Indoor base stations will bring about fundamental changes in the cellular industry and drive fixed-mobile substitution, according to research firm Analysys. 

Among the many technologies hyped as the 'next big thing', the concept of indoor base stations, often referred to as 'femtocells', has emerged rapidly and created extensive speculation about its potentially wide-reaching consequences.

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

"A number of technologies have been over-hyped in recent years, but femtocells have the potential to transform the telecoms industry," said Dr Alastair Brydon, co-author of the Analysys report.

"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."

The report draws on interviews from a range of indoor base station experts and vendors in Europe and the US.

Analysys describes how indoor base stations may be used across different wireless technologies, as well as identifying the issues that need to be resolved to enable widespread deployment.

According to the report, indoor base stations can be applied to a number of wireless technologies, including 2G, 3G, 3G LTE, WiMAX and WiBro. But it is the 3G femtocells that present the greatest opportunity.

Indoor base stations can provide a less expensive alternative to traditional outdoor cellular infrastructures for providing in-building coverage.

Analysys reckons that femtocells will accelerate the migration of voice traffic from fixed to mobile networks, until 3G networks carry the majority of voice traffic.

"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," according to Dr Mark Heath, co-author of the report.

"These include interference, range, performance, network integration and management, handover, billing and security."