WhyDom

On May 28, 2008, the FCC issued yet another declaratory order relating to TRS (Telecommunications Relay Service) providing clarification of a 2007 order related to the use of customer information by TRS providers. By issuing the clarification order, the Commission is seeking to avoid litigation initiated by TRS providers regarding their right to contact and communicate with users of TRS. The ADA (Americans with Disabilities Act) mandated that the FCC implement, regulate, and fund TRS in 1990. At the time the law was enacted, Congress could not have known that a can of worms was opened that was not intended. Among the TRS issues have recently been addressed by the FCC are: a) dealing unidentifiable foreign credit card scammers using the system, b) instructing businesses receiving the TRS calls from scammers to avoid the calls but not hang up because doing so is a violation the ADA, d) authorizing internet video relay providers (VRS) reimbursement by the TRS fund at a rate of $6.74 per minute , e) prohibiting TRS providers offering rebates and incentives to callers to use more minutes, f) requiring VoIP providers to fund the TRS, and f) regulating “competition” among TRS providers.

The legal history of the May 28, 2008 TRS Declaratory Ruling is the following. In late 2004, Hands On Video Relay Services, Inc. requested a declaratory ruling from the Commission’s Consumer & Governmental Affairs Bureau regarding its practice of providing incentives to callers. The customer loyalty program, known as the “Brown Bag Rewards Program” gave callers points that could be redeemed by having the VRS vendor make payments for their broadband bills. On January 26, 2005, the Commission issued a declaratory order prohibiting any program offering rewards or incentives as a violation of 47 USC 255 making the vendor “ineligible” for TRS Funding. To be ineligible for TRS funding is the life blood for providers offering solely TRS services. The Commission reasoned that TRS existed to provide functional equivalency of dial tone for deaf subscribers. TRS providers were authorized to provide the accommodation but not incentives.

On the same day, January 26, 2005, the Commission also reviewed VRS “marketing” practices and found that contacting consumers using the VRS to encourage more calling “constitutes an improper use of information obtained from consumers using the service, is inconsistent with the notion of functional equivalency, and may constitute a fraud on the Interstate TRS Fund because the Fund, and not the consumer, pays for the cost of the VRS call.”

On November 19, 2007, the Commission in its TRS Cost Recovery Declaratory Ruling expanded further its prohibition on TRS marketing practices. The marketing ruling was directed at a practice in the TRS industry of using customer identifying information obtained from users of TRS services for various purposes such as encouraging the TRS callers to make more and longer calls on a TRS providers’ service or contacting Congress or the FCC to support the provider’s TRS issues.

The Commissioned ordered the TRS providers to not use the customer information for any purpose to contact the customers including lobbying: “a provider may not contact its customers, by an automated message, postcards, or otherwise, to inform them about pending TRS compensation issues and urge them to contact the Commission about the compensation rates.” (It seems that the lobbying efforts were overly effective!) The Commission ordered TRS providers not to talk or communicate with their users: “they may not use consumer or call data to contact TRS users or to in any way attempt to affect or influence, directly or indirectly, their use of relay service.”

The TRS providers were not happy about not being able to contact their users and complained that the order violated their First Amendment rights of free speech. Other providers of “dial tone” – event those providers of last resort or “universal service” did not have the same prohibitions. In January 2008, one of the TRS providers, Sorenson Communications, Inc., filed a “Petition for Review” with the U.S. Court of Appeals for the Tenth Circuit seeking a stay from the Commission pending resolution of its Petition for Review. The Petition claimed that the requirements to not use the customer information to communicate with the customers were unconstitutionally vague, violated the First Amendment rights, and were procedurally deficient under the Administrative Procedure Act. After this filing, the Commission halted the order pending review through a stay and then on May 28, 2008 issued a clarifying order.

In the May 28, 2008 clarification order the Commission held that some communication using the customer information was appropriate including allowing TRS providers to communicate “important information” such as “critical public safety information” or the about “handling of relay calls.” The communications must be “informational in nature and must relate to the provision of, or the consumer’s use of, TRS.” The Commission clarified that lobbying and advocating are not an “informational” communications: “providers may not use customer information obtained through the provision of federally-funded relay services, or use funds obtained from the Interstate TRS Fund, to engage in lobbying or advocacy activities directed at relay users. Evidence in the record shows that at least one service provider has bombarded deaf persons with material seeking to persuade them to support the provider’s position on matters pending before the FCC.”

