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  Hotel Internet Service: 
Where To Start
by Eric S. Pateman, Consultant and Valuation Analyst - HVS, October 2000

Business travelers are becoming more demanding of the business services required when staying at a hotel, and Internet access is no exception.  Time-consuming dial-up connections inhibit the productivity of guests when preparing for meetings, downloading information, or sending emails to clients, colleagues, family and friends.  A business traveller relies on being in touch with their office and contacts at all times; while on the road they carry all the latest in portable communications technology from cell phones, pagers and laptops, to hand-held organizers with wireless internet access.  The increased pressures being placed on corporate employees demand technology such as high-speed Internet to be available for them at their hotels.  Hoteliers are seeing this demand as an opportunity to provide a service that will attract and retain customers, in addition to providing a means to increase hotel revenues.

Is It Really Necessary?

A recent study conducted by Cahners In-Stat Group found that 73% of the 300 hospitality companies interviewed are considering installing high-speed Internet access to their guestrooms and 48% of the same companies surveyed, plan to have the broadband service in place within the next twelve months.  This means that 52% of hoteliers may have not even thought about high-speed Internet and could be overwhelmed by the selection of companies claiming to offer the best deal.  It comes as no surprise that Internet service providers (ISPs) are eager to make alliances with independent hotels and national chains.   Therefore it is imperative that hoteliers know what to look for in an ISP and are aware of how they can help to improve guest satisfaction as well as the company�s bottom line.  

According to an article by Dan Phillips of Integrated Telemanagement Solutions, 76% of all business travelers carry laptop computers.  With more than three quarters of business travelers expecting to be able to check  their email or access corporate data from their rooms, high-speed internet is one of the fastest growing amenities in hotels.

What to Look For

Before approaching an ISP, a hotel must determine whether the property meets some basic requirements for high-speed Internet to be financially viable. According to Garry Rabin, Chief Strategy Officer of CAIS Internet Inc. (Washington, DC), as a minimum a property should have 75 rooms and a client base of at least 50% commercial travelers. 

In terms of services provided, an ISP�s package can include items such as an Ethernet based �plug & play� system for guest rooms, wireless systems for an entire property, meeting and conference room Internet capabilities that could be wired or wireless, as well as a virtual private network (VPN) for back office and inter-company use.  The type of system should suit the needs of the clients, the style of hotel and the amount of capital available.   The fast pace of technological advances makes it difficult to select a custom-designed package that will not need to be upgraded within the next few years.  

Therefore an ISP must be able to upgrade your system quickly and efficiently, in order to take advantage of future advances in technology.  

Properties such as �W Suites� in Newark (on the fringe of Silicon Valley) are on the cutting edge of technology with wireless Internet and printing capabilities, which allow a guest to surf the web, send email or print from wherever they are in the hotel.  �Guests can even work beside the pool if they so choose�, says Joel Costa, the director of marketing and sales for W Suites. 

The choice of ISPs depends on whether the hotel wants to incur a capital expenditure and have the freedom to change and upgrade the system as it sees fit, or let a �no fee� ISP come in and offer the property the safety and simplicity for a guaranteed percentage of revenues.  Both types of programs should offer marketing support and staff training, as well as the opportunity to upgrade the system when technology changes. Another consideration when selecting an ISP is the length of time you may have to wait for installation.  Many of the �no fee� providers have installation wait times between 60 and 120 days.  

Is It Worth It?

In terms of financial viability a hotel can expect to receive a profit share from a �no fee� provider of approximately 20% - 25% of revenue generated.  Where $9.95 is the typical rate for a 24-hour period, the hotel would generate $2.00 profit from the revenue.  In a 300-room property with 70% occupancy and a 5% penetration of use, the hotel could expect to add approximately $8,000 to the bottom line each year with no capital outlay.  In addition, revenue can also be generated from meeting room Internet use which is typically $100 - $150 per connection.  If marketed correctly, conference room business could exceed the revenue generated in the guestroom connections.   

Most ISP�s provide the equipment, training and operational support 24 hours a day, seven days a week.   The competitive nature of the business is forcing ISPs to make sure they offer a total package to hoteliers.  Some ISPs such as Lodgenet and On Command also offer entertainment packages with TV and video services in addition to the high-speed Internet service.

Hotels that want to achieve higher profit levels, the flexibility to raise and lower prices, and the option to upgrade technology quickly should look at the option of purchasing the equipment, according to Bob Messamore, the sales manager for North America of Guest Vision (nStream Technologies Inc.).  In this case hotels have the initial outlay of approximately $350 per room, however this cost can be offset by three new income streams.  Pay per-view movies (which is part of Guest Vision�s system), high-speed Internet access fees, and the ability to control and sell all advertising on in-house services.  According to Messamore, the advertising income stream is one that most hotels overlook.  Some properties are also considering rental provision of laptops, which offers a fourth possible revenue stream.  A typical hotel can amortize their equipment expenditure over a 5-year period in the same way as the large ISPs.  

Hotel properties that cater to business clientele and want to be competitive in the corporate world with high-speed internet in rooms and meeting spaces need to research Internet service providers.  Points to be considered include client needs, the type of system such as wired or wireless, the property�s access to capital, and the time frame that service is required in.  With more than half of all hotel rooms expected to have Internet access by 2002, wide-scale use of high-speed Internet is inevitable.  Hotels that wait too long will get passed on the information highway.    



Eric S. Pateman, AHCIMA � is a Consultant and Valuation Analyst with HVS International�s Vancouver, Canada office.  Eric is a graduate of  the Dubrulle International Culinary & Hotel Institute of Canada.  In addition, Eric is also currently taking his MBA from Oxford Brookes University in England.  Eric has been with HVS for approximately 6 months after spending the last two years consulting for a hotel in England.  Since joining HVS, Eric has worked in major markets such as Portland, Chicago, Calgary, Toronto, Edmonton and Lake Tahoe.  Reach Eric at [email protected]
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Contact:
HVS International 
4235 Prospect Road
North Vancouver, BC V7N 3L6
(604) 988-9743, ext. 23
(604) 988-4625 FAX
http://www.hvsinternational.com

Also See Fast Wireless Internet Takes Off /  Wayport / June 2000


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