As more and more people drop their landlines, the wireless industry faces a challenge: poor cellular coverage within the home.
To tackle it, they're looking at selling customers boxes that in essence give them cell towers within the home. To put it another way, the devices make their cell phones work like cordless phones, connecting to a home base station.
These so-called femtocells — "femto" is a scientific term for something very small — look much like Wi-Fi routers, which have become a common household appliance.
But are customers ready to bring another electronic box into the house?
Femtocell vendors at the CTIA Wireless industry show in Las Vegas this week say "yes" — because the devices solve a lot of problems for carriers.
"It's so much to their benefit to get these into people's homes that they're going to subsidize these things," said Paul Callahan, vice president of business development for Airvana Inc. The Chelmsford, Mass., company makes femtocells that are being tested by several carriers around the world.
Not only do femtocells improve coverage indoors, where the carrier has a hard time reaching, they reduce traffic on regular, outdoor cellular towers. Perhaps best of all, the carrier doesn't have to pay to carry the traffic from the femtocell to its network, because the device plugs into a home broadband connection. The so-called "backhaul" traffic, which carries calls from a cellular tower to the wired network, is a major part of the cost of operating a wireless network.
Airvana reports tremendous interest from carriers, yet few of them are talking publicly about femtocells.
Sprint Nextel Corp. is the only carrier that is conducting more than a small trial with the technology, but even it is only selling them in Denver, Indianapolis, and Nashville, Tenn. They cost $49.99 to buy; another $15 a month gives a customer unlimited calls from the home.
Sprint spokeswoman Emmy Anderson said customer feedback has been positive and there haven't been any issues with interference between the femtocells and towers. When it launched the program last year, Sprint said it was planning to take the offer nationwide this year, but it hasn't announced any specific plans to do so.
One holdup has been that early femtocells, like those Sprint is using from Samsung Electronics, don't support the data speeds of third-generation cellular networks. But Airvana, Samsung, Motorola Inc. and Alcatel-Lucent all showed 3G femtocells at CTIA Wireless.
Cost also is an obstacle. Current models go for around $200 (meaning Sprint must be subsidizing the units substantially). But Airvana's Callahan believes that by next year, the cost will have come down substantially as more suppliers get into the market.
Another potential hurdle for femtocells is that there's a competing technology that doesn't require another box in the house. T-Mobile USA is selling phones that can use either cellular networks or Wi-Fi, which many broadband households have already, and if they don't, they're cheap to buy because it's a high-volume product. The technology, called Unlicensed Mobile Access, has traction among overseas carriers as well. The drawback of UMA is that it requires phones with Wi-Fi.
The two major U.S. carriers that are trying out ways to boost in-home reception are Sprint and T-Mobile, neither of which has a landline business. Forrester Research analyst Charles Golvin doesn't think it's a coincidence that the largest cell carriers, AT&T Inc. and Verizon Wireless, are lagging in this field.
"They're afraid that by deploying these femtocells, at least where they have a landline footprint, they might be putting their landline business at risk," Golvin said.
But that business is at risk anyway — a lack of femtocells may make cellular subscribers keep their landlines for another year or so, but not for long, Golvin added. He thinks the real opportunity is for landline phone companies to bundle femtocells with DSL. Indeed, French electronics maker Thomson has said it is building an Airvana femtocell into a DSL modem.
Managing femtocells can be complex for carriers, because they need to interact gracefully with the rest of the network and hand over calls that are in progress to other cells when the subscriber leaves the home while talking on the phone. Access control is another part of the puzzle — some people don't want their neighbors to freeload on their femtocell, which can only handle four to six simultaneous calls.
But Airvana said that carriers are showing strong interest by soliciting proposals from femtocell vendors, and that 2009 should be a big year for the technology.
"It's not an issue of (carriers) questioning the business model — it's 'How fast can you do it?'" said David Nowicki, vice president of marketing at Airvana.