The ‘inside-out approach’ involves mostly-fixed or cable operators building vast national public heterogeneous networks (HetNets) by crowd-sourcing Wi-Fi access points and licensed small cells (mainly consumer-grade femtocells sitting in home routers and enterprise picocells) from fixed broadband subscribers. All cells and access points operate in open-access mode – an extension of the Fon principle into the HetNet – and additional capacity for areas with no coverage (outfill) is provided on a wholesale basis by a mobile operator.
Analysys Mason’s new strategy report, Inside-out wireless networks for fixed operators: the technical and commercial challenges of HetNets, analyses in depth the business case for inside-out transformation. It is essential reading for any operator – fixed, cable or mobile – looking at the roadmap to HetNets, and for vendors assessing the market for small cells.
Figure 1: The basic inside-out wireless network [Source: Analysys Mason, 2014]
Inside-out gives fixed operators a way to transform their voice services, but there are many challenges
The approach offers real cost savings over classic MVNO models, and as such we believe it could be successful, profitable, and disruptive to legacy mobile operators. After all, in the inside-out model small-cell backhaul generates revenue, not cost. It also offers an attractive way for fixed operators to transform and rejuvenate their voice services and to escape the deflationary spirals associated with fixed voice-over-broadband (VoBB) and with MSANs, both of which leave the end user with the dismal home phone.
However, there are many challenges and critical dependencies associated with the inside-out approach.
- It depends on a high level of currently mobile voice and data traffic being in addressable locations (mainly indoors). This is true for voice, but in some countries, notably in Europe, most at-home data traffic from mobile devices is already on Wi-Fi. It also depends on mobile voice being overpriced. Again, this is true, at least in relation to the production costs, but mobile voice revenue is tumbling and under sustained pressure from over-the-top (OTT) providers and services.
- Real technical issues need addressing, mainly arising from the unplanned growth of plug-and-play small cells. Self-organising networking (SON) offers solutions, but it is still an immature technology. Femtocells need licensed spectrum, but only a few fixed or cable operators already have suitable spectrum. When the ecosystem matures, it is likely that the 3.5GHz band will prove a suitable vehicle for inside-out operators.
- There are alternative – and lower-cost – fixed–mobile convergence (FMC) approaches for voice, including simple voice-over-Wi-Fi (VoWi-Fi) apps without cellular handover, and VoWi-Fi-enabled handsets that support handover. Femtocells offer a number of genuine advantages, but fixed and cable operators need to achieve scale to reduce consumer-grade femtocell module costs.
- The commercial challenges for fixed and cable operators are mainly around distribution, the balance between wholesale costs and retail pricing, and achieving scale. Operators like BT and Liberty Global, though large, currently have little scale in device distribution. They could outsource, go web-only or simply offer SIM-only deals, but this may limit their market share. Inside-out operators need something akin to national roaming agreements or even a flexible mobile IP bitstream model rather than the crude but familiar MVNO structures. They will need a host network that will privilege the immediate wholesale revenue over the long-term potential for disruption.
- Inside-out mobile will cannibalise legacy fixed voice, and while operators should be bold with pricing, they are constrained by the accelerated loss of a moribund service.
The approach is potentially less expensive than fixed operators buying directly into mobile
Inside-out is the converse of a current trend for mobile operators (not only in Europe) to buy into fixed broadband access. Being a mainstream mostly-mobile operator, particularly in Europe, is not an enviable position given current and forecast revenue trends and the growth of quadruple-play offers. Buying directly into mobile is sometimes an option for fixed and cable operators (for example, Altice buying SFR or the merger of Optimus into ZON), but the targets are usually financially distressed operators at the bottom of the market. Inside-out is potentially less expensive, and contrasts even more with the moves by hitherto mobile operators such as Vodafone into fixed, either through top-of-the-market acquisitions or through capital-intensive build-out of FTTH.
Inside-out is, in the final analysis, just one way towards a converged world based on millions of small cells and where the role of the traditional tower-based macrocell is more marginal. Fixed and cable operators have a real current cost advantage over mobile operators working ‘outside-in’, but massive mesh networking in 5G may come to challenge the view that it is always best to get mobile data onto a fixed fibre link as quickly as possible.
Source: Analysys Mason
