The Case for Subsidized Femtocells

Tier-one carriers in the U.S. have built their businesses on one primary model: Subsidize handsets substantially to entice users to sign long-term contracts for voice and data service. As I discuss in my weekly column over at GigaOM Pro, that’s a model that should be also be used for consumer femtocells, which carriers should subsidize to drive up monthly revenues.

Sprint recently began giving away EVDO femtocells on a case-by-case basis to users complaining about coverage in their homes. Customers with coverage issues can get an Airave for no upfront cost and no monthly charge; all the voice, data and messaging use via the device is considered part of their monthly rate plans.

Compare that to Verizon Wireless’s Network Extender, which will set you back $150 even after a mail-in rebate. Even worse is AT&T’s 3G MicroCell, which costs $150 in addition to a $20 monthly charge for unlimited voice and data usage.

Femtocells enable carriers to ramp up usage while offloading traffic. By providing a better signal, femtocells pave the way for increased usage from customers with connectivity problems. That increased usage results in higher ARPU (average revenue per user), especially for carriers who — like AT&T — no longer support all-you-can-eat plans. Indeed, AT&T’s new plans are an ideal tool for monetizing femtocells, because increased usage results directly in increased monthly revenues. And the improved reception could also be enough to entice some users with in-home coverage problems to cut the cord and use the mobile exclusively.

Expectations for the femtocell market are huge, especially in the U.S. MarketsandMarkets predicts the American femtocell market will generate some $4.6 billion by 2014, seeing an estimated CAGR of 82.6 percent and accounting for nearly 41 percent of worldwide revenues by the time. For the consumer market to take off, carriers will need to take the hit on the front end and be satisfied with lucrative recurring monthly revenues.

Read the full post here.

Image courtesy Flickr user Elsie esq.