Femtocells form part of the mobile operator's network, although they are located at home or in the business. This section explains the system architecture, operation and technical issues arising.

Most of the functionality of a complete 3G cellsite has been miniaturised onto a chip, which looks and operates like a WiFi access point, and is connected via broadband DSL back to the mobile operators network. A femtocell is installed at home and connected to mains power and a standard broadband IP connection (typically DSL) through to the mobile operator's core network. Voice calls, text messages and data services are provided by the same systems that are used when outdoors.

Femtocells operate at very low radiation power levels (50 milliwatts peak output during a call, much lower when idle), and typically have a range of 200 metres. The signals do not travel through walls particularly well, but this is a benefit because it allows the frequency to be reused for other calls in nearby buildings. Where users walk outside or out of range, calls are automatically handed over to the external mobile network. Any standard 3G phone can be used on the femtocell if permitted by the mobile operator. Unlike WiFi access points, 3G Femtocells operate using licenced spectrum and thus must be supplied and operated in conjunction with the mobile operator.

Whilst the overall system architecture is broadly the same, there are three competing technical implementations.:

- Modified 3G RAN which reuses existing RNC in the network

- SIP based

- UMA, which was originally designed to handle WiFi hotspots and integrate into the operators core network.

The battle is most likely to be between the modified 3G RAN (which some RAN Network vendors are keen to promote because it reuses their existing RNC products) versus UMA, which has new, custom designed systems architected to handle the much larger number of cells and IP connectivity. SIP based solutions may be of interest where the user wants to bypass the network operator completely, and is happy to operate in a different way to achieve this.