Small indoor basestations, known as femtocells and picocells, will be the driving force behind fixed mobile substitution, according to research from industry experts, Analysys.

The analyst group believes that femtocells will spur the migration of voice traffic from fixed to mobile networks, until 3G networks carry the majority of voice traffic.

Femtocells will also undermine the case for converged cellular-wifi services by enabling very similar tariffs without the need for dedicated handsets.

A good example here, is German carrier Deutsche Telekom, which quietly pulled the plug on its domestic fixed mobile convergence (FMC) service, T-One, earlier this month.

T-One fell victim to Deutsche Telekom’s own FMS (fixed mobile substitution) service, @Home, which has experienced explosive growth as German mobile users move to adopt home zone services.

Germany is something of an anomaly in this respect – the country has very good indoor cellular coverage. But Analysys notes that operators in other countries are beginning to see indoor base stations as a way of providing a less expensive alternative to traditional outdoor cellular infrastructure for providing in building coverage.

In the UK, O2 has been making encouraging noises about picocells and femtocells of late. Where many of its peers are opting to do Fixed Mobile Convergence (FMC) via wifi, using UMA or SIP-enable phones, O2 looks to be favouring small indoor GSM basestations to do the same job.

O2 was one of the 12 winners of Ofcom’s low power spectrum auction in 2006 and in October fellow license winner Private Mobile Networks/Teleware showed just what could be done with the spectrum.

Teleware launched a ‘private GSM network’ in a box, using SIM cards that allow business users on a private mobile network to move seamlessly between the private and public GSM networks without making any changes to their mobile phone.

“A number of technologies have been over-hyped in recent years, but femtocells have the potential to transform the telecoms industry,” said Alastair Brydon at Analysys.

“The trend towards fixed-mobile substitution is increasing in many countries, and 3G networks are at a relatively early stage in their development. In this context, 3G femtocells could not have arrived at a better time for the mobile industry,” he said.

Femtocells can be applied to a number of wireless technologies, including 2G, 3G, 3G LTE, WiMAX and WiBro, but 3G presents the greatest opportunity.

“The potential of femtocells is substantial for mobile operators, but critical implementation and performance issues need to be resolved before they can be deployed widely”, said Mark Heath, another analyst at Analysys. “These include interference, range, performance, network integration and management, handover, billing and security.”