The order further clarified, in order to address the First Amendment claims, that what was prohibited was using the customer information to lobby but that lobbying itself was permissible. The order explained that TRS funds received from the federally subsidized TRS services and the resulting information obtained from customers where the customer contact was subsided should be used for providing the accommodation and not for increasing minutes or lobbying.

It is clear that other providers of telecommunications and broadband services receive federal funding from the universal service fund paid for through access charges and subscriber lines charges for providing high cost rural users with dial tone or broadband. There are no orders prohibiting these providers from using their customer information through bill inserts or emails to encourage their customers to lobby or use their service more often.

It seems that the Commission is wading deeper and deeper into a TRS swamp. There are few good answers to the problems of providing dial tone for the deaf and at the same time keeping out unlawful scammers and protecting businesses from scammers who are calling the TRS providers. However, shutting down the TRS providers from communicating with their legitimate customers for purposes of lobbying or increasing use of the system is not one of the solutions.

On April 24, 2008, the FCC granted AT&T’s request for forbearance pursuant to Section 160 of in WC Docket No. 07-21 and 05-342 from accounting rules that assigned costs for the regional bell operating companies (RBOC).  The FCC’s cost assignment accounting rules were created to ensure that the monopoly regulated side of the RBOC business was not improperly subsidizing the unregulated side of the business - for example the wireless or Internet operations.  The rules were also used in rate of return regulation.  AT&T asked for relief from the requirements of various sections of the Telecommunications Act related to cost accounting including section 220(a)(2), section 32.23 (nonregulated activities), section 32.27 (transactions with affiliates), Part 64, Subpart I (allocation of costs), Part 36 (jurisdictional separations procedures), and Part 69, Subparts D and E (cost apportionment).  

The rules assign or allocate the common costs used to build and maintain the network, and allocate the revenues received by regulated or nonregulated services, by  intrastate or interstate jurisdiction, and by service categories.  Part 32 of the rules describes the Uniform System of Accounts (USOA).  Part 64 of the rules, adopted in 1969, imposes the federal and state separations rules on the incumbents.  Part 69 of the rules, adopted in 1983, provides for formulas for determining access charges between local exchange companies and interexchange carriers.  The forbearance order was conditioned on AT&T making available accounting data as requested by the FCC in the future but relieved AT&T from the requirement to maintain separate cost accounting from April 24, 2008 forward.

The Commissioners voted along party lines for and against the forbearance.  Republican Commissioners Martin, Tate, and McDowell voted for forbearance.  Democratic Commissioners Copps and Adelstein voted against forbearance and issued a dissenting statement.  Commissioner Tate in her statement noted that because price caps had been in place since 1991, there was no need for the cost allocation rules.  She also noted that the FCC was not preempting the states to obtain accounting information for their own regulatory purposes.  Commissioner McDowell in his statement focused on increased competition stating that because voice communication was moving from a TDM world to an Internet VoIP technology the need for cost accounting should likewise diminish.  He also noted that even though cost accounting was in place to prevent anti-competitive behavior, no party had filed complaints regarding improper cost accounting in several years.  In addition, he stated that the FCC had the power at any time to require the production of cost accounting from the incumbents. 

Citing Enron and WorldCom type accounting problems, the dissenting Democratic Commissioners explained in their dissent that this was not time to remove cost accounting rules because “more information—not less—is what is needed to promote competition, consumer confidence, [and] investor security.”  They also stated that the system of accounts provides both state and federal regulators with the information they need for their oversight responsibilities to ensure that the rates charged by the incumbents are not unjust or unreasonable.  The cost allocation rules were relied on as recently as 2007 to justify a new regulatory framework for the incumbent’s in-region long distance business to ensure that there was no improper cost shifting or anticompetitive discrimination.  The dissenting Commissioners also questioned the concept of sweeping away the cost allocation rules for one company without holding a more comprehensive, industry wide rulemaking since there are five other forbearance requests coming due during the year. One may question what will happen in nine months from now to reverse forbearance if a Democratic White House is elected and the party lines shift at the Commission.   Certainly, the forbearance orders could be over turned by re-imposing the cost allocation rules as the Commission made it a condition in the April 24, 2008 order that it could require cost accounting for future regulatory matters.     

