Femtocells May Help Avoid Wireless Price War

(MoneyWatch)  Femtocells, a technology little-known outside the wireless world, promise better indoor cellular service and a new way for wireless carriers to reduce costs and increase revenues without having to resort to price wars.

Femtocells are devices connected to broadband Internet connections that allow cellular traffic to travel through the Internet connection, improving the quality of cell phone reception, and sometimes making cell phone reception possible in buildings that can't get a wireless signal at all.

The customer service advantage for wireless carriers is clear, but the economics of it might be even more compelling for the likes of Sprint, Verizon, AT&T and others.

Because femtocells allow carriers to piggyback on wired home broadband networks, carriers can use them to offer data services at attractive prices--without reducing prices for their basic plans and igniting a price war that analysts warn would be a race to the bottom.

The growing popularity of data services is key here; wireless data traffic is growing by leaps and bounds thanks to the popularity of smartphones and USB dongles on laptops, according to Doug Knisely, vice president of technology for wireless infrastructure vendor Airvana. "There's been an extraordinary increase in data traffic over the past year," he said.

That costs carriers money since they have to pay for additional bandwidth. Knisely explained that adding new dedicated T1 links is "one of the highest cost factors in operating a cellular network."

Femtocells allow carriers to piggyback their traffic over wired broadband their customers already bought, instead of having to pay for it themselves.

Moreover, rather than worrying about igniting another price war in an effort to retain customers, carriers can offer customers deals that don't cost them a penny while giving customers breaks that build long-term loyalty.

Knisely told me that Sprint is offering customers in some areas of the U.S. free calls using their cell phones from home for a small monthly charge and approximately $50 to cover the cost of the femtocell.

That means customers are in essence paying the carrier for the privilege of making better use of the broadband connection they're already paying for.

As Knisely put it, "if you get femtocell service in the home, that's one more hurdle to overcome if you decide to change carriers." It's also another reason for everyone in the family to use the same carrier.

So how come there probably isn't a femtocells in your home now?

As if often the case with new technologies, femtocells are bedeviled by competing standards like UMA, a competing technology backed by T-Mobile in the U.S. market.

But Verizon, Sprint and AT&T either have, or are in the process of vetting, femtocell technology--and T-Mobile outside the U.S. is promoting femtocells as well.

This is precisely why Knisely spends most of his time working with standards bodies to create specifications that he says should pave the way for more ubiquitous use of femtocells.