Companies in Bellevue and Redmond are working on ways to improve cellphone service indoors, which would in turn increase carrier revenues...

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It’s all too familiar: You enter a house, a concrete parking garage or an elevator and the cellphone call drops.

Even worse is the dead zone that’s a permanent fixture on your living-room couch or is like a cloud hovering over your entire house.

Two technologies under development aim to solve this problem using different approaches. One is already available, while the other is expected later this year.

Redmond-based RadioFrame Networks has been at the forefront of this development, working since 1999 on building a miniature cell site that plugs into a consumer’s home broadband network to create a strong signal within a home.

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The other approach comes from Bellevue-based T-Mobile USA, the fourth-largest wireless carrier in the United States, which is working on a system that lets subscribers’ calls roam from a cellular network to a Wi-Fi hotspot when indoors. T-Mobile has been testing HotSpot@home since October. The trial is expected to roll out more broadly soon.

Despite the spotty coverage, 30 percent of all cellphone calls and 70 percent of data usage take place indoors, said Stuart Carlaw, and analyst with London-based ABI Research.

RadioFrame Networks

Develops small cell sites to be used indoors to increase wireless coverage.

Headquarters: Redmond

Employees: About 170

Executives: Robert Mechaley, founder; Jeff Brown, CEO and president; Rick Applegate, senior vice president of sales and marketing.

Products: Femtocells, used in the home; picocells, used in an office; microcells and macrocells, used in large outdoor areas.

Investors: Has raised about $80 million from COM Investments (an investment arm of Craig McCaw), Ericsson Venture Partners, Ignition Partners, Innovacom (formerly Orange Ventures), Nextel Communications, Nicolas Kauser (Clearwire chief technology officer), Samsung Ventures America, VantagePoint Venture Partners.

Source: RadioFrame

As U.S. wireless carriers make significant progress in providing densely populated areas with coverage, the next frontier is providing better service indoors, where many consumers still rely on wired phones.

Carriers see providing superior coverage as a way to increase revenues, cut expenses and retain customers. Their motivations are numerous:

• Left unimproved, indoor coverage will only get worse as carriers move ahead with high-speed Internet access, mobile TV and wireless broadband access called WiMax. These services tend to run on different frequencies that generally don’t penetrate walls well.

• Carriers will likely be able to charge more for better quality. They’re still discussing the appropriate business model, but subscribers will likely pay about $10 a month more for unlimited calling in the home for the improved coverage.

In addition, the carrier would save money because the traffic in the home will be running over the consumer’s own broadband connection rather than the carrier’s.

• If subscribers get better indoor service, they are less likely to switch carriers and more likely to eliminate their landlines, making them more dependent on their cellphones.

For now, carriers are only in the early phases of evaluating this technology, called femtocells in RadioFrame’s case and Unlicensed Mobile Access (UMA), in T-Mobile’s. Consumers in the U.S. or Europe could start seeing either one as early as the end of the year.

RadioFrame Networks was founded in 1999 by Rob Mechaley, who experienced firsthand the problem of indoor coverage as senior vice president and chief scientist of McCaw Cellular Communications, which later became AT&T Wireless and was purchased by Cingular Wireless.

For more than eight years, the company has been refining its approach, building other products to make money and waiting for the time to be ripe for femtocells.

Microcell revenue

During that time it sustained itself by selling microcells, which despite the name are sites the size of a refrigerator (but are smaller than most regular cell sites). RadioFrame sells microcells primarily to Nextel Communications, which Sprint bought in 2005.

Nextel’s wireless network is based on a lesser-used technology called iDEN. Looking to fill a niche in the cellphone-equipment business, RadioFrame identified one for cell sites smaller than average and therefore better for urban environments where space can be an issue.

In 2006, that business accounted for most of the company’s $80 million in revenue.

But since Sprint acquired Nextel, it has slowly been migrating the latter’s customers onto the Sprint network. In anticipation of a slowdown, RadioFrame last week laid off about 50 employees working on the Nextel business.