In the matter entitled “Promotion of Competitive Networks in Local Telecommunications Markets” the FCC adopted an Order on March 19, 2008,in which the FCC banned carriers from entering into exclusive contracts to provide telecommunications services in residential apartment
buildings, and prohibited enforcement of existing contracts that contain exclusivity provisions.  The Commission found that exclusive agreements between carriers and residential building owners hurt consumers and harm competition.  Moreover, exclusive contracts blocked access by consumers to competitive and popular “triple-play” offerings of voice, video and broadband. 
 
The Commission’s action is consistent with its previous moves to expand competition for communications services in apartment buildings and other multiple tenant environments, or MTEs. In 2007, the Commission banned exclusive deals for video services in residential apartment buildings, and in 2000, the Commission prohibited exclusive contracts for
telecommunications services in commercial, as distinguished from residential, MTEs.  The Commission explained that the order provides regulatory parity between telecommunications and video service providers in the increasingly competitive market for bundled services.  ”Telecommunications services” addressed by the order does not include non-”telecommunications services” like VoIP, Internet access, cable television (dealt with in the 2007 order), or non-common carrier services. 

The Commission attempted justify its legal authority in regulating the relationship between a carrier and a private property owner’s rights to grant easement access into a building.  Paddling upstream against established property law, the Commission worked around the issue by declaring that the Commission was not prohibiting access but only prohibiting a carrier that it regulates from entering into or enforcing an exclusive contract.   The order does not prohibit a building owner from enforcing an existing exclusive agreement.  In addition, the Commission sought to lean on the overly broad concept of the ”advance of government interest… of preventing unreasonable practice.”  The Order states “our prohibition on enforcement of the exclusivity provisions at issue substantially advances the government interest in preventing unreasonable practices reflected in section 201(b) of the Act, and is based on our weighing of the relative costs and benefits of such provisions.”

A radio equipment provider out of Woburn, MA, Skyworks Solutions, Inc. (NASDAQ:SWKS), announced today that Samsung “is leveraging” Skyworks’ solutions for the Samsung femtocell.  The Skyworks products will enter “volume production.”  The Skyworks products listed in the press release include:  1)  a transmitter for dual-band CDMA;  2) a CDMA/PCS LNA for dual-band and tri-mode with low noise amplification with high linearity;  3) a receiver for tri-band CDMA applications with GPS capability; and, 4) a load insensitive power amplifier module for WCDMA applications.

Skyworks is a $774 million (2006) company.   TCMnet reported last month that EJL Wireless Research  did a “Teardown” study of the Sprint femtocell, the Airave, which is manufactured by Samsung, and noted components from Skyworks in the Airave femtocell.   The good news is that this is evidence that the femtocell market is taking off now in terms of volume manufacturing.  In total devices sold, excluding carriers’ service revenue increases, network cost savings, and related lower customer churn rates, the femtocell market is projected to be a $4 billion market in 2011, which is a bigger market than WiMAX.  

For this post on IMS and FMC developers’ intellectual property, I collaborated with my friend, Michael Dowd, a partner at Foley, Hoag, LLP, in Boston.  I provide counsel on licensing patents and trademarks, and Michael’s practice involves developing patenting strategies and resolving inventorship issues, software licensing disputes and trade secret misappropriation claims.  As we explain below, these are intellectual property issues that reponsible developers, especially those IMS and FMC developers outside the U.S. seeking to sell into the U.S. market, should spend time and resources on before launching their products.

Companies developing applications and appliances in the new triple-play IMS (IP Multimedia Subsystem), the FMC (Fixed Mobile Convergence), or as members of the IMTC (Interactive Media Telecommunications Consortium) face intellectual property decisions and challenges with regard to new developments.  Among the important decisions will be whether to protect the company’s intellectual property as trade secrets or through patenting.  This intellectual property decision tree exercise can and should be planned for in advance of development.   

