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Monday, May 12, 2008

Over-optimistic femtocell forecasts?

I've seen quite a lot of large numbers and hockey-stick curves recently, all indicating an imminent huge explosion in femto shipments in the next few years.

ip.access' very good femto blog has links to quite a lot of the studies, some of which suggest shipments are going to hit 10's of millions of units as early as 2010-2012. I haven't got copies of my competitors' studies, so I don't know exactly what assumptions, methodologies and caveats they are using.

My current view is rather more pessimistic. We're already in the middle of 2008, with various trials ongoing. I'm expecting to see lots more trials during H2 2008 and H1 2009 with a variety of results being published, both positive and negative. I'd agree with the assertion of one of my peers that 2008 shipments should be in the 100,000 range, although precise numbers are likely to be a little fuzzy in terms of defining "shipments" versus orders, versus paid installations in active users' homes.

I think there will have to be a lot of efforts made during 2009 to fix all the problems these trials throw up - nothing unusual there, just the normal technology deployment cycle. Getting everything right first-time, and immediately flipping the switch on the massive manufacturing plants, seems implausible to me. I can't think of anything else that's ramped up that quickly.

Sure, we'll see some niche deployments - perhaps in certain groups in Japan, or in bits of the US with lousy macro coverage. But are we going to climb to rapid adoption among the addressable market (essentially the world's 400m or so home broadband subscribers)? I'm unconvinced by the business model or demand just yet. It'll come, but there are a lot of prerequisites still not in place, not least of which is a sufficient population of 3G handsets or other devices, and people who actually want to use them for high speed access.

And even at $100 or $50, femto capability is too expensive to put into a home gateway if it's not going to be used. (If it's $5 or $10 like WiFi, it's cheap enough to just put it in the box by default - if the user doesn't switch it on, it's no big deal).

But more importantly, I'm starting to come round to the view that femtos will only become truly massmarket when we get to LTE deployment, and that HSPA and EVDO femtos may only be a starter to 4G's main course. I have various reasons to think this, and I'll have to annoy some readers with a bald assertion that it's about application related issues, and radio/spectrum reasons. I'm intending to publish a report in the next few weeks that will clarify my thinking on some of this, so keep reading.

As a last part of the post, I've taken a punt at some numbers. I'll be absolutely upfront, I haven't done a rigorous model on this at the moment, these are just educated guesses, based on my understanding of mobile, device and broadband markets, and having watched the evolution of picos & femtos for more than 7 years.

I'd currently estimate the number of shipments at maybe:

500k-1m in 2009 [this might be skewed by early large orders that end up in warehouses though]
2-3m in 2010
4-5m in 2011
5-8m in 2012.

In the 2009-H1 2010 period, I'm expecting the market to be driven by a small number of major operator advocates (much like dual-mode WiFi/cellular services today).

After 2013, when LTE starts hitting mainstream devices like phones in a big way, then I can potentially see a much larger uplift. Price points should also enable femto capability to be added to broadband home gateways 'for free', and also by that point we should have resolved issues like multi-operator femtos, and what the business model might be for femtos+prepay mobile.

Edit - as well as LTE triggering femto ramp-up, I'd amend my view to include HSPA *after 3GPP Release 8* as well. We'll probably start to see R8 phones & networks emerging into the real world from end-2010 onwards, ramping up during 2011-13.

Comments are welcome, although if anyone wants to discuss thoughts on the femto market privately, I can be reached at firstname.lastname AT disruptive-analysis.com

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