Hospitality Industry Changes, but Phone Systems Almost Do not Matter

Most observers expect changes in the hotel and lodging experience as a result of the Covid pandemic that will last beyond the pandemic’s end. Various forms of “contactless” experience--ranging from keyless room entry to contactless check in to and end to daily room cleaning--are among the expected changes. But supply chains, service elements and staffing levels are likely to be affected as well.  

And many expect cost-cutting measures to develop as well, given the slow travel rebound. Contactless experience will be among the ways lodging providers cut costs. 

Technology and analytics will be more important as human support and interactions are minimized.  

Other costs will be difficult to rein in, and might also not provide much upside to the operating cost or revenue models. 

In-room phone systems in the lodging industry are likely among the necessary costs of doing business, though few guests seem to use them. And some hotels have a line item revenue gain from in-room phones that most travelers consider a tax, not an amenity. 

source: PXF Hospitality Research

Of course, lodging establishments require phone systems for other reasons, including taking reservations. 

 source: PXF Hospitality Research

“From 2015 through 2019, total (hotel) operating expenses increased at a compound average annual growth rate (CAGR) of 2.2% at the properties in our study sample,” notes CBRE. “During this same period, the hotels’ cost for telecom service increased at a CAGR of 9.7 percent.”

“Individually, the cost of phone service rose by a CAGR of 5.7 percent, while the cost of internet service increased at an average annual pace of 16.1 percent,” says CBRE. 

“The 9.7 percent combined CAGR for telecommunications cost is more than three times the CAGR for any other individual hotel department cost during the same five-year period,” CBRE says. Costs grew faster than that at upper-midscale (CAGR 21.5 percent) properties and upscale (CAGR 13.9 percent) hotel chains. 

On the other hand, phone system expenses are a small part of total operating cost: less than half a percent. 

 source: CBRE

source: CBRE

Travel Between U.S. and Asia Remains Mostly Closed

Though life in the United States is normalizing, normal travel between most of Asia and the United States remains difficult to impossible. There are major travel restrictions in place across most of Asia, where it comes to travel to and from the United States. 

source: Skyscanner 

Small Business Broadband Gaps?

What is true of U.S. consumers also is true of small businesses: some percentage of locations do not have access to internet access at the defined minimum speed of 25 Mbps.

According to two recent surveys by the National Federation of Independent Business and Google, around 8 percent or about 2-3 million U.S. small businesses lack access to broadband, says the Government Accountability Office.

According to FCC’s 2021 Broadband Deployment Report, as of year-end 2019, about 96 percent of the U.S. population had access to broadband at FCC’s established minimum speed benchmark of 25/3 Mbps. But that of course leaves four percent of locations that cannot buy service at the defined minimum. 

source: GAO 

As always, it is rural areas that are most underserved. At least 17 percent of rural Americans lack access to broadband at speeds of 25/3 Mbps, compared to only one percent of Americans in urban areas. 

Also, a significant percentage of consumers who can buy service do not do so. About 31 percent of people nationwide who have access to broadband at speeds of 25/3 Mbps have not subscribed to it, GAO says. 

A Google sponsored survey of small businesses with less than 250 employees found that eight percent of small businesses reported “poor internet access” as a barrier to improving digital engagement, GAO says. 

Assuming 32 million smaller businesses, this represents around two million to three million small business that potentially lack adequate access to broadband. The caveat, of course, is that some smaller businesses might not need broadband connectivity. 

A nationally representative survey of rural small businesses sponsored by Amazon and U.S. Chamber Technology Engagement Center (C-TEC), found that approximately 20 percent of rural small businesses were not using fixed network broadband.

That does not mean those businesses could not buy, only that there did not buy. About five percent were using the internet with a dial-up connection. That is not necessarily because they could not buy broadband, but possibly preferred dial-up. That could be the case for some retailers, for example, who use internet access only to process credit card and debit card charges. 

Also unclear are instances where mobile data access was used in place of fixed broadband. 

That noted, there likely are fewer businesses that do not require broadband access to run their operations.

Back to Single-Product or Single-Purpose Networks?

One result of lower U.S. consumer interest in buying fixed network voice services or linear video subscriptions is a waning of the value of bundled service packages and an increase in single-product subscriptions for internet access on fixed networks. 

 

source: Parks Associates 

Oddly, that is something of a return to the application-specific networks of old. 50 years ago, all networks were application specific: TV and radio broadcast; cable TV networks; satellite networks, telco networks and mobile networks.

That has implications for facilities-based providers of fixed network services, as the financial upside from consumer fixed networks increasingly relies on broadband internet access, with dwindling contributions from voice or video subscriptions. 

