Vodafone Leads European Femtocell

Vodafone (VOD - Analyst Report), the largest revenue-generating international wireless carrier, recently announced its plan to offer femtocell service in the U.K. as early as on July 1, 2009.

This will make the London-based telecom operator the first carrier in Europe to commercially launch a femtocell product, leapfrogging its main rival Telefonica (TEF - Analyst Report) which is presently conducting trial runs through its subsidiary O2 Europe.

Femtocell is a mini cell tower which connects to the service provider's network using broadband, and is aimed at improving indoor 3G coverage while reducing monthly communication expenditures. Essentially, 2009 will be marked as the year of femtocell, as leading telecom carriers across the world are aggressively bidding to enter this emerging market.

So far, availability of a femtocell product has been restricted to the U.S. with Sprint Nextel (S - Analyst Report) and Verizon (VZ - Analyst Report) have already launched their respective femtocell products. Moreover, AT&T (T - Analyst Report) is gearing up for the nationwide commercial launch of the first 3G femtocell product, tentatively by the end of 2009.

Vodafone's femtocell product, christened the "Vodafone Access Gateway," will be built by Alcatel Lucent (ALU - Analyst Report) and will support all 3G capable handsets. Additionally, it is designed to boost indoor call reception, supporting up to four voice calls at a time.

Driven by these capabilities, the femtocell product is expected to foster greater use of Vodafone services in the home setting through extended mobile usage. Moreover, this may also provide significant opportunity to reduce churn (customer switch to competitors) levels by means of improved service coverage.

However, the pricing structure of the femtocell product is bit complicated (without any clear product specific tariffs), which may serve as a limiting factor for its commercial uptake. That said, we maintain our Buy recommendation for Vodafone.