Room Service Providers - Industry Trend or Event

Industry Standard, The, April 23, 2001 by Ronna Abramson

Hotels are spending millions to install high-speed Internet access in their rooms. So why don't more guests use it?

Don DePalma is no technology novice. The VP for corporate strategy at software company Idiom in Waltham, Mass., DePalma is enough of a geek that he installed a router in his home so he and his two kids could surf the Net at the same time. In other words, he's exactly the kind of tech-savvy customer San Francisco's Ritz-Carlton Hotel is trying to attract by offering high-speed Internet access in its guest rooms.

Too bad DePalma couldn't get the service to work. When he stayed at the Ritz last summer, he spent 15 minutes tinkering with his laptop and the red Ethernet cable snaking out of the answering-machine-size box on the desk. Losing patience, he shoved the cable aside, connected his laptop to the phone and sat back while his e-mail downloaded at a poky (but familiar) pace. "It was really a frustration," he recalls. "There was so much bandwidth waiting there. Instead it took an hour synching at 42K."

Over the past couple of years, hotels have spent millions of dollars equipping their rooms with high-speed Internet access. According to research firm Cahners In-Stat Group, the market for supplying broadband hardware and services to hotels was $59 million last year; that's expected to grow to $679 million by 2005. As a result, as many as 10 percent of U.S. hotel rooms now have some form of broadband access; Jupiter Research predicts that half the hotel rooms in the United States will be wired for high-speed access by 2002.

But few guests are taking advantage of in-room broadband -- either because they don't know it's there or because, like DePalma, they can't get it to work. Most estimates peg the percentage of guests using these services in the low single-digits; by contrast, pay-per-view movies lure about one-third of hotel guests, "adult entertainment" more than half.

Despite the low take-up rates, hoteliers are adamant about adding high-speed access to their menus of amenities. "The demand by the business traveler to have his connection is certainly there," insists Mark Hedley, senior VP and CTO at Wyndham Hotels and Resorts. That's why Wyndham is wiring virtually every room in its 144 properties, which includes luxury resort Carmel Valley Ranch in Carmel, Calif., with T1 lines to offer speeds up to 50 times faster than ordinary phone lines.

Yet so far only 6 percent of Wyndham's guests have taken advantage of those high-speed wires. By comparison, 55 percent of the chain's guests watch adult material on TV, and 35 percent watch first-run movies. "It's the early-adoption stage," Hedley says. "As more demands are placed on the business traveler to use the hotel room as an extension of his or her office, that penetration rate is going to go up."

Maybe so, but for that to happen, hotels and travelers will have to overcome some significant technical hurdles. Like the Ritz-Carlton, most hotels that offer broadband access do so in the form of wired Ethernet, with speeds varying from 1Mbps to 100Mbps. That often means running cables to each room and installing wall jacks. Typically, the hotel provides the Ethernet cables; guests without Ethernet cards for their laptops are out of luck. Hotels are also experimenting with wireless access, which at a minimum requires guests to bring a wireless PC card; in some cases, guests must also have a subscription with the hotel's chosen wireless service provider. In that case, hotels need to install wireless transceivers on each floor.

The problem with both wired and wireless access is that guests must supply crucial hardware -- specifically, an Ethernet card -- themselves. And even if a traveler carries around an Ethernet card, his or her laptop may not be able to use the hotel's broadband connection to do anything useful.

"Right now, with an Ethernet-connected laptop, you can get Web access," says Bruce Rosenberg, Hilton's senior VP of e-business. "But that's not the killer app. Our users need to get back to their corporate network." For that to happen, the guest's company must enable virtual private networking -- which would allow guests to access their companies' networks via the Net. VPN technology is spreading, says Rosenberg, but not as fast as hotels are wiring.

Because of these technical hurdles, Hilton is testing alternative technologies, including Internet-enabled television, wireless access and even Internet-enabled telephones with 14-inch monitors. Starwood's W Hotel in San Francisco is doing the same, offering Internet TV (with a wireless keyboard) and a high-speed Ethernet jack in every room; the hotel plans to try out wireless in its "living room" lobby this summer.

Some hotels are hesitant to provide broadband service at all, says Dylan Brooks, an analyst for Jupiter Media Metrix, because more and more guests are carrying their access with them. "The rapid growth in wireless phones -- and, looking into the future, Internet-enabled wireless phones -- threatens to do to a hotel's broadband services what those same cell phones did to their telephone revenue," Brooks explains.