A Radical Approach to Femtocell Pricing

Femto Hub Blog (May 3 2010)

1. 

   By Josh Adelson

   How much should a femtocell cost?  That question has been the source of some controversy lately.  Within the industry, some vendors and operators have been advocating free femtocells.  Meanwhile most commercially-available femtocells do carry a price tag of some sort.  Within the consumer and popular press there are negative and sometimes visceral reactions to femtocell prices.  Even the statesman-like New York Times ran the headline Bringing You a Signal You’re Already Paying For in their coverage of AT&T’s recent MicroCell launch.  This has been a consistent reaction to other launches as well, although we have seen a pattern of it tempering when the femtocell service becomes available and the focus shifts to functionality.  The Times’ follow-up article discussing the AT&T MicroCell is much more complimentary.

   Amid all the different reactions, it’s useful to step back and recall a few underlying facts.

   Fact 1: Femtocells and associated network elements do cost money to develop, manufacture and distribute.

   Fact 2: Vendors generally have equal access to silicon and other components, so there is no dramatic cost advantage that one can have over another.

   Fact 3: As volumes go up, costs will come down.  We are still in the very early days of femtocell adoption.

   Fact 4: The retail cost of femtocells is already very low, relative to the costs of associated services.  For example, even using AT&T’s top price of $150, many consumers with data and family plans are likely to be paying $150 per month for their mobile service.  Over a period of two years, the price of the femtocell will be just 4% of the entire wireless bill.  The same disparity plays out at the industry-wide level.  A recent forecast by Infonetics Research predicts that femtocells and associated network gear will have combined revenue of $3.5 billion by 2014.  It sounds like a big number until you compare it to service revenues.  Informa predicts that mobile data service revenues alone will hit $330 billion by 2013, nearly 100 times as large as the femtocell market.

   A Radical Approach: Let the Market Decide

   Taken together, these facts suggest that there is a lot of scope for femtocell pricing to move one way or another, or to be bundled into other service costs. Consumers may come to love femtocells and be happy to pay that extra 4% to get the benefits.  Or, operators may come to see the femtocell as a small price to pay for customer retention, data offload and the opportunity to introduce new services.  Since femtocells are a new product category, it’s understandable that the market has not yet arrived at an optimal pricing model.  But as operators deploy more and more femtocells, and as they test different pricing models, their customers will quickly vote with their wallets and the optimal pricing models will prevail.

   Bookmark or Share this article

Login to comment.