As cities use WiFi to lure guests, hotels see revenue source fade

By Danny King
A growing number of cities are looking to lure more travelers by offering free WiFi in busy tourist destinations. But while good news for travelers, that trend is not such wonderful news for hotels.

Las Vegas, one of the country’s premier tourist destinations and the U.S. city with the greatest number of hotel rooms, is front and center in a move that hoteliers see as threat to their efforts to generate revenue by selling wireless Internet access.

Looking to expand on last year’s record visitor numbers, Las Vegas this year became the most recent city to foot the bill for public-access WiFi networks. The city’s pilot program, which covers much of the downtown area, will enable both visitors and residents in certain parts of Las Vegas to access the network free of charge.

That initiative parallels similar efforts by destination cities in both the U.S. and abroad that are looking to increase their appeal to tech-dependent travelers for whom connectivity increasingly is crucial.

New York City has arranged for free WiFi to be provided in the Times Square district as well as in 50 parks throughout the city’s five boroughs, including Manhattan’s popular Central, Bryant and Madison Square parks.

In spring, Minneapolis launched Wireless Minneapolis, which provides almost 120 free WiFi hotspots throughout the city.
Times Square
San Francisco late last month reached an agreement with Google for the Internet giant to provide $600,000 to pay for free WiFi in more than 30 parks and plazas throughout the city.

And Tel Aviv, the Silicon Valley of the Middle East, next month will complete a citywide free WiFi network, including full coverage along the its nine miles of beaches. The city defends the investment by arguing that ubiquitous connectivity is becoming a basic necessity.

“WiFi today is just like electricity used to be once upon a time — it’s a necessity,” said Mira Marcus, spokeswoman for the city of Tel Aviv. “Everyone deserves access to information.”

Officials in some WiFi-friendly cities are saying that such plans are key to marketing their destinations as tourist-friendly, and they insist that rather than competing with hotels, the networks merely complement the hotels’ services.

Las Vegas officials, in particular, were quick to point out that the new network wasn’t built to compete with hotel networks and that it covers neither the Fremont Street Experience area, where most of downtown’s hotel rooms are located, nor the Strip, which is technically an unincorporated section of Nevada’s Clark County.

Still, the city networks provide yet another method for travelers to avoid hotel WiFi fees. Among hotels that charge for WiFi — many, especially lower-cost hotels, do not — fees can range from less than $5 a day at moderately priced hotels to more than $30 at luxury accommodations. What’s more, those are almost always per-device fees, meaning that customers have to shell out that fee for each of their wireless devices, including each smartphone, tablet and laptop.

As it is, visitors to most cities can merely hunt down the nearest Starbucks, which last month reached an agreement for Google to become the wireless provider for the company’s 7,000 U.S. coffee shops.

As a result of this slow but persistent march toward ubiquitous connectivity, the hotel WiFi revenue stream is narrowing. U.S. hotel revenue from telecommunications services such as Internet and telephone usage plunged from about $5 per occupied room in 2000 to less than $1 in 2009, though that number has since leveled off, according to PKF Hospitality Research.

And while much of the drop is a result of the near ubiquity of cellphones, Robert Mandelbaum, PKF’s director of research, said that some of the decline also reflects the waning leverage that hotels have to charge a daily fee for wireless Internet.

In fact, about a third of traveling consumers surveyed by earlier this year said that free WiFi was the single most important amenity factored in their booking decisions.

That spells bad news for hoteliers looking to recoup a capital investment on upgraded WiFi service, which can reach $50,000 for a suburban hotel and a multiple of that number for a larger urban property, according to Bjorn Hanson, divisional dean of New York University’s school of tourism and hospitality management.

That said, the growth of municipal public WiFi might merely bifurcate travelers into “need” and “need more” categories, dividing those who can get by with the basic Internet services provided in parks from those who need higher-bandwidth networks for things like video streaming.

Hanson and Mandelbaum both said that such a bandwidth differentiation might provide an opportunity for hotels to pitch, and ultimately charge for, higher-quality WiFi access for travelers, especially business travelers on an expense account, who have a growing appetite for bandwidth.

Yet, even that plan could be threatened as Google rolls out its Google Fiber product, which the company said can boost wired Internet speeds by a factor of 100.

While Google Fiber is offered only in a handful of cities and on a monthly subscription basis for residents, Google has plans to expand its presence and, with its Starbucks agreement, would provide free access for travelers willing to foot the bill for a cup of coffee.

“Consumers will accept charging extra for multiple devices, or for higher-speed service that can support more complex online activities, such as downloading music and video files, at least for now,” said Henry Harteveldt, travel industry analyst at Hudson Crossing. “But all it will take is one aggressive competitor to offer no-holds-barred free WiFi, and the game is up.”

Follow Danny King on Twitter @dktravelweekly. 
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