In order to build a solid intellectual property asset and to protect the developer against attack by other creators of similar technology, decisions will be required to be made regarding technology advancements.   These decisions will vary from country to country.  For example, in the U.S., business processes may be protected with a patent where the same business process would not be protected in Europe.    

The following are five considerations to keep in mind when determining how best to protect new ideas created by the developer.   Decisions will also need to be made in light of the financial depth of the company.

1.   Financial Considerations.   Well-financed companies may wish to file for patents for even minor innovations.  Even if an experienced engineer or software designer initially deems them “obvious,” incremental improvements are often patentable.  Smaller, or “garage-based” developers will not have the budget to patent every concept or idea and will choose a different approach, such as maintaining the innovation as a trade secret.

2.   Patents: Consider the Disadvantages.  Even if there are sufficient funds in the bank to file patents on various innovations, there may still be reasons to keep them as trade secrets rather than seeking patent protection.  Trade secrets, by definition, keep the innovation from being known or understood by others – assuming the developer is able to keep a lock on the formula.  Patents, on the other hand, reveal the idea to competitors and customers.  When a patent is issued, it is published for the world to see, and even the patent application is generally published 18 months after it is filed.  Part of the price paid by a patent applicant is allowing the public to learn from the teachings of the patent to create new ideas.  This could offer competitors valuable insights into your technology, and it is possible that they or others will be able to use those insights and create a “work around” that does not infringe the patent. 

3.  Trade Secrets:  As Long As There Is A Secret.  Maintaining innovations as trade secrets is a time-honored way of protecting intellectual property.  The formula for Coca-Cola may be the most famous trade secret.  While a company can protect its “secret sauce” indefinitely as a trade secret, unlike the limited lifespan of a patent, the key is maintaining the secrecy.  Once the “cat is out of the bag,” trade secret protection is lost.  Competitors are generally free to reverse engineer your product, and there is always the risk that even careful steps to maintain secrecy could fail to prevent inadvertent or malicious disclosure of the innovation.   

3.  Patents: Tremendous Leverage.  If a company has the budget for filing patents, there are considerable advantages to doing so.  A well crafted patent may be able to cover a broad swath of a business process or the critical element of a new product, and could create a monopoly for the developer lasting nearly 20 years.  A patent can be a powerful offensive and defensive weapon.  Offensively, it can be used to stop competitors from using the invention, or, short of litigation, can help persuade them to enter into a licensing agreement.  On the defensive side, a competitor may be reluctant to sue you for infringing its patents if they face a likely  counterclaim that they infringe your patent.  A mutually advantageous option, where both parties hold relevant patent rights, is entering into cross-licensing agreements.

4.   Patents:  Investors and Customers.  Particularly for an early-stage company, investors are likely to scrutinize its patent portfolios to insure that the company’s intellectual property is adequately protected.  Patents can give investors confidence that the company will be able maintain its competitive advantage, and may also represent a distinct asset valued by investors or others in the field.  Even the filing of a patent application can help investors over the risk-reward hurdle, resulting in investment funding prior to actual sales.  In addition, patents can help to distinguish you from the competition and attract customers with your “patented” technology or business process.   

5.  Patents: Business Processes.  Often a developer will create a business process that is patentable in the U.S. but not in Europe.  The business process patent can be broad and cover the concept of having two or more solutions interacting with each other.   IMS is naturally an area where developers are creating new applications that interact and interface with other applications creating new revenue sources and customer solutions.   
 
Forward-thinking FMC and IMS developers can best protect their innovations by strategizing with U.S. and European intellectual property counsel to examine the benefits and limitations of relying on patents or on trade secret protection.  By way of example, a decision to file for a patent could result in enormous value for the developer, but may ultimately reveal to the competition the developer’s “secret sauce.”  Modest investments in time and resources up-front to develop an intellectual property strategy can result in significant long term benefits.