“We’d always planned on that side of the business, maybe not certainly going away, but reducing,” said Rick Applegate, senior vice president of sales and marketing.

That puts more pressure on the femtocell business, but the timing seems to be right. Today, more homes have broadband Internet access, and carriers are looking for new sources of revenue as the number of subscribers reaches a saturation point.

“Two years ago, we had to generate interest from the carriers. We don’t have to do that anymore,” said RadioFrame President Jeff Brown, who is also its chief executive. “For operators this is a big deal — to add $10 or $15 a month [per customer] in revenue.”

For RadioFrame, the femtocell represents millions of dollars of investment and 15 months of development work on its own chip, which could have been purchased from others.

“We looked at the alternatives and felt that this gave us the most flexibility in our future,” Applegate said.

Brown and Applegate agree that success will come only if the company can get the price of a femtocell to $150 or less — making it affordable to a consumer. By creating its own silicon, the company thought it would also have the flexibility to adapt it to whatever technology comes down the pike.

For now, it’s focused on femtocells for a carrier’s second- and third-generation cellphone networks.

It’s also developing the technology to be adaptable to WiMax, the emerging broadband network sometimes called 4G, for fourth generation.

“We felt that it was important for us to do development on our own. We aren’t in this to build one product, we’ll build 2G, 3G and 4G,” Applegate said.

RadioFrame has close business ties with the two carriers rolling out WiMax in the U.S. — Sprint Nextel and Kirkland-based Clearwire, founded by Craig McCaw.

To help sell the product, RadioFrame is partnering with Nokia, the world’s largest handset maker. It also expects to announce a reseller agreement with Nortel soon.

By 2008, it expects most of its revenue to come from femtocells rather than Sprint’s Nextel network, Applegate said.

Still, there’s steep competition. RadioFrame devices are built for the standard of GSM, used in the U.S. by AT&T and T-Mobile. Ericsson and others also are building products for that standard, whereas Samsung is building a similar device called a Ubicell for CDMA, the standard Sprint Nextel and Verizon Wireless use.

Interested investors

Carlaw, the London-based ABI analyst, said a number of companies are developing femtocells as interest increases. He said for now the carriers investing in the devices include Vodafone in Europe, Sprint Nextel in the U.S. and Softbank in Asia.

He said the challenge will be making a device capable of handling more than one network and keeping the cost down. RadioFrame in particular may have a jump on that because it chose to make its own silicon, he added.

The RadioFrame technology and what T-Mobile has picked to use also have downsides.

When T-Mobile first launched its trial of UMA in Seattle in October, customers had to buy a new cellphone and sign up for a new rate plan.

There were only two phones to pick from; both were $50 after rebates with a two-year contract. The service costs an additional $20 a month on top of a $40 monthly plan.

To use it, customers also had to buy a wireless router from T-Mobile and connect it to either a DSL or cable broadband connection at home. The router was free after a rebate.

Also, making phone calls transported over a Wi-Fi connection can drain the phone’s battery faster than usual.

With femtocells, adding more cell sites to a network could present obstacles because of potential interference. But questions mostly center more on the business model.

Michael Thelander, chief executive of Signals Research Group, a consultancy in Oakland, Calif., said that still has to be worked out. If a friend visits your house, does he or she get to use your femtocell? If not, how about if they call 911?

“From a technology perspective, there’s a huge need for indoor solutions. and femtocells is an attractive means to solve it, but the business case is unknown,” he said.

Carlaw posed another issue: A femtocell could be used by anyone, even someone walking by, in which case the owner of the home broadband network would bear the cost. Whatever the case, Carlaw thinks whether femtocells or UMA prevails rests with the carrier.

“From the consumer’s perspective, they want to plug it in and it works. They don’t know if they want to buy a femtocell or voiceover Wi-Fi [UMA],” Carlaw said. “It will be the carrier that decides how they will do it.”

Tricia Duryee: 206-464-3283 or

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