In Europe telecom services rank fifth in the hospitality sector in terms of profitability next to lodging, catering, business services (conferences and other events) and wellness. In Russia the yield from telecom infrastructure does not exceed 1-2% of the hotel turnover. What’s the best way to raise the profitability of telecom services in hotels?

The opportunity to remain connected 24 hours a day is one of businessman’s key advantages, so telecom plays a tremendous role in business-class hotels. But even in this segment the volume of telecom business is rapidly going down: during the recent five years the proceeds of hotels has decreased by 2-3 times. “The drop in the yield of telecom services can be explained by wide distribution of mobile communication, phone cards and the general erosion of tariffs. Just a couple of years ago the hotel National would earn $70,000 on communication services but now the proceeds plummeted to only $20,000 per month. The main problem of hotel telecom is the development of wireless solutions, both personal and corporate: the matter concerns mobile communications and wireless access to the Internet, says Ruslan Aliev, development director at Gars Telecom. However, in the opinion of most experts in the telecom market, the situation can be reversed.

What to Begin With

According to Ruslan Aliev, telecommunications may serve as an additional source of revenue for a hotel. However it should be realized that for a system to work effectively, it must be skillfully built and professionally operated. “Skilled personnel are needed who could make a project and figure the economic model of the process,” says the expert. It is optimal to plan the hotel telecom infrastructure at the stage of design. “In principle, telecoms can be designed at any stage but the sooner it is done, the higher quality Wi-Fi a client will obtain,” assumes Pavel Ratnikov, alternate technology manager at Mastertel. Success will largely depend on the right choice of telecom strategies and correct forecast of ROI (return on investment) and ROS (return on sales) of telecom services. The telecom strategy is devised with reference to hotel specificity: the brand and profile (tourism, business etc.), the availability of a business center, restaurant or casino. “Most premium-class hotels built in the 1990s have excessive equipment which has already become outdated. As a result, telecom ROI reached 5-7 years despite exorbitant tariffs,” explains Ruslan Aliev.

System Installation and Operation

From provider’s perspectives the hookup of a single hotel is comparable to the hookup of an average corporate client and nears $5,000. The receipts of the hotel management company can be larger by an order of magnitude, experts affirm. “However the hotel telecoms normally yield around 1-2% of the turnover,” points out Damir Kaftaranov, general manager of City Hotel. And under the sinking yields hospitality chains are not willing to invest in telecoms. In the opinion of Mr. Kaftaranov, it would be appropriate to hand over the system development to providers and become their co-investors. The latter will be interested to raise the efficiency and yield from telecoms to the maximum possible level. “The financial involvement of the telecom provider will also warrant the high quality of telecom services. Telecom providers are interested in the co-investment scheme as they hope to linger in the project,” believes Kaftaranov.

But, according to the experts, the co-investment scheme is not a common practice on the Russian market. Many hotel owners trust their own abilities but often fail. The low skill of the hotel telecom personnel entails low-quality services at noncompetitive tariffs. The guests certainly refuse such services. In expert estimation a hotel annually loses about half a million US dollars because of unsatisfactory telecoms.

“Today’s world strives for market segmentation, so hotel managers would do a wise thing if they resort to outsourcing in the area of providing telecom services,” reports Mr. Ratnikov.

