Public Wi-Fi No Threat to Hotel Revenues—Yet

The introduction of free Wi-Fi in many municipalities does not yet pose a threat to hotel revenues collected from Internet fees, sources said.

Several recent reports have claimed efforts to introduce city-wide Wi-Fi in the likes of Las Vegas, New York and Tel Aviv would undermine hotel networks, giving guests the ability to circumvent costly charges by tapping into a public platform. But even the most ambitious municipal efforts are unlikely to provide a reliable alternative to on-property networks, according to sources.

 “I don’t see that impacting us certainly now. We haven’t had that issue,” said Tom Klein, GM of the Fairmont San Francisco Hotel and regional VP for Fairmont Hotels & Resorts in California.

San Francisco recently reached an agreement with Google to provide free Wi-Fi in more than 30 parks and plazas throughout the city.

Even when those hot spots get up and running, they’re unlikely to penetrate the concrete shell of the 591-room hotel, Klein said, especially as guests move into the inner recesses of banquet and meeting space.

 “As soon as you get beyond one corridor in the hotel or one room, then the quality of the service is going to degenerate,” said Derek Wood, managing director at United Kingdom-based Derek Wood Associates Limited, a technology consultancy.

That’s why hoteliers flood properties with Wi-Fi access points to ensure consistent signal strength throughout the hotel, he added.

 “It depends upon the strength of the signal that is near a hotel and whether the signal can penetrate the construction material of the hotel,” said Don O’Neal, president of technology consultancy O’Neal Consultants.

 “It also depends upon the bandwidth that supports the Wi-Fi installation. It would be an extremely expensive proposition for a city to support the bandwidth that guests are demanding, so my guess is that a city will take the least expensive route to be able to publicize free Internet access,” he added.

Google has earmarked $600,000 in the San Francisco project.

There are cases in which a guest might access a free Wi-Fi signal instead of paying often costly Internet fees, however, O’Neal said.

 “If a city park (with free Wi-Fi) is nearby a hotel, the signal penetrates into the guestroom, and the bandwidth is acceptable to the guest, then, yes, there could be some reduction of revenue,” he said.

But such a confluence of circumstances is limited and unlikely to put a significant drain on Internet revenues, O’Neal said.

U.S. hotel revenue from telecommunications services such as Internet and telephone usage decreased from about $5 per occupied room in 2000 to less than $1 in 2009, though that number has since leveled off, according to PKF Hospitality Research.

Sources attributed those declines to a number of factors. In-room telephone usage has waned considerably during the past decade with the introduction of reliable cellular networks and smartphones. Meanwhile, many brands in recent years have moved away from charging for Internet, offering at least a base level of access for free.

Quality of experience

The availability of free Internet is not enough to shift consumer and guest behavior, sources said. Far more important is the quality of that service.

Free networks are often synonymous with slow networks, Wood explained.

 “If there happens to be a Starbucks right next to the hotel or opposite where they can pick up free Wi-Fi, a few people may do that. But to be honest most people these days realize the likes of Starbucks and other free Wi-Fi services—what you get for free is not a lot,” he said. “Anyone who’s gone into Starbucks knows more than three or four people who try to get online, the speed is absolutely atrocious, there’s no security and generally the experience is very bad.”

The same would be true in city parks and plazas, Wood added.

 “It doesn’t mean (those networks) couldn’t be (a threat) down the road as one advances technology,” Klein said.

Could it erode potential revenue streams in five, 10 or 20 years? “Certainly,” he said.

Wood took the opposite stance. “Public Wi-Fi hot spots do not present a problem, and I don’t think they ever will,” he said.

Far greater a hurdle for hoteliers is resolving the age old question: Should you charge for Internet access in the first place?

Guests have shown they will pay for more bandwidth, said Ted Horner, managing director of E Horner & Associates in Australia.

 “While there will continue to be pressure for free Wi-Fi in hotels, guests will pay for faster speeds for movie downloads, etc.,” he wrote in an email.

Many hoteliers are adopting a tiered access model.

 “With the latest technology, a lot of hoteliers have decided maybe they give surfing for free,” Wood said, “but as soon as you start streaming, you’re going to pay for it.”