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Hotel Broadband Revitalized; 
An Up, Down, Up Five-year History
by Amy Cravens, November 2003 

Hotel broadband, in its approximate, five-year history, has encountered a series of market setbacks. The excitement and proposed grandiose potential for hotel broadband that was imagined in the early days of the market, in 1999 and 2000, was soon overshadowed by the cloud of a failed business model. The hotel broadband market struggled in 2001 as providers catering to this space continued to file for bankruptcy and exit the market. The situation was worsened by the downturn in business travel that occurred post-September 11, 2001. The hospitality market continued to be challenged, in 2002, with low occupancy rates, partially the result of the persistent sluggish economy, then coupled with the effects of the war with Iraq and SARs.

Yet, despite all of the negative factors influencing the hospitality market, hotel broadband began to see a recovery beginning in Q3 2002. Beginning mid-year 2002 there began to be resurgence in interest in hotel broadband, resulting in the level of contracts for future deployments to escalate. The increased contract activity in mid 2002 resulted in the growth in actual deployments beginning in late 2002. The beginning of this trend in late 2002 has carried over into 2003, as the hotel broadband market regains a healthy path, despite the barriers that continue to be faced. There are a variety of factors leading to this recent activity, which include:
 

  • Competition: While it may appear counter-intuitive, the recent economic slump experienced by the hospitality market has actually driven the growth of hotel broadband. Hotels are becoming increasingly competitive to vie for their share of a shrunken pool of business travelers. While hotels may be cash strapped, they view broadband as an important service to be able to extend to guests and, thus, they see the investment in a hotel broadband network as a legitimate and necessary expense in order to remain competitive. 
  • Traveler demand: There are numerous ancillary stories of hotels winning and losing business based on the availability of broadband access. In more concrete terms, however, this trend is evident in increased usage rates, which have nearly doubled, in many instances, from 2002 rates. 
  • Business Model Evolution: Hotel broadband providers/integrators are supporting a wider base of business model alternatives for property owners. Models exist for no, or limited, initial cost to the hotel, as well as for hotels to have full equipment ownership. The growing desire of hotels for independently owning the equipment has allowed for a more sustainable model for the integrator/service provider and, thus, has given the market a greater degree of security. 
  • Market Interest in Hotspots: The hospitality broadband market is intimately tied to the rapidly expanding hotspot, or public access, market. Increasing traveler dependence on broadband is providing the fuel necessary to push broadband access into new arenas, with the most recent pilgrimage being into the "mobile access" hotspots markets (airports, cafes and hotels). Mobile access (or semi-mobile access, as this market is primarily focused on laptop access at specific locations as compared to the truly mobile cellular market) has, to date, principally been a business traveler service, whether it is in an airport or at a hotel. Because business travelers are the primary focus of both the hotspot and the hotel broadband market, there is considerable crossover between the two arenasóboth in terms of clients and providers. Providers can follow their potential client from the hotel to the conference center, to the café, and to the airport, leveraging the relationships and the marketing effort spent on each client capture. The recent media attention given to hotspots has had a spillover effect in promoting hotel broadband access. 
  • Expanded coverage and new applications: As access is brought to more locations throughout the hotel, the total building solution becomes more complex in the technologies and management tools employed. Although guest broadband usage remains the cornerstone of network deployment, there is increasing talk of how the networks can be leveraged to support additional applications, such as Video-on-Demand (VoD) and Voice-over-IP (VoIP). WLANs are allowing the hotel staff to streamline operations, such as guest check-in and preference tracking. Operational capabilities are becoming increasingly prominent in the overall benefits to the hotels. Guestroom DSL or Ethernet connections are also being augmented by WLAN in public locations and meeting rooms. 
  • Universe of players: The hotel broadband market is also benefiting from a new universe of providers that are supporting the growth and stability of the market. The increasing caliber, sophistication, and reliability of hotel broadband providers will lend increasingly legitimacy to the market. Not only are players, such as Wayport and STSN, which specifically focus on hotels/hotspots, developing a longer operating history and more recognition, but many traditional companies are also entering the market. Players, such as British Telecom, Cox, France Telecom, Hanaro, HP, NTT, Sprint, and Unisys, are active participants in the hotel broadband market. 
The sum of these drivers have resulted in hotels becoming increasingly aware of the importance that broadband offerings have to their propertyís success, and have altered their willingness to invest in these solutions in order to reap the benefits. While there is a growing consensus among all types of hotels about the benefits of broadband, how these benefits are defined varies from management group to management group and from property to property, with increased revenue and customer loyalty being among the top principle drivers. A hotelís perception of the benefits of broadband will largely determine the type of deployment and the fee structure associated with usage. According to an In-Stat/MDR survey, over half of the respondents indicated that the hotel owned the network equipment, illustrating a significant adoption of this new model. Hotel ownership of the equipment, and the broadband service, creates a more stable operating environment for the providers, as well as allowing the hotel more creativity for pricing structures.  Some hotels are even making the service free, as the Marriott chain has recently done. 

In-Stat/MDR has also found that the emerging new business models are capitalizing on the introduction of new services and applications. Simple service offerings, such as creating a printing network, which link guestrooms to a central printer, are emerging, as well as more complex offerings, such as Video-on-Demand (VoD). Networks are also being viewed as operational tools. For instance, branded portals act as a virtual concierge for in-room services, as well as a marketing device. Some hotels are even envisioning creating "smart guestrooms," where environmental controls and other in-room devices are linked to the network.

However, there are still challenges in the hotel broadband market. The principle challenge is still financial, with some properties hesitant to invest in technology. While more properties are investing in a basic guest broadband solution, there has been less activity in leveraging these networks to create a truly broadband-networked property for entertainment and operational purposes. Additionally, while usage levels are on the rise, improvements are still needed in marketing the service to guests and in educating both guests and staff about the offering.

Although challenges do continue to exist, the hotel broadband market, while continuing to evolve and address these challenges, is becoming a legitimate market, driven by sound fundamentals rather than the hype from which the market emerged in the late 1990ís. There continues to be glitches in some business models, which providers and property owner must address, as well as marketing obstacles that must be overcome. However, these issues are beginning to be addressed, which, given the numerous other dynamics that are driving this market forward, positions hotel broadband for solid growth in 2003 and ensuing years.

For more information on the hotel broadband market, please contact Amy Cravens at 480.609.4545; acravens@reedbusiness.com.

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Contact:
Amy Cravens
Senior Analyst
In-Stat/MDR
www.instat.com
480.609.4545


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