Really, there is no free lunch. Not even for OTT in Hotels

The recent HTNG Awards for “Most Innovative Hospitality Technology” went to Philips MediaSuite Hotel TV, which says it offers hotel guests online apps like YouTube, Twitter, Facebook, Catch-up TV, local and international news, weather, games and more. In their marketing blurb, TP Vision, who owns Philips’ hotel business in EMEA, claims that with their system “there is no longer a need for a set-top box or heavy head-end investments, reducing the total cost of ownership for a hotel.” 

If only. Of course, eliminating the set top box and head-end equipment is a very attractive proposition for hotels. But, as I said in a previous blog, the scenario of removing a set-top box or head-end is simply not realistic, and won’t be for some time to come. 

To illustrate just how far away Philips and similar OTT-based solutions are from providing a viable option for in-room entertainment for hotels, you only need to do some simple maths around bandwidth requirements for the various services offered on an OTT-based hotel solution.

Sure, social media apps don’t take up a lot of bandwidth, and even VoD is manageable with a streaming bitrate of 2 Mbit/s for SD, and 8Mbit/s for HD. Assuming that the maximum viewing concurrency doesn’t exceed 10% on average, this will require a 250 rooms hotel to have a 50Mbit/s – 200Mbit/s pipe to meet this type of viewing behaviour.   

But TV is where the bandwidth issue becomes more perilous.  If a similar traffic model is applied to a cloud-based TV channel delivery service to a hotel room, the bandwidth requirement would be at least 3 to 4 times higher than for VoD.  So hotels are looking at 150Mbit/s – 800Mbit/s they have to provide to ensure reliable delivery of broadcast quality TV channels to their guests – a big challenge to any hotel in developed countries as it comes typically at a big cost.

According to industry analysts, video currently consumes 29% of network bandwidth, which is predicted to increase to 40% within the next year. However, the same analysts say that the operators they surveyed so far have only set 10% of their network capacity aside for video technologies. But even where investment in FTTH and other infrastructure technologies eases the issue of bandwidth availability, the cost to actually provide the service reliably and offer hotel guests the QoS they expect, will remain prohibitively expensive for a long time to come. And this of course negates the supposed savings suggested by doing away with the traditional walled garden equipment.

And let’s not forget the increasing wariness of network owners about the demands the influx of these bandwidth hungry OTT services have on their infrastructure. South Korea’s KT has been very vocal in chastising big technology companies for free-riding on their networks and has warned of a “big data blackout” if OTT players don't agree to help pay for the rapid growth in data traffic that they are contributing to. 

There is a reason why network operators are nervous about this. A network provider typically pays a price per m/bit far in excess of the charges it passes on to its end customers, hotels included. This is because the retail market is not prepared to pay the same price per m/bit, particularly in Asia, where upstream costs can be as high as US$18 per m/bit. So in order to hedge against this imbalance, network providers use something called over-contention. It’s a bit like the common practice of airlines selling more seats than they have available to minimise empty seats. For the most part it works, but occasionally, for whatever reason, some passengers have their travel plans thrown into chaos. Translated to the hotel business, this means that in-room entertainment QoS cannot be guaranteed, which is probably not the type of experience you want to expose your guests to.   

So unless the day comes when hotels are willing to pay for the bandwidth required or the cost for a 1,000Mbit/s pipe goes down to today’s cost of a 10Mbit/s pipe, OTT in a hotel environment remains only really a best-effort delivery of long-tail content.  

In the light of these issues it is puzzling to me why HTNG would give this technology its stamp of approval as its most innovative technology. What is and isn’t innovative may be debatable, but in my mind, a technology that is endorsed by an industry body should be a viable solution, not a piece of wishful thinking that for the foreseeable future remains out of reach for most hotels. 

To charge or not to charge... hotels’ dilemma over Internet access fees

There’s a lot of discussion out in the cloud about Internet access fees hotels are or aren’t charging and what the potential pitfalls are for those hotels that are seen as overcharging for access to the online world. As with many other issues that touch on the sensitive part of you parting with your money, there’s more than just one side to the story.

One of the points I find missing from the current discussions is behavioural conditioning. Of course, everyone wants a good deal, but the “everything is free” culture that now dominates the Internet has entered many aspects of life and this mindset, once ingrained, is difficult to change. The earliest culprits responsible for this development were the telcos who happily introduced all-you-can-eat broadband data-plans which encouraged people to download anything regardless of its bandwidth. However, regret followed swiftly when video overtook email and surfing as the largest consumer of internet bandwidth. This was amplified by the recent onset of serious gadget-lust triggered by smartphones and tablets. So it’s not surprising that we now see telcos far and wide wanting to withdraw their generosity and shepherd users back into the user-pays model.

These issues have of course serious implications for the hospitality world. Free WiFi has now shot past complimentary breakfast as a “must have” according to a 2010 survey of 53,000 US travelers (although I would argue that in Asia it’s still the other way round), indicating that we now regard basic internet access much like the complimentary water in the room. While free Wifi access has traditionally been the domain of newer and smaller hotels where infrastructure and bandwidth demands are relatively smaller, even luxury hotels, particularly here in Asia, are starting to seriously respond to this trend. In recent months, most of the big luxury chains have added free internet access as part of their loyalty programs, which are usually free to join, such as Marriott’s, while Shangri-La Hotels and Resorts even went one step further and now offers free WIFI and wired internet to all guests regardless of loyalty membership.

While this Free to Guest (FTG) internet trend casts a medium to long term disruption to HSIA hospitality service providers whose business models rely heavily on internet revenue share, hotels have a number of very good reasons to pursue this approach. Some of the hotels we have spoken to confirmed a greatly reduced complaint rate since introducing FTG, implying that people are less likely to complain about even slow or patchy connections if it is offered for free. This of course reduces the need for support resources and thus has an impact on overall costs. Another reason is brand equity. A large luxury chain’s brand essentially represents the overall guest experience, so FTG internet can become an important part of the hotel’s brand equity.  

But it’s at the point where usage patterns accelerate from surfing the net and emailing to streaming movies and doing video conferencing that internet access moves from a marketing tool to a much more complex issue. While using load balancing to move WiFi traffic across access points to even out demand may be a relatively simple way to keep Wifi free within reasonable bandwidth constraints, a tiered ‘freemium’ model where bandwidth usage up to a certain point is ‘free’ before charges kick in, may be a better way to address the problem of bandwidth heavy video clogging your network while still keeping broadband revenues on the balance sheet. This type of user-pays system mimics the one telcos have employed which has become very familiar to consumers and is likely to be readily accepted (I will return to the subject of tiered access in more detail in a later post). But either way, a chargeable service model will be unavoidable once OTT becomes a ubiquitous, mainstream content delivery platform, although this is yet a few years away.

Speaking of telcos though: if hotels are not already thinking about the issues above, they may consider that many mobile operators, particularly in Asia, are now offering prepaid data access packages for a fixed fee per day, even when roaming. During my last visit to Taiwan, I paid NT$700 (US$24) for voice and 5 days worth of 3G data access, which beat the US$15 per day internet access my hotel tried to charge me by several miles.

At the end of the day a hotel is a business and needs to make money for sure, but its raison d’être is to make guests comfortable, which may be a delicate balancing act when it comes to internet access charges, but one that I believe can be addressed with a careful look at the hotel’s strategy, infrastructure issues and brand values.