Tiered Wi-Fi emerges as new industry model
14 APRIL 2014 5:54 AM
As consumers increasingly demand basic connectivity at no charge, full-service hotel brands pioneer a new path.
REPORT FROM THE U.S.—After seeing complimentary Wi-Fi service become ubiquitous at limited- and select-service hotels, owner-operators of full-service properties are now facing growing pressures from consumers and brands to provide a tiered program that features free, property-wide basic service while charging for premium broadband access.
"What we're seeing now is more brands responding to consumer demand, because there has been a clear indication from consumers that basic connectivity is something they now expect us to provide (at no cost)," said Bill DeForrest, president and CEO of Chicago-based Spire Hospitality, which manages 22 properties including two full-service hotels under the Hilton Hotels & Resorts brand.
For the past decade, full-service hotels largely resisted growing consumer demands for complimentary Wi-Fi because paid Internet service represented a significant revenue stream for large properties in major cities, said Mark Carrier, president of B.F. Saul Company Hospitality Group, which owns and/or manages 20 properties in the United States, including some full-service hotels.
More recently, however, major hotel companies that have offered free Wi-Fi for several years at limited- and select-service brands have recognized that free basic Wi-Fi is indeed now a consumer expectation. In response, they have begun developing tiered offerings that satisfy customer demands while also leaving open the possibility of revenue for premium service.
So far, the free offering has typically been limited to rewards club members.
The race is on
Marriott International introduced tiered pricing about a year ago at its Marriott Hotels & Resorts, JW Marriott and Renaissance Hotels properties. Tiered service is now a U.S. brand standard, said Marriott representative John Wolf, and about half of the properties represented by the three brands now offer it. The others will continue to roll it out.
All Gold and Platinum Marriott Rewards members in the U.S. and Canada now receive free high-speed Internet access. If the property offers tiered options, members receive premium service at no charge.
In January, Hilton Worldwide Holdings—which introduced free Wi-Fi in September 2010 at its full-service properties for Hilton HHonors Gold and Diamond members—introduced tiered service that is now being rolled out in its focused-service and extended-stay hotels.
"Many of our full-service and luxury hotels currently offer tiered options for guests, and we expect the prevalence of these options to increase across more properties, because it offers guests more choice and control to meet their individual needs," said Hilton representative Blake Rouhani.
Hyatt Hotels Corporation now offers free high-speed service to its Hyatt Gold Passport platinum and diamond members, and at its full-service Park Hyatt and Andaz brands. At Hyatt Regency, Grand Hyatt and Hyatt properties, there is tiered service, but both tiers are paid. Typical rates are between $9.95 and $14.95 per day.
Omni Hotels & Resorts offers tiered service at about half of its properties. "Deluxe" (3mb) service is complimentary for all Select Guest members and $9.95 per day for non-members. "Premium" (6mb) service is $4.95 per day for Select Guest members and $14.95 per day for non-members.
For now, at least, a major holdout is Starwood Hotels & Resorts Worldwide. At its full-service hotels, Starwood Preferred Guest Gold members can choose free Wi-Fi as their check-in gift, while Platinum members automatically receive it. Starwood Hotels has no plans to introduce tiered service, according to representative Maire Griffin.
Upping the ante
In January, Loews Hotels & Resorts announced a tiered Wi-Fi program that includes free basic service for all guests at its 18 North American properties. Although pricing for premium service varies by market, free basic Wi-Fi is now a Loews brand standard.
About 18 months ago, the Four Seasons Westlake Village, in the suburbs of Los Angeles, also introduced tiered service that includes free basic Wi-Fi for all guests. All overnight guests now receive basic Wi-Fi at no cost for up to two devices. Premium service for up to four devices is $12 per day. All suite buyers who purchase at rack rate receive premium Wi-Fi package at no cost.
"Our decision was based on consumer demand and also on the understanding that most business travelers now bring at least two devices: a phone and then either a laptop or tablet," said Director of Rooms Billy Cueto, adding that the initiative was taken by the Castle & Cooke-owned property, not the Four Seasons brand.
"But the brand is aware of and in support of what we're doing and is moving toward this model brand-wide," Cueto said.
Paying the bills
Although early indicators are that tiered Wi-Fi that includes free basic service for all guests will eventually become an industry-standard model for full-service hotels, it is owner-operators who will pay 100% of the cost, according to DeForrest and Carrier.
"But what the brands are doing, which I think is the right thing, is providing information on what the consumer wants and things like how much bandwidth you have to provide to meet the standards customers are looking for," said DeForrest, who expects that Spire will begin offering tiered service at its full-service Hilton properties in Jackson, Mississippi, and Grand Rapids, Michigan, by the end of this year.
"Based on what I've heard from hotel operators I respect, tiered service is a reasonable way to fund the capital requirements of providing (free) basic service and also providing the bigger bandwidth that some customers want and are willing to pay for," he said.
However, he added, based on what he hears from his GMs and anecdotally, only a relatively small percentage of guests will pay for premium service. Carrier agreed, predicting that only about 10% to 20% will pay for broadband.
"So the revenue you're going to see will probably never cover the costs of providing the free service, but it is going to help offset some of those costs," DeForrest said.
Carrier cited a longstanding rationale from many full-service hotel operators who made money selling Internet access: "Why should I start to give away something I'm making money from?"
His concern, he said, is that as the growing complexity and costs of state-of-the-art technology continue to increase, there will be new and additional cost pressures put on hotel operators in their quest to meet ever-increasing consumer expectations, including the number of devices that must be accommodated by free service and ever-improving bandwidth.
"But right now," he said, "I think everyone is just dealing with the challenge that by making (basic Wi-Fi) free as an industry, we have undermined what could have been at least a cost-recovery model. But now it's too late. The ship has sailed."