Success Factors

Telecoms for hospitality business have their own specificity. As corporate clients, hotels consume communication services and, as management companies, earn money on providing information and telecom services. If this is factored in at the stage of infrastructure construction and the development of marketing and financial policies, the investor will be able to correctly generate service packages which will become en extra source of profit for a hospitality property. As reported by City Hotel, the telecom infrastructure of a modern-day hotel includes telephone and facsimile communication, Internet and conferencing. A Wi-Fi system is generally installed in the hotel public spaces to provide access to the Internet from any corner of public premises. In the middle and economy-class hotel rooms you may get connected to the Internet through a plug socket; therefore the client is “tied up to a certain workplace. In five-star hotels Wi-Fi encompasses the entire room stock allowing access to the Internet from any spot of the public spaces. Tele-conferencing is used at the conference centers of upscale hotels,” says Mr. Kaftaranov. The philosophy of telecom services is based on the principle of uninterrupted provision. Round-the-clock support service operates in upscale hotels, so all problems are promptly solved. FCE (fault correction time) is higher than in the business segment. Equipment is another dimension. Premium-class hotels use only proven infrastructural equipment. Talking of lower level hotels, there is no unified statistics for this segment; however these hotels have no round-the-clock support service. “One of distinguishing features of hotel telecommunications is their full subjection to the hotel ACS: online billing must be used, and clients are to be promptly billed,” points out Mr. Aliev. The billing system (the process of determining the cost of services) is one of the most important components of the telecom infrastructure in a modern-day hotel. It is used to check out a guest with indication of the payment mode for client’s confirmed calls and the calls unpaid by a client. “Telecom infrastructure in modern-day hotels has a high capacity margin so that a structured ‘turnkey’ cable network can be planned,” emphasizes Mr. Ratnikov.

In the words of Mr. Ratnikov, “the most sophisticated communication systems are set up in upscale hotels (4*, 5* and 5+). The hotel concept and class influence the tariffs, quality and set of additional services.” Ruslan Aliev agrees: “The more stars, the higher the service price. Major requirements to the equipment set up in upscale hotels are more or less standard; distinctions regard only end products; thus a costly telephone set can be installed at a five-star hotel.” The high cost of certain telephone sets (over $1,000) can be explained by their wide functional opportunities — for example, mini-bar use control, information system for the city of the stay, the opportunity to order a cab and a table in nearby restaurants. Such terminals also broadcast advertising for the guests, provide access to the Internet and boost the yield from telecom services. Yet content generation infrastructure is needed for such systems, apart from bulky investments (databases and reference information, specialized advert sale agencies etc.). This is why such complex systems are underdeveloped in Russia. However already in the foreseeable future the coming of premium services can be expected: access to the Internet with a wireless keyboard and plasma panels, more advanced models of telephone sets with extensive functionality, the increased number of cable TV channels etc. Yet staking on technological novelties, one should consider that like any IT product, telecom systems are subject to quick obsolescence. Thus while a Wi-Fi system was ranked among state-of-the-art technologies now this is a standard option for the hospitality industry. Even when a building is only five years old, incompatibility of old and new equipment is a possibility, according to Mr. Ratnikov. The data transmission equipment with unbelievable opportunities is installed, cheaper and more flexible. Experts predict the heyday of VoIP (the technology linking the world of telecom communications and the Internet world via a VoIP telephone) in five years. In addition to using technological novelties for increasing the yield from telecoms, providers also develop special solutions for the hospitality sector, such as a virtual mobile communication operator under the hotel brand. The services of a local provider will be cheaper than roaming. “Therefore the hotel guests will save on phone talks and a hotel will obtain extra revenues from rendering such services,” says Mr. Aliev. A package of quality services on tariffs complying with the hotel class and factoring in the balance of demand and supply on the market will certainly make such a hotel special in the eyes of permanent and potential clients. Expert Forecast The lack of competition on the hospitality market hinders the development of telecom infrastructure on the hospitality market; consequently hotel chains feel no need for additional ways of occupancy management. As noted by Ruslan Aliev, it is premature to talk of any serious competition between telecom operators, since only few companies operate in the hospitality segment. But sooner or later the situation will change. They assume at City Hotel that if 60-70% of the announced projects are realized, competition will stiffen in this segment in 2010-12. The Petersburg market is already oversaturated with mini hotels: the hotels which do not stand competition are either closed down or merged with stronger players. “In Sochi so many ‘Olympic properties’ will supposedly be erected before 2012 that tough competition after the Olympics is inevitable. Rezidor, Hilton and InterContinental are entering the regions. Considering these factors, far-sighted hoteliers already now build the basis for competitive advantages in the future by installation of advanced telecom systems in the hotels now under construction or reconstruction,” opines Mr. Kaftaranov.