LONDON — This year was always going to be a crucial one for the concept of the femtocell – the idea that coverage and data rates could be improved by small 3G or WiMax basestations optimized for deployment inside buildings. So it was no surprise that several of the home gateway and femtocell technology providers attended last week’s Mobile Word Congress in Barcelona, Spain, to demonstrate what can be achieved.

The line-up at the show was impressive, with models and prototypes from startups such as ip.access and Ubiquisys Ltd., from networking and infrastructure stalwarts such as Motorola, NEC Corp., Alcatel-Lucent, Nokia Siemens Networks and Huawei. Also present were the groups that will decide the fate of femtocells - the operators.

U.K. operator O2 confirmed it had chosen technology from NEC and Ubiquisys for trials starting this month, with an eye on major expansion to 500 users by the summer and, if things go well, a full commercial service roll out late in 2009.

Vodafone said that, following a review, it had chosen gear from Alcatel-Lucent and Chinese vendor Huawei for a femtocell trial in Spain, where Telefonica, 02’s parent, is using equipment from the same two providers for trials.

"Femtocells have the potential to enhance customers’ 3G broadband experience, and the trials are critical to investigate whether the technology can deliver on its promises," noted Andy MacLeod, global networks director at Vodafone.

In the U.K. trial, 02 is focusing on what services can be delivered and how they are best provisioned.

NEC is integrating Ubiquisys’ ZoneGate femtocell into its solution, which, according to Anil Kohli, director for femtocell competence at NEC Europe, "includes all the access point management and provisioning needed for a ‘zero touch ‘approach."

As the technology progresses the industry is becoming concerned about both the business model and the need to make setting up femtocell networks in the home as simple as possible. There is a realization that unless this set up can be done by consumers in a manner similar to wireless and DSL hubs, operators’ costs could be impacted and femtocells could become a marginal business.

Theoretically, by deploying femtocells, 3G coverage and capacity can be expanded while minimizing the deployment and engineering cost of expensive macro network basestations. But a business case based on cost savings alone may not succeed. In addition to demanding easy set-up and integration, the mobile phone service operators need to find lucrative applications to make femtocells compelling for themselves, and for their customers.

Chris Gilbert, CEO of femtocell pioneer Ubiquisys, the U.K. group in which Google recently took an unspecified stake, offered reassurance. "Our femtocell is so simple to use that anyone can plug it in, it will automatically configure itself and work."

However, the rather defensive tones from the operators are also echoed by some analysts. "While femtocells are emotionally appealing to mobile operators, creating viable business models is challenging if they add no more value than just improved coverage or lower phone call costs at home," said Dean Bubley, founder of Disruptive Analysis. "Adding innovative ‘at home’ features should broaden opportunity significantly – though this requires much better integration with application-layer intelligence in the network," he added.

Further down the food chain, many chip suppliers seem to be hedging their bets. Companies such as Texas Instruments, Xilinx, Broadcom, Qualcomm, Analog Devices and STMicroelectronics seem to be setting the opportunity aside, at least for now, and leaving it to smaller companies and startups to act as pathfinders and pioneers. Most notable is picoChip Ltd. (Bath, England), which has a clear lead and many design wins in the nascent market.