'Net access in public places hard hit by terror
By Carolyn Duffy Marsan and John Cox
Network World, 10/22/01
Public access networking - a market built on the premise that business travelers want high-speed Internet access in airports, hotels and restaurants - may be another casualty of the Sept. 11 terrorist attacks.
Two leading providers of Internet access to the hospitality industry - MobileStar Network and Ardent Communications - have failed in recent weeks, leaving big-name hotel and retail chains such as Hilton Hotels and Starbucks Coffee without much-hyped connections for their customers.
The downturn in the capital markets is responsible for the demise of these companies, which had undertaken expensive network buildouts without enough subscription-based revenue to cover the costs. But the situation was exacerbated by a sharp decline in travel and entertainment activity because of the heightened terrorist threat.
IT budgets across the hospitality industry are getting trimmed in light of fewer travelers, lower hotel occupancy rates and a growing fear of public places.
"Many of the hotels have drastically cut their IT budgets as a response to the lost revenue" since Sept. 11, says Amy Cravens, an analyst with Cahners In-Stat. "One effect of Sept. 11 is that American, Delta and United have decided to delay implementation of Boeing's Connexion in-flight broadband solution."
These trends indicate a dimmer outlook for public access networking, which already suffered from slow adoption by users and concerns about security.
"The marketing approaches have not succeeded in gaining the needed subscription rates. Is this because users don't want to be connected all the time? Or the pricing scheme is not right? It's hard to say," Cravens says. "It may be a market ahead of its time."
MobileStar surprised industry observers by pulling the plug on its high-speed wireless network last week, leaving its main customer, Starbucks, scrambling to find an alternative provider for hundreds of shops that were wired this summer. Other MobileStar customers included Hilton, American Airlines Admirals Clubs and Columbia Sussex Hotels.
The Oct. 11 bankruptcy filing by Ardent (formerly CAIS Internet) was less shocking, as the company had announced a reorganization and layoffs last spring when it moved beyond hotel Internet access to providing VPN services to small and midsize businesses.
"In the case of Ardent, they were suffering for some time," says Paul Sullivan, CEO of rival Guest-Tek, which counts Hyatt Hotels as one of its customers. "It was a business model that wasn't viable. They expected far higher take rates from the end users. At the same time, their model required substantial up-front investment."
One of the hardest hit by these failures was Hilton, which relied on Ardent and MobileStar for Internet access at U.S. locations.
"We had Ardent and MobileStar. One was the backup for the other," says Bruce Rosenberg, senior vice president of eBusiness at Hilton. He says Hilton is in final negotiations to launch a new in-room broadband access service with a different service provider.
"We have the green light for funding," Rosenberg says, adding that the new service will be available in the first quarter of next year. "Our hotels are working on a local level to provide [Internet access] service as a stopgap measure. ... With our new solution, we will guarantee that the provider will be financially sound."
Rivals say the demise of MobileStar and Ardent are not signs of the imminent death of the public access network market, but rather a shift in who will pay for these services. Surviving providers such as WayPort and Guest-Tek require airports, hotels and restaurants to pay for the high-speed access rather than charging end users.
"The history of this [public access] market has been sort of a land grab: paying a lot of capital for real estate and network infrastructure but getting little in the way of subscriptions," says Dan Lowden, vice president of marketing at WayPort. "But our [hospitality] partners now see they have to have this . . . They're now paying the capital costs and giving us a big chunk of the revenue."
One promising area for hotels is Internet- and video-enabled conference rooms that can garner a premium rate, even as in-room 'Net access is available for free.
Hyatt is forging ahead with a plan to offer high-speed Internet access in its meeting rooms by year-end, says Robert Bansfield, assistant vice president of MIS. Hyatt outsourced the job to Core Communications, an ISP serving hotels, conference facilities and convention centers.
"At last count, we had 103 of our 123 hotels wired," Bansfield says. "As a result of the activities of Sept. 11 and the overall economic situation, we're not backing off on this initiative at all."
Bansfield sees less demand for broadband Internet services in guest rooms. While Hyatt wasn't affected by the MobileStar or Ardent failures, the company has seen several of its providers that used a revenue-sharing business model collapse in recent months.
"At the beginning of the year, we had high-speed in-room access installed in eight hotels," Bansfield says. "Six out of those eight installations are gone because the [ISP] couldn't meet our service requirements or because they came to us and said they were changing their business model."
Hyatt awarded a contract in August to Guest-Tek to provide high-speed access in guest rooms in select hotels. The hotels will buy hardware, software and installation services from Guest-Tek and pay a monthly fee for support. The hotels can offer the service free to guests or charge a daily fee in the $6 to $8 range.
"Over the next 12 months, we will move from having six hotels wired to having 25 or 30 wired," Bansfield says. But the rollout of this service is "going to be based on how the hotel business continues to perform. . . . Given the events of the last 45 days, some of our hotels are likely to defer that [expense] into early next year."
Evaluating a wireless service provider
The failure of MobileStar last week left a number of hotel and retail chains without wireless service at their sites. If you’re considering such a service, make sure you check the fine print:
• Have an expert review the service provider’s balance sheet and financials.
• Identify the investors, how much money was invested and when.
• Find out if the service provider is seeking new funding and how long it’s been doing so.
• Take subscription rate figures with a grain of salt.
• Check network useage figures and look for steady growth.
• Is the provider aggressively marketing to the enterprise (good) or relying on advertis-ing aimed at individual business travelers (not good)?
Air2Web takes a different approach, creating a free wireless room reservation service for Six Continents Hotels to provide to members of its Priority Club. Six Continents owns 3,000 properties.
"The strongest markets [for public access networking] are where you have some kind of built-in customer or incumbent, such as the Holiday Inn Priority Club," says Mark Indermaur, director of sales engineering at Air2Web. "The hotel or airline employees can use the network you create, so that gives you a way to fund the capital spending."
What the public access network market seems to need most is interested end users. For example, at hotels offering high-speed Internet access, usage is minimal.
"In 1999, we typically saw utilization rates of 2% to 3%," Guest-Tek's Sullivan says. "Now we're seeing 5% to 7%."
Hilton's Rosenberg predicts hotels will continue to roll out high-speed Internet access because corporate customers demand it. As an example, he points to a request for proposals coming out from IBM that requires hotels where its employees stay to provide secure, high-speed access to IBM's corporate net.
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