Alde’s Stuff

Stumbled across a blog post in which the author asked:

Why isn’t airport and hotel Internet access a standard free feature?

His conclusion:

The Internet is a series of tubes and is here to stay - therefore it should be looked at in the same light as television service since for many travelers Internet access is a necessity.

Seriously. He blames that people are stupid, like Sen. Ted Stevens, and thats why it’s not free.

I also hit Andy Abramson’s blog where he pines about hotspot use and that:

1. Speeds being horrible

2. Latency being a problem

3. NAT Traversal being an issue due to the way access points and routers are networked.

Now, I worked for a company that sold internet access in Hotels, Airports and Retail locations. Odd are good that if you’ve ever used a WiFi hotspot, you used one that ran across my network. So having been on the inside, I’ve got some news for both Andy and Frank: Bandwidth isn’t free. Or more vaguely: There Ain’t No Such Thing As A Free Lunch.

Now, this part is gonna get really technical, so if you don’t want an insiders view of the Hotel WiFi industry, move along…

Large hotels may have an IT staff. These people aren’t much IT as Remote Hands; they call corporate and do what corporate tells them to. Smaller hotels may have an IT person. Usually this person is the same person that maintains the Plumbing, Air Conditioning and Electric, i.e. the Hotel Engineer.

So therefore most hotels can’t afford to do the internet themselves, so they contract with someone like iBahn, GuestTek, Wayport, or whatever numerous other providers there are out there. Depending on how much the hotel wants to spend, will dictate what price is passed on to the consumer.

Average hotel rates for wired and wireless in an entire hotel are $50 to $250 per room installed. That involves the wired rooms using either existing wiring (Cat5 is EXTREMELY rare in a hotel. CAT3 is very rare. Usually it’s unrated twisted pair) or pulling new cabling. Even if you didn’t do wired, you still have to run wire or come up with some solution (ADSL/VDSL is $1100 for a head end and $20-50 per brick). So that 103 room Holiday Inn Express with Wired with Wireless overlay would be about 18k for the total install. Quite less for Wireless, perhaps 6-10k all installed.

The underlying problem here is that hoteliers want the contractors to pay that 6-10k. And then they’ll want the contractor to pay the hotel a monthly revenue share for the luxury of providing their users internet access. (Don’t laugh, this happened up until 2005). That’s the mindset you’re dealing with here.

The typical hotel contracts go something like this: Hotel pays for all capex and owns the hardware outright and the contractor manages it for them: Hotel makes the most money of the revenue share. Or, Contractor pays for all the capex: Hotel makes the least amount of money from the revenue share. Or Hotel wants to give it away: Hotel pays a fixed rate per room per night.

So why do hotels make you pay for access? They like the unlimited upside of the revenue share model. Plus, they don’t have to raise their rates in comparison to their competitors to cover the capex/monthly fees.

I will also remind you at this point that DSL has no service level agreement. For example: AT&T has a 48 hour ticket pick up window. That means their DSL technicians have 48 HOURS after you enter in your issue to just PICK UP the ticket. And there is no guarantee of time to repair. Therefore real hotels use T1s and Leased Line circuits with SLAs. And depending on where the hotel is, you could have a $300 a month T1 to a $15,000 a month T1 (Just ask any hotel on the beautiful islands of the Bahamas how much a T1 costs). Average is somewhere near $700. A Month. Before anyone’s bought anything.

So, if a hotel is paying, oh $700 for a T1, and paid $18,000 for all the hardware, and have a revenue share model in which they recoup $6 of that $10 in fees, it will take 3000 uses to recoup the hardware costs total, and 117 uses to pay for the T1 per month. So, if that’s a 3 year contract (industry standard), that’s only 190 uses a month over 36 months to break even. Which isn’t too tough for most hotels. And as the contractor, you make $760 per month on the break even hotel use.

This, of course, is fine and dandy, until the moment someone picks up a phone to call for help. This is MAIN reason hotels contract the service out. Take a hotel chain like Marriott. With hotels of 500+ rooms, if you had a meager (and I mean REALLY SMALL) take rate of 10%, with an average heads on beds rate of 50%, you’re talking 50 users per night. Out of those, 10% will call for help, so you can expect 5 calls from that hotel per night. These cost the contractor between $5 (if they farm the callcenter out to India), or $20 (America) per call (based upon some concocted callcenter rate of $/hr for the agent, plus opportunity cost, etc). So, as the contractor, you need to clear that amount to generate profit (in this example, $100). So, with that 50 uses, if you get $4, that nets you $100 in profit per day if you keep all your calls in the states.

But should the hotel give internet access away, the contractor would instead charge a flat rate fee, plus per call charge. Now the hotel is losing money, not making it. It’s gone from being a Revenue Center to a Cost Center. You can derive no new profit from having WiFi. Oh, and with free WiFi, take rates tend to skyrocket to 70%. So, 350 users instead of 50. And if 10% have problems, that’s 35 calls instead of 5. Is this starting to make sense? And if I’m giving it away, you can bet the contractor is charging per call and a base MRC. Your downside is infinite, your upside is nil.

I’d short serve the industry here too if I didn’t mention the Legal aspect of being an Internet Service Provider (Because if you’re a hotel and you provide Internet Access, You’re now an ISP). When Gill Sperlin of Titan Media sends you a DMCA takedown notice for Woodsman Gay Male Porn movie sharing. Who is sharing, and how do you stop them? Or you receive an FBI Subpoena for one of your users accused of child pornography? Or Credit Card Fraud?