On September 17, 2007, only 10 days after the Pulvermedia’s FMC conference in Chicago where Sprint discussed its future femtocell plans, Sprint formerly announced that it would immediately start offering its AIRAVE femtocell solution in Denver and Indianapolis.  Sprint included a cool marketing video about AIRAVE and femtocells on the Sprint web site. While two trials have been announced outside the U.S. neither trial is doing a real rollout with customers, marketing and prices.  Sprint’s bold move into femtocells in the U.S. market will give it a lead over other carriers waiting for femtocell trials to be completed.  The two trials outside the U.S. are in Japan (Softbank) and Madrid (O2 Telefonica).  Femtocells will give cell users almost perfect coverage inside the home – no more dropped calls while making that important business call at home.  Any Sprint phone will work on the femtocell – unlike dual mode WiFi phones which require new dual-mode phones like Nokia’s 6301 as reported today in Gizmodo.    

Depending on the radio in the femtocell, the device should give the user higher Internet bandwidth as data will move from the cell phone to the user’s DSL or Internet broadband connection rather than data moving from the cell phone to the carrier’s local macro tower.  The most significant benefit, however, accrues to the carrier.   As data usage grows, the carrier will either have to build new towers or move the data to picocells and femtocells which should cost less on a user by user basis than building out new towers.   The cost savings to the carrier is especially true if the customer will pay for the extra minutes and better quality service.    

Numerous wireless blogs like TCM, Gizmodo, and DailyWireless.org quickly reported the new AIRAVE offer focusing on the unlimited calling minutes when at home.  While Sprint’s pricing will in all likelihood will drop or change as all new offers eventually do, the service could have a real positive effect on Sprint’s bottom line.  AIRAVE can be a real deal for families whose users – like teenagers or home office based managers – eat up minutes.  For $30 dollars per month, a family can add unlimited minutes for calls made from their home and on their femtocell.  The femtocell device is advertised at $49.95, although the Denver Sprint store sales person said it is being given away for no charge for a limited time.  The femtocell is limited to three users at one time which should ensure quality of service for the calls over the user’s broadband or DSL. 

At least one wireline carrier determined that around 15% of homes receive poor cell phone service.   If Sprint is able to increase the ARPU (average revnue per user) by $10 per user ($30 divided by 3 users), from families of three users located in 15% of the Sprint wireless homes, the $10 revenue increase could be dramatic.  In addition, other families may purchase the AIRAVE service to receive the unlimited minutes or, potentially, faster downloads even if coverage is good inside the home.   Customers could even decide to give up their wireline and use their cell phone exclusively.

Regardless of the benefits for the consumer, femtocell rollouts will be a requirement for wireless carriers’ infrastructure and, as with WiMAX, Sprint is jumping into uncharted femtocell waters as the technology leader. 

Femtocells were all the rage at PulverMedia’s FMC (Fixed Mobile Convergence) Conference in Chicago last week.     One carrier in the U.S., Sprint, is leading the pack.   As of today, there are no femtocell rollouts in any geography.  There are a few trials, some announced and others not.   Telefonica, as reported in WSJ last week (9/6/2007), is conducting a trial in 50 homes in Madrid.  GigaOm noted that Softbank started a trial in Japan in July 2007.    

At the FMC conference, Dan Jacobson, Senior Portfolio Manager, Converged Voice Services, Sprint Nextel, in “Architecting the Enterprise FMC Solution” noted that Sprint would be making a femtocell announcement toward the end of the year.   In March of this year, Samsung announced at CITA  (PR Newswire) that it would be deploying the Ubicell a CDMA and WCDMA femtocell.   The Sprint is using Samsung’s 1900MHz Ubicell to connect to deliver the cell phone calls from the phone to the femtocell and then over the internet using the customer’s DSL or cable connection.   The Ubicell device will be placed in a home or business and have a range of 5000 square feet  (to cover a home) and will work with all Sprint phones.  Unlike dual-mode WiFi phones, the customer will be able to use their current Sprint cell phone. The Sprint femtocell solution, renamed by Sprint, Airave (a great name I think), solves many of the regulatory issues by limiting usage on the cells to four authorized users only in licensed territories.   By using GPS in the femtocell, Sprint limits usage outside Sprint’s exclusive licensed area.  As pointed out by Engadet this means that customers will not be able to use their femtocell devices in hard to reach locations outside the Sprint licensed territory.  For example, a customer cannot take the femtocell to Vermont and use it at their vacation home where there is no Sprint coverage, nor can the customer take the femtocell to Europe and use it as though the customer is in the U.S.  

