Ericsson Stalls on 3G Femtos

Despite the hype surrounding femtocells, Ericsson AB (Nasdaq: ERIC), the world's dominant WCDMA vendor, says the 3G home base station market is not mature enough for it to introduce a 3G femtocell.

Ericsson has already developed a GSM femtocell as part of a home gateway that includes a WiFi access point, a home router, and a DSL modem. The vendor says this product is ready for deployment, although no operator has launched the service yet.

But as for the 3G flavor of femtos, Ericsson is prepared to follow the market, rather than lead.

"We plan to release a 3G femto when we believe the market is ready, which for the moment is believed to happen in 2009," says Ulf Ewaldsson, vice president and head of Product Area Radio at Ericsson.

Analysts say Ericsson's decision is due to the fact that the high-volume, low-cost nature of the small home base stations threatens the vendor's core macro cellular infrastructure business.

"Femtocells serve to further commoditize the cellular base station market," says Heavy Reading senior analyst Patrick Donegan. "Hence Ericsson welcomes the femtocell about as much as IBM welcomed the PC."

Ericsson is presumably not keen on spurring the commoditization of its business, especially considering the financially disastrous second half of the year it is having. The vendor issued a shocking profit warning in the third quarter, which resulted in the swift departure of its CFO, and it has also predicted a weak fourth quarter, with margin pressure weighing on the infrastructure business. (See Profit Warning Slams Ericsson , Ericsson Warns on Q3, Ericsson CFO Steps Down, , Ericsson Predicts Weak Q4, and Ericsson Hangover.)

In the Unstrung Insider report, "3G Home Base Stations: Femto Cells & FMC for the Masses," chief analyst Gabriel Brown wrote: "One reason why Ericsson, like other large vendors, may have been cautious about this market is that even optimistic sales projections would barely make a meaningful contribution to the firm's revenues."

Brown adds that Ericsson's 3G product timeline might sincerely reflect its research and development plans as well as concerns about certain unresolved technical issues.

"It's likely Ericsson doesn’t see the market developing until 2009 and the schedule simply reflects prudent R&D investment," says Brown. "The vendor has also long argued that the potential problems of femtocell interference with the macro network have been underestimated by competitors."

Ericsson isn't the only vendor going cautiously here. Nokia Siemens Networks is staying clear of producing its own femtocells.

NSN's home access offering is a network gateway with open interfaces so that femtocells or other customer premises equipment can be certified to interface with it. Airvana Inc. (Nasdaq: AIRV) is NSN's first femtopartner. (See Femto Players Gun for Gateways, NSN Intros 3G Femtocell, NSN, Airvana Team, and Thomson, NSN Team.)

— Michelle Donegan, European Editor, Unstrung