In what may prove to be a masterstroke, SoftBank has seemingly turned the femtocell business model on its head. The Tokyo-based mobile operator plans to provide these mini-base stations, which use a building’s fixed broadband connection for backhaul, for free. What’s more, SoftBank will also throw in a free ADSL broadband connection, according to SoftBank’s femtocell supplier Ubiquisys, whose investors include Google and T-Mobile Venture Fund.

That sounds like an expensive proposition for SoftBank, probably costing it around US$100 a year per customer, but there is a quid pro quo. Targeted at householders, retailers and other small businesses, the femtocells will be set to open access, enabling any SoftBank customer to use them to get a connection. In other words, the widespread deployment of these free femtocells would vastly improve SoftBank’s coverage in homes, offices and retail premises, while also reducing the traffic load on SoftBank’s conventional mobile network, potentially giving it a competitive edge.

For that reason, SoftBank could justify redirecting some of its capex budget away from deploying yet more conventional base stations, which will be increasingly hard to do in crowded Japan, to subsidising free femtocells and broadband connections. Without knowing how much it costs SoftBank to deploy a typical conventional base station, it is difficult to assess whether this trade-off makes sense financially. But SoftBank should at least get a discount from Ubiquisys for buying femtocells in bulk and seeding the market so aggressively.

The right strategic move

In any case, the provision of free broadband and free femtocells should strengthen SoftBank’s strategic position by enabling it to maintain a central role in the provision of communications services to its customers and reducing the opportunities for web players to use WiFi to disintermediate it.

Ubiquisys says there is strong initial demand for SoftBank’s femtocell offer, but the mobile operator still has to overcome a couple of potential obstacles. Firstly, there is the danger that clusters of femtocells, which are still a relatively new technology, will interfere with the smooth operation of the conventional mobile network (although Ubiquisys would likely dispute that). Secondly, many Japanese householders and businesses may soon be wanting a high-speed fibre broadband connection, rather than slower ADSL. Presumably, SoftBank can’t afford to subsidise the price of an expensive fibre connection down to nothing. If customers have to pay for the broadband connection, they won’t necessarily be prepared to tolerate an open access setting on their femtocell.

Even so, SoftBank’s bold move looks like the right one in the densely-populated, heavily-urbanised and increasingly-competitive Japanese telecoms market. Whether mobile operators elsewhere will follow its lead, is less certain.

 

David Pringle

This article was first published on the GSMA’s Mobile World Live portal. David moderates discussion forums on the site and is a freelance media and investor relations consultant.

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members