I’ve stayed at hotels where internet access is free. And they all suffered from the same issues that Andy stated. At night, when the hotel filled up, I couldn’t even listen to 96kbps Shoutcast streams. I’ve been on free WiFi that my signal strength was -85dbm, just barely good enough to maintain a 1meg signal as long as someone didn’t walk down the hallway. I’ve gone to a Panera bread store, but couldn’t get my email because the Horde server I was connected to was blacklisted because it had the word “chips” in the domain name, and therefore was banned for being a gambling site.

In summary, Hotel internet access is not free for 3 main reasons:

1. Hoteliers are the third cheapest bastards in the world (after Airports and Internet Leechers)
2. Bandwidth is not free (even if the government is paying for your city to have a mesh wireless network hooked up to the internet, some taxpayers somewhere are paying for your access)
3. Network hardware isn’t free. Silicon and gold don’t just fall onto PCBs and get magically soldered together. Copper’s natural state is not to string itself into 4 pairs of small gauge wire.
4. Legal compliance costs for law enforcement inquiries and copyright infringement aren’t cheap either.

Hrm, this is rather long. I’ll post about Airports at a later date.

Added content in response to Andy’s comment:

Ah, yea, I seemed to kinda dodge where I was going with your point.

Starwood… Ah that one was great. So they go and put out a bid to all the typical providers, and then the IT director decides he’s going to do it himself with Cisco’s help. 12 months later, with the wonderfulness of Cisco BBSM software (which they bought back from CAIS/Ardent when CAIS couldn’t pay their bills anymore and Cisco was caught short having given them millions of dollars in gear), there were 7 installed Starwoods. 12 months to deply 7 hotels. Needless to say that solution got punted and they went back to the standard group of providers.

What you also have to understand is how branding in a hotel environment works. Most hotels out there with a brand on them are not owned or managed by the company whose brand they fly. A hotel gets built but an independant management company, and all they do is license the name for a fee. This means they buy all their linen, towels, soaps, literature, etc, from that brand. The entire running and control of that hotel is independant (to some degree) from the brand. Just because it’s got a Marriott logo on the outside doesn’t mean that it’s owned by Marriott.

So, in the hotel space, you’ve got GuestTek as the #1 provider if you rate by the number of rooms installed (Oh, did you know that the #1 provider in the space just returned to positive EBITDA on $34 million in revenue? Small Small Small companies.) Somewhere up there too you have Wayport, iBahn (aka STSN), Lodgenet, and other smaller or even vendor provided (companies like SMC and the like with a stand alone firewall).

I know that Wayport and iBahn typically install T1’s to a property. Lodgenet and others typically install DSL (Yes, Lodgenet prefers to deliver the hotel DVD’s with the movie data rather than transfer the movies over the internet). With the price of point to point T1’s coming down because of the glut of fiber after the dot-com demise, it means that these T1’s are typically a lot less oversubscribed than DSL.

Having been in the ISP business now for 12 years, I’ve seen all sorts of customer access; from dialup to X.25, OC48s to the first GigE product sold at UUNET, oversubscription is the key to the quality of service. Consider your standard Tier-1 Provider (Level3, Verizon Business, AT&T, Qwest, etc). These companies tend to have multiple OC192 backbone networks with OC48 peering handoffs. Even if you did have a 10 to 1 T1 oversubscription rate in a city, you’d hardly notice.

Now, go further down the food chain to your DSL providers, like a Verizon, Megapath, Qwest, Bellsouth, Covad, etc. Here you probably see 100 to 1 oversubscription.

For example, if you buy wholesale DSL from Verizon, you typically bring to them an ATM circuit (DS3, OC3, OC12), and then have to pay per megabit of traffic into each LATA that Verizon serves. So that’s say 100 or so LATAs onto a single or multiple circuits. So if you’re on someone’s DSL line (or even Cable internet, you’d be surprised at the number of Hotels that do a bundle deal with Time Warner & Comcast), you’re not only sharing bandwidth with the people in your hotel, you’re also sharing the LATA’s bandwidth with all the other locations in that LATA.

Oh I forgot about loss of revenue for the hotels. Hotels are really upset with the loss of telephone revenue due to the proliferation of Cell Phones in the 90’s. They construct their buildings to inhibit your cellular coverage. No, it’s not that your cellular service sucks so bad you can only get it right up against the window, it’s meant to drive you to use the in-house PBX. Airports got over this by contracting to someone to provide all the GSM/CDMA access in the Airport, and then get a cut of each call being made. Hotels haven’t yet figured this out.

Since you can easily tell what is SIP and then what RTP is keyed off the SIP interaction, companies like Packeteer, Cisco and Juniper all have easy identification of VOIP streams, and then you either partition that bandwidth (like you can in a Packetshaper), or put the QOS all the way down to “Best Effort”.

And lastly, I forgot what the typical user does when they get into the hotel: Download porn. They fire up Kazaa, Morpheus, Gnutella, Bittorrent, you name it.

That’s the recipe for bad VOIP calls. Clogged pipes because of your fellow traveler, because it competes with the hotel’s phone revenue, because cheapest wins and cheap is oversubscribed DSL, and undermaintained or poorly planned installs get internet access at hotels to where you’d rather just stay home.