Preventing the Sprint customers from using the Ubicell femtocell outside of Sprint’s licensed bandwidth will make regulators and other operators happy but will not solve the problems for Sprint’s customers when they in locations that have no cell service or overseas.   Dual-mode WiFi phones can give customers this ubiquitous coverage outside the licensed territory but the customer will need a phone that works with WiFi.  

Sprint is leading the femtocell rush and has solved many of the regulatory issues.   However, providing enterprise customers with VCC (voice call continuity) inside the while traveling (“mobile”) outside of Sprint’s licensed territory or at enterprise locations outside Sprint’s licensed territory remains elusive.  

T-Mobile’s dual mode WiFi solution has limitations as well.   WSJ’s Walt Mossberg reviewed T-Mobile’s offering last week (9/6/2007) and found that while open, unsecured, WiFi devices and Starbucks T-Mobile WiFI worked, the T-Mobile phones could not be used to log on to other WiFi networks.  Other WiFi networks would include a long list: a secured home WiFi device, municipal WiFI, and the WiFi at the airport.  Sprint’s Director of Signaling and Control Technology Development, Manish Mangal, explained to VON magazine why Sprint is not pursuing the dual mode WiFi solution:  

“We’ve been testing voice over Wi-Fi.  There’s lot of hurdles in implementing it, and no benefits. Problems including the failure of dual-mode devices to catch on in the U.S. We’ve sold dual-mode devices, customers aren’t buying them.”

Solving the femtocell regulatory hurdles and expanding the network within the home using femtocells is a great first step. Sprint has clearly examined the issues and is moving forward.

A lot has been happening with MediaFlo mobile video.   After considerable study,  the European Union’s Executive Commission decided on July 18, 2007, that it would recommend that EU countries use Europe’s home grown DVB-H (“Digital Video Broadcasting for Handhelds”) standard, and not the MediaFlo standard.    The EC decision may well have been driven by the fact that DVB-H is a standard driven by Europe’s own hometown team, Nokia.  Unlike Qualcomm-owned MediaFlo, DVB-H though is an open standard which can be licensed by any carrier.  As Broadcast Engineering  noted, in selecting DVB-H the EC also rejected the WorldDMB’s  T-MDB technology.  Germany had already launched T-MDB last year and France planned to launch T-MDB next year.   

The EC’s decision has the same feeling of the GSM v CDMA battle that occurred a decade ago.  The results seem to be following the same path with Qualcomm/MediaFlo turning its focus from Europe to the US and Asia.  MediaFlo has achieved success in the U.S. with Verizon’s V-Cast and AT&T’s U-verse “OnTheGo” mobile solution and also in Asia with the Malaysia trial.     However, even in the Americas, the DVB v Flo battle is going strong as the EC announced on August 31, 2007, that Uruguay adopted the DVB-T standard.   The EC is hoping for a domino effect in Latin America. Viviane Reding, EU Commissioner for Information Society and Media, stated “I trust that other countries in the region will follow [Uruguay] soon.”  In Asia, Taiwan is also testing DVB-H. 

Research firms, not surprisingly, are projecting similar geographically-based take rates for mobile video standards.  IMS Research is projecting that 60% of MediaFlo’s subscribers will be from the U.S.   On the other hand, IMS projects that Europe will have 61% of the DVB-H/DVB-SH worldwide.    

Does the EC’s decision mean that MediaFlo is cut off from Europe as Qualcomm was cut out in the GSM v CDMA battle?  Or will government-geographically based technical mandates wane now that solutions are easier to implement as the large towers required are already in place and cell phones are in the hands of the buyers?   This was not the case in the early 1990’s with the GSM v CDMA battle over cell phone service where the towers were not constructed and the base of cell phone users had to be built from scratch.

Femtocells are going to move fast in the coming 12 months.  Wireless carriers will push the residential gateway from zero units to millions.  On August 13, 2007, Xchange Magazine reported that In-Stat is projecting that by 2011 there will be 40 million femtocells in use and 101 million users of femtocells.   Femtocells are micro cell phone antenna receivers connected to a customer’s home Internet access.  The femtocell allows the cell phone customer to keep their current cell phone and obtain WiFI like speeds from 1Mbs to 3Mbs and more on their cell phone.  As noted in an earlier post, in July 2007, a month before the In-Stat release, ABI Research predicted that by 2012 there would be 70 million femtocells and 150 million users.  The projections of ABI Research and In-Stat are mere predictions/projections but are both in alignment.  

