WiFi - Free or Pay?
By Graeme Powell, Founder at Veridicum
Most articles on this subject prompt a veritable tsunami of comments from social-media-literate, business travelers, who find it inconceivable that any hotel could ever be justified in charging for Internet access. Do they have a point?
The Guest's Perspective
The need to remain connected has become almost ubiquitous and it isn't just a business requirement. Leisure hotels now show the largest year on year growth in WiFi usage. Hotels.com recently released a survey where hotel guests stated that free WiFi was the most desired in-room amenity. Some people have even adapted Mazlo's traditional "Hierarchy of Needs" to illustrate how the WiFi has taken over our lives.
Given that background, it is hardly surprising that protagonists such as Andrew Zobler CEO of The Sydell Group state: "To charge for WiFi is just terrible. It's like charging for water, something you just don't do. Having really good WiFi and having it free is critical."
Others take a more financially based approach, and compare the cost they are charged in a hotel with the price they pay for access at home. They typically conclude that the former provides very poor value for money in comparison with the latter, and that hotels are therefore fleecing customers in the same way as they did with telephony, before mobile phones turned hotel-provided in-room phones into "the most expensive paging system in history" (according to Nick Price former CTO of Mandarin Oriental Hotel Group).
There is also the paradox of where free WiFi is available. This applies both not only within hotels but also across the hospitality industry. The argument goes along the lines of: why should hotels charge for WiFi when cafés and restaurants often provide free access? The paradox becomes even stranger when you consider that the majority of budget / select service hotels provide free access, whilst luxury hotels continue to charge. To those who are used to the way airlines operate, it is counter-intuitive for the premium hotel brands to have add-ons when the "no frills operators" bundle everything in the headline price.
The Hotelier's Perspective
Hoteliers with whom I have worked have often complained of "amenity creep." Is WiFi in 2014 just another example of this, or are there reasons why some may hold out against offering the service free to all?
Let's look at some of the arguments. Since these are usually ignored when this topic is discussed, I have decided to go through them in a little more detail.
First of all, the investment in the network. Many hotels would argue that to provide an enterprise grade WiFi network throughout a hotel is expensive. There are three main factors driving this:
- Handheld devices now account for over two-thirds of hotel connections
- Congestion in the 2.4 GHz wavelength has led to a requirement for 5 GHz connectivity
- Density rather than coverage is the driving factor in public and conference space
Many of us have noticed the phenomenon in our own homes, that good WiFi connectivity for our laptop does not mean good WiFi connectivity for our mobile phones or tablets. This is a result of the weaker antennae in handheld devices. It is the same in the hotel environment. However, it is clearly not acceptable for two-thirds of desired users to be unable to access the WiFi, so additional Access Points (APs) have to be installed.
The beauty and the curse of WiFi is that it is that both the 2.4 GHz and 5.0 GHz wavelengths are unlicensed spectrum (does anyone in Europe remember the costly auctions for licensed 3G spectrum?). However, the fact that it is unlicensed also means lots of other devices can use it. The 2.4 GHz spectrum is particularly crowded with interference from WiFi itself, cordless phones, microwaves, etc. This has led to a significant increase in the number of so called dual-band devices, which can operate in both the 2.4 GHz and 5.0 GHz wavelengths. Although potential speeds are greater and interference is currently lower in the 5.0 GHz spectrum, the downside is that the area of coverage from a given AP is reduced. This has also led to a need to install additional APs.
Unfortunately, the requirement for hotels to install more and more APs does not stop there.
According to the recent iPass Hospitality Findings Report, the average business traveller now carries 2.68 devices. Anecdotal evidence suggests that leisure travellers now exhibit similar characteristics. Enterprise grade APs can usually cope with between 50 and 100 simultaneous users per aerial. Because of the number of devices we now carry, it is possible to fit more devices into the coverage area of an AP in an open space than that particular AP can support. As a result, hotels with large conference rooms or public spaces again have to install more APs.
The end result of all of these technical issues is that a typical European hotel installation in a luxury hotel can now easily cost in excess of €80,000 for a 200 bedroom hotel.
Secondly there is the ongoing cost. There are two aspects to this – the costs of the data line and the support fee.
Data lines are an area where the overall speed bandwidth requirement has grown massively over time and that growth looks set to continue for the foreseeable future. This growth is being driven by growth in all the different drivers for bandwidth. More people want to be online, more devices are being brought to hotels by guests and these devices are consuming more data than before. As a result, most hotels should now be looking at fibre data lines providing 100 Mbps or above. Whilst in metropolitan areas this might cost about €1,000 per month, in more remote locations it could cost considerably more to get a circuit with business level SLAs.
The requirement for support is an area where expectations differ greatly between the hotel and restaurant sectors. Within cafés, I have often experienced situations where obtaining fast secure reliable WiFi access was difficult, but have been left to my own devices to try and resolve it. This is not acceptable within a hotel, where the service must not only be properly supported but also provide enterprise grade security. Not surprisingly, the major international brands all require 24/7 multilingual support. Even though average call rates have dropped from about 5% of users in the wired days to less than 0.5% of users now, the requirement to provide quality multilingual support and rapid replacement of equipment drives cost. Overall the cost for this would be nearly as much as the data line, resulting in operating costs of c. €10 / room / month for a quality service, roughly equaling the initial capital cost of the network over a three year period.
Additionally, despite the widespread use of WiFi and the vociferous comments of these users, WiFi is not used by everyone. Certainly not everyone requires large datalines. This gives rise to the classic economist's problem of the so called "free rider" issue, where someone uses a service without bearing the cost of providing that service.
There is a Solution
An international hotelier once told me, "Ideally, we would like to charge the high usage guests an amount which means we could provide free access to everyone else."
Is this practical? Well maybe.
Here is some of the data I have derived by looking at numerous hotel networks in recent years:
- 70% of users transfer 125M or less of data in a session – these are the people who are just checking email and ensuring they are up to date on news, sport and social media
- 5% of users transfer more than 1G of data in a session – some even transfer as much as 700G in a session
- These "super-users" account for more than 70% of all data transferred across the network
- The majority of the "super-users" upload more data than they download – to me this implies either they are using hotels to "spam" others or they are transferring large amounts of data to other people
So data usage in a hotel network is even more skewed towards super-users than the 80:20 rule would imply. Were these super-users to be charged €10 per session, our standard 200 bedroom hotel would be able to generate over €1,500 per month, covering most of their operating costs. Although this does not the cover the infrastructure investment, the data analysis of the myriad of guests' interaction tools opens up even more possibilities (which I may talk about in another article).
It seems logical to me that the small number of users who are driving the majority of the cost should pay, whilst the large number of users who are merely "dipping their toe in the Internet pool" should be provided with free access.
It isn't enough to just offer tiered WiFi. However, if all hotels offered tiered access, for six devices, using in-room dual-band APs, on fibre data lines wouldn't the world, or at least the hospitality industry, be a better place!
Graeme Powell is the founder of Veridicum, a UK based hospitality WiFi company covering assurance, bench-making and consultancy. After gaining a BSc. (Econ.) from LSE and qualifying as a Chartered Accountant, Graeme initially stumbled into the hospitality industry before becoming fascinated with its relationship with technology.More from Graeme Powell