Low cost femtocells and picocells could emerge as an attractive alternative to voice over IP over wifi (Vowifi), according to analysts.

Strategy Analytics has released a report, “Femtocells Enabled by PicoChip to Square Off Against VoFi,” which predicts that femtocells will give wifi-enabled internet telephony setups a run for their money.

Chip manufacturers like PicoChip have developed inexpensive baseband processors for very low cost femtocell base stations that can be installed in the home or office. Strategy Analytics believes that these femtocells have the potential to reduce the demand for cellphones that include wifi capabilities, which many industry watchers expect to emerge in high volumes over the next several years to support the convergence of fixed and mobile communications.

Chris Taylor, director of the RF & Wireless Component service at Strategy Analytics said, “We believe that femtocells will attract wireless operators and consumers alike. However, the bill of materials for femtocells will have to fall close to that of cellphones that include wifi chipsets for femtocells to really take off”.

UK mobileco O2 is one operator that has been heard 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 back in April 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.

Using just one SIM in a standard GSM device, the phone automatically searches for the preferred private network and allows the caller to dodge operator call charges when on campus. When out of range of the private network, the SIM switches to the selected operator network.

O2’s offering, which is expected to be launched next year, is likely to be very similar. But some reports suggest the company could be planning to use its partnership with broadband provider Be to launch a service that puts the private GSM network box on the end of a broadband pipe.

Dean Bubley, analyst at Disruptive Analysis had previously said that the system makes a lot of sense at first sight. “Basically, it should enable enterprises to act ‘as their own MVNO’, providing employees with pseudo-private GSM networks for use while on-campus, hooked up to their landline private/VPN networks to make free on net calls between sites,” he said.