That's a challenge for the industry, how to work on that.
If you look forward to the next generation technology, there's quite an issue there. If you're close to the base station you can have a higher data rate. The radio link is good, you can get a higher data rate and you can serve your customers.
But when you come close to the cell edge it's a problem.
If you look at 3G coverage, in the centre of the site around the base station you have 384 kilobits a second, then further away it is 128, then 64 kilobits. How can you offer the higher data rate evenly across your network? The femtocell comes into the picture here: it becomes a viable service.
There are technical questions to be sorted out: you have to be connected to the broadband internet. If the operator is a full-service provider it has broadband internet and wireless and it's easy to resolve. If it's only a cellular operator, then the broadband internet operator may not easily allow it. That's a very touchy issue.
For emerging markets, if they have no broadband internet it is hard to introduce this solution. But if they have broadband internet in place, it's a way to introduce 3G technology to their customers, with a very low initial capex. They don't have to spend a lot of money to build up a whole infrastructure to support the service. They can have femtocells to open service at the start and slowly build up in the future.
Alan Burkitt-Gray: Who will pay for femtocells? What are the different models that people have looked at? Is it the customer, who is going to be asked to pay $200 for a femtocell in their home, or would it be subsidised by the operator?
Donglin Shen: I think it's up to the operator's business model. People are looking at fully subsidised by the operator or partly subsidised by the operator. You have to look at the particular situation.
In some cases I don't think operators will encourage femtocells because they could damage the network service quality. If that's the case they don't have to subsidise them.
But in the US if you don't have service in your residential areas and you'd have to spend several thousand dollars on your base stations to offer service, then you'd subsidise femtocells and customers could start using their phones.
Alan Burkitt-Gray: Do you see femtocell service quality problems in Telefónica O2, Mike?
Mike Short: We've already tried them out and we've had some worries about spectrum, network management and devices.
Femtocells will take some of the issues about spectrum management and quality away from the operator and that's our job. We need to see how femtocells work from a spectrum point of view.
From a network management point of view also we need to see how they work — if they're working back over ADSL we need to understand the network management characteristics, indoor and outdoor, for end to end service point of view.
And we want to make sure there are no special devices requirements arising. It would be crazy if we deploy femtocells and suddenly new device issues appear.
Holly Kramer: Are you trying 3G femtocells?
Mike Short: We only want to trial 3G because we don't see much point in trying 2G. Because of the data story and we're not sure 2G femtocells give us enough benefit for the long term.
Garrett Johnston: We don't have our own fixed broadband network. We don't have DSL deployed, and we probably don't want to deploy it. Are you doing any trials where you don't require fixed broadband capability?
Mike Short: We are using ADSL, but it's not always owned by us.
Garrett Johnston: So it is theoretically possible.
Mike Short: We know it is.
Alan Burkitt-Gray: Is it local loop unbundling?
Mike Short: It depends on the regulation of ADSL as to whether you can do that or not. We don't want to dig up roads. In some countries we do have the ADSL ourselves.
Donglin Shen: At lot of the US customers have DSL or cable modems. They pay a monthly subscription and they can use whatever they want. They have unlimited bandwidth and it is OK to put the femtocell at home. But, when the broadband internet owner finds out, that the mobiles are using their network to offer commercial service, what's their response?
Alan Burkitt-Gray: As when people who use Skype: they don't like it.
Eric Sun: If people have wifi-based terminals there may be a broader range of services on the internet instead of via your operator-provided services, that could be a concern. With the iPhone you can connect to the internet at home with wifi, so you can surf.
Mike Short: Shall I describe what the iPhone is doing in practice? There is very little wifi usage at the moment on the iPhones being sold in the UK. We made it very easy in terms of accessing over 10,000 wifi hotspots. There is very little wifi usage today on those iPhones. But it affects the volume of femtocells being bought — in other words if wifi does prove to be more successful, in time you buy less femtocells, and we offer wifi services today.
Mike Grant: If you're interested in delivering a broadband wireless experience into the home what is the most cost-effective way of delivering that experience? Is it by a wifi to the consumer or it is by a femtocell. As a wifi user and an HSDPA user, I find it's a lot easier to start to use a cellular network that continues to track me and my terminal, my device, from environment to environment and give me the best level of service than it is to have a wifi connected device that disconnects and I have to reconnect when I get on board the Heathrow Express or get into the office.
From a pure experience perspective, the femtocell seems to be a very elegant solution. The question is, I guess, whether you can deliver that from the cost perspective.
Cynthia Gordon: We always think we're a very rational industry with our business cases and investment committees, but we're actually a very fashion-oriented industry.
For me, wifi is a classic example. I remember three to five years ago people were sceptical about 3G because wifi was going to replace it and no one would want 3G, and that was the fashion.
In some cases femtocells are great and in others they're completely inappropriate. It's the operators job to manage that fashion cycle.
Roberto Vannini: We are seeing a fantastic uptake on wireless broadband. Our cooperation with vendors in the 850 frequency band helps us address some of the issues.
More important, we keep going in terms of innovation — we are at 14.4 megabits a second and we are delivering a 7.2 megabit commercial rate. For us the specific needs of an additional piece technology should be seen on the roadmap where we see that some fundamental piece of technology is developed and delivered at the correct time.
This industry in the last seven years has said several times that we are at the tipping point of turning round the business. Now we are at that phase with wireless broadband.
Andrew Parkin-White: Only 7% of global users are on 3G networks. We really are just starting. On the tipping point issue, I know organisations like my own have been guilty in saying in 2002 we'll see data taking off, then 2003. Where we are now is where we predicted we'd be five years back.
We do tend to forget the perspective of the customer. At the end of the day the customer has needs they want to satisfy.
Mike Grant: The iPhone has given people experience of mobile content. Previous generations of mobile internet were not what people were looking for. They want to get on a browser and go to whatever website and do whatever they want.
The Apple iPhone is the first device where you can actually do that on a mobile phone. It's not perfect, but it is a portent for a broader range of other devices and network infrastructure, and I think you will see much greater internet usage.
Lars Stork: In Nigeria mobile broadband has huge potential. The problem is the infrastructure — we're building our own fibre network, about 4,000 kilometres of fibre in the ground to get the bandwidth we require so we can do mobile broadband.
There's no doubt there's huge potential. In that part of the world there is no fixed line. The only internet access is on the mobile phone. People are desperate for internet access.
Xu Ming: We can use femtocells for rural village coverage, using IP via satellite. In one village we can use only one femtocell and everyone living in the village can use it.
Our R&D teams are still discussing which requirements to meet — because there are so many requirements for femtocells. We think the femtocell is an answer to indoor coverage, which is why we have developed not only GSM femtocells but WCDMA and other wireless products.
Mike Short: The other roadmap we've not mentioned is the China roadmap — China is the largest mobile market in the world by customer numbers. We need to know what the China roadmap is. Where is 3G in China? Who's going to get the licences? How soon? What's going to happen to mobile TV? What's going to happen to 4G? What's the China roadmap.
Xu Ming: We are waiting for the Chinese government to give the licences to our Chinese operators. I hope they will be able to provide 3G service before the Olympic games. GTB