Thursday, December 27, 2007

Home (Zone 2.0) for the holidays

The home is the most competitive location for providing telecommunications services today. Fixed, cable, mobile and VoIP providers all work aggressively to provide a full range of personal communication services (voice, instant messaging, email, social networking) to consumers, with a primary goal of winning additional mind (and wallet)-share from consumers when at home. Many within the industry have termed this fierce competition as the “battle for the building.”

For mobile operators, one of the most successful weapons in the battle for the building is the deployment of Home Zone services. A Home Zone service is based on a mobile operator defining a service area around a subscriber’s home where the operator can aggressively price service.

For example, when a subscriber is within his or her Home Zone (i.e., the subscriber is being served by the cell tower nearest to home), mobile calls are charged at land-line rates. Introduced in a number of Western European countries, these first-generation Home Zone services have proved popular with consumers.

Unfortunately, as these services are based on using the macro radio access network (RAN), they also present a number of significant challenges for mobile operators.

Revenue Leakage: As a subscriber’s “Home Zone” is based on the cell tower(s) that services their home, in many situations a subscriber could be served by the same tower throughout their day, whether at home, work or in transit.

Shrinking Margins: As the Home Zone service uses the macro RAN, an operator’s cost of service delivery remains the same. As a result, operators are directly sacrificing service margins.

Poor Performance: Unfortunately, the home is often ill-served from the macro RAN, as it is plagued by poor indoor coverage, particularly with high-speed 3G technologies.

To address these cost and performance challenges, mobile operators are beginning to launch the next generation of Home Zone services, known as “Home Zone 2.0” (HZ2.0). HZ2.0 services are defined by two primary characteristics.

First, they use a low-power femtocell or Wi-Fi access point deployed within a subscriber’s home to address revenue leakage and poor performance. The low-power access points overcome wireless service coverage issues. Moreover, micro radios improve the performance of the handset in the home because the radio resource is closer to the device. The signal is stronger and as a result, data rates are typically higher. Finally, offloading voice and data traffic to the micro radio access point frees up valuable macro network spectrum for outdoor mobile service delivery.

With a relatively small coverage radius (typically within the home), low-power access points constrain the home ‘zone’ and address the revenue leakage issue of alternative approaches. This improved Home Zone resolution helps operators keep the benefits of the HZ2.0 service confined to the home, where competition is most intense.

Second, HZ2.0 services use a subscriber’s existing home broadband access connection for backhauling mobile services. Broadband penetration in developed markets ranges from 35-60% of households. For mobile operators, broadband represents an ultra-low cost transport network that improves the margins for voice and data service delivery.

Also, a wired broadband network provides fast, reliable IP transport for new revenue-generating mobile data services. When delivered through high-speed 3G femtocells or Wi-Fi connections, subscribers get a true broadband mobile data experience.

Home Zone 2.0 is not just a concept; operators have begun to deploy services today. ABI Research recently published a report projecting the number of HZ2.0 (femtocell and dual-mode handset (DMH)-based) subscribers to reach more than 250 million worldwide by 2012.

Orange’s multi-national Unik/Unique HZ2.0 service offer, based on DMH and Wi-Fi, is among the most successful worldwide. Deployed for more than a year in France Orange’s Unik service has delivered a 10% increase in ARPU, and 15% of subscribers who take the service are new to Orange mobile.

In more recent months, the US has seen the industry’s first femtocell-based HZ2.0 offer. Sprint’s Airave service is currently in limited production, available in just two cities, but offers a promising glimpse at a femtocell service offer. The femtocell is available for a one-time fee of $49.95. For an additional $15/month, subscribers receive unlimited calling when in their Home Zone. This offer compares very favorably with competitive unlimited calling packages. Vonage, for example, offers unlimited in-home calling for $25/month.

Mobile operators have begun to realize the strategic imperative of HZ2.0. The home is an extremely competitive telecom location and represents an enormous growth opportunity. However, the existing macro radio network does not meet the cost or performance requirements to win the ‘battle for the building’.

Micro radio networks (femtocells and Wi-Fi) offer advantages for mobile operators to address indoor mobile radio performance. By leveraging broadband and IP as a backhaul network technology, operators can dramatically lower the cost of delivering services.

HZ2.0 services relying on broadband access and low power access points (femtocells and Wi-Fi) are being deployed by operators today. UMA is the technology that powers HZ2.0.

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