It was also reported by Xchange that Cisco’s John Sweeney, Director of Product Strategy and Management, IP Subscriber Networks, anticipates that femtocells would initially be sold for $200 per unit.  (Cisco has not announced a femtocell product although there was a rumor in Unstrung in January 2007 that the company was considering an investment in Ubiquisys. Google invested in Ubiquisys on July 20, 2007).  The femtocell price point will likely rapidly decrease from $200 in 2008 to $100 in $2011 – tracking the decreasing price of DSL Routers like Linksys and Netgear.  Using the sales predictions of ABI Research and In-Stat, the femtocell total device market is approximately $8 billion to $4 billion over four years, or $1 billion to $2 billion per year.  This is not an insignificant market.   GigaOm pointed out that cellco’s were all over the femtocell concept and were going to aggressively push femtocells as a way to counter the move to dual mode WiFI phones and WiFI VoIP phones: “Mobile carriers are obviously worried by the impact of WiFi and VoWiFi on their voice revenues.”

In addition, femtocells are being integrated by residential gateway providers like 2Wire, Netgear, or Thompson, into residential DSL routers or cable modems.   The value and stickiness of the femtocell device market will increase with integration into the residential gateway.  The integrated residential gateways will combine femtocell technology with storage for video or music.  The gateway will give customers the ability to play music or video stored on the gateway on any PC or device connected to the home network.  In addition, the gateways will be used by service providers to maintain and monitor home networks.

Femtocells could revolutionize cellular service in terms of diverting cell traffic off the network, providing great service in buildings and homes, increasing bandwidth speed, and, most significantly, increasing the service providers’ footprints outside their licensed areas.  Cell phone service providers, like Sprint or T-Mobile, would be able use femtocells to off-load traffic to their customer’s provided internet access.  Also, the carriers would be able to locate small antennas in areas inside and outside their licensed territories, with the help of their customers.   Customers would suddenly enable a service provider to offer service in tough valley in a small town, or in a town located outside the provider’s service area.  One other important point is that the customer, not the service provider, would pay for the femtocell at the local Staples or cell phone store.  For the first time, service providers could lower network costs.

For customers, femtocells solve several key problems.  I regularly survey friends about their cell service.  The number one complaint is poor coverage in their homes.  Femtocells are primarily designed to overcome this poor in building deficiency in cell phone service.   Blogger and media consultant Shelly Palmer noted and complained that AT&T did not deliver service well enough around the New York City area to serve his iPhone.  At least in the homes with femtocells, the problem with poor connectivity would be eliminated.   The other problem solved by femtocells is delivering service in areas not covered by the carrier.  For example, in Dorset, Vermont there is no Cingular/AT&T service.  Femtocells could dramatically increase coverage for the customers in these areas.

Equipment providers of consumer broadband router devices will gain in units sold from new femtocell technology.  The future will be a femtocell built into every WiFi and DSL/Cable router.  GigaOm  reported this month that 2Wire, owned in part by AT&T, was going to include femtocell technology in 2Wire’s DSL modems.   In addition, Netgear is teaming with Ubiquisys and Thompson is teaming with NokiaSiemens  to deliver femtocells for the home.  

Femtocell technology is racing against the competing dual mode WiFi phone technology.  The Wall Street Journal reported in May 2007 that T-Mobile was providing IP based calling over WiFi using dual mode phones provided by Samsung and Nokia.   Also, see GigaOm’s report on the T-Mobile dual mode WiFi service.   The positive about the dual mode WiFi phone is that customers can receive almost all of the same advantages as a femtocell without having to purchase a new device in the home. 

The race is on between the two leading methods of providing cell phone service in the home.   The clear out front winner at the moment is the dual mode WiFi phone because it is operating in the U.S. market place with positive results.   A user noted in GigaOm:   “I’ve been testing the [dual mode WiFi] service in Boston for the past 2 weeks. Works pretty well.”   As quoted in PDA Street In-Sat projects there will be 200 million dual mode WiFi phones by 2010.