That makes the payback model harder, as in its heyday service providers could hope to sell two or three services per account. So where a triple-play account could generate $200 per line, broadband-only accounts generate $40 to $100 per line. 

As difficult as the fiber-to-home decision was in the days of triple-play leadership, such decisions now must turn on other values, such as access networks supporting business customers, edge computing or cell site backhaul. 

That is especially true in markets where two or three suppliers operate. In Knoxville, Tenn., for example, Xfinity covers 91 percent of locations; AT&T covers 81 percent of locations and WoW covers an additional 36 percent of locations. All three internet service providers sell gigabit speed services. 

source: Broadband Now 

The big difference is that AT&T sells symmetrical service, an attribute that could well be the key to further gains, for AT&T as well as other telcos. 

Can Broadband Definitions be Changed in a Platform-Neutral Way?

In principle, broadband speeds will keep increasing almost indefinitely. A reasonable projection is that headline speed be in most countries by 2050 will be in the terabits per second range. 

Though the average or typical consumer does not buy the “fastest possible” tier of service, the steady growth of headline tier speed since the time of dial-up access is quite linear. 

And the growth trend--50 percent per year speed increases--known as Nielsen’s Law--has operated since the days of dial-up internet access. Even if the “typical” consumer buys speeds an order of magnitude less than the headline speed, that still suggests the typical consumer--at a time when the fastest-possible speed is 100 Gbps to 1,000 Gbps--still will be buying service operating at speeds not less than 1 Gbps to 10 Gbps. 

Though typical internet access speeds in Europe and other regions at the moment are not yet routinely in the 300-Mbps range, gigabit per second speeds eventually will be the norm, globally, as crazy as that might seem, by perhaps 2050. 

The reason is simply that the historical growth of retail internet bandwidth suggests that will happen. Over any decade period, internet speeds have grown 57 times. Since 2050 is three decades off, headline speeds of tens to hundreds of terabits per second are easy to predict. 

source: FuturistSpeaker 

Some will argue that Nielsen’s Law cannot continue indefinitely, as most would agree Moore’s Law cannot continue unchanged, either. Even with some significant tapering of the rate of progress, the point is that headline speeds in the hundreds of gigabits per second still are feasible by 2050. And if the typical buyer still prefers services an order of magnitude less fast, that still indicates typical speeds of 10 Gbps 30 Gbps or so. 

Speeds of a gigabit per second might be the “economy” tier as early as 2030, when headline speed might be 100 Gbps and the typical consumer buys a 10-Gbps service. 

source: Nielsen Norman Group 

So there is logic to altering minimum definitions over time, as actual usage changes. In fact, typical speeds might be increasing faster than anticipated. 

Also, there is a difference between availability and actual customer demand. Fewer than 10 percent of potential customers who can buy gigabit service actually do so, at the moment, in the U.S. market. 

Perhaps 30 percent of customers buying service at 100 Mbps or higher believe it is more than they need. Perhaps 40 percent of customers buying gigabit services believe it is more than they need. 

The issue is that no definition can be technologically neutral, either for upstream or downstream speeds. Since 75 percent to 80 percent of U.S. customers already buy fixed network service at speeds of 100 Mbps to 1,000 Mbps, a minimum definition of “broadband” set at 100 Mbps is not unreasonable. 

The issue is that some platforms, including satellite, fixed wireless and digital subscriber line, will have a tough time meeting those minimums. 

Cable operators are virtually assured they can do so with no extra effort. 

Upstream bandwidth poses issues for most platforms other than modern fiber-to-home platforms, if the definition were set at 100 Mbps upstream, for example. 

It’s tricky, and almost impossible to reset broadband definitions in a platform-neutral way.

You Cannot Manage What You do not Measure

The adage that we cannot manage what we cannot measure is fair enough. So is the adage that "you get what you inspect, not what you expect."

Different eras in the connectivity business tend to bring distinct concepts and terms to the fore, and the changes in terminology reflect new business issues as much as efforts to measure progress in meaningful ways or enhance perceived firm value. 

Prior to the 1980s, a public company’s value might more often be stated in terms of equity valuation. Two decades later, “enterprise value” was more common--and useful--for startups and potential acquisition targets. Enterprise value is equity value plus debt, and provides a snapshot fo the price to acquire a firm. 

In the 1980s, “revenue per line” still  made good sense for consumer accounts. Most lines were producing revenue and revenue per account was still simple: voice only, and one line per house. Simply, consumer “revenue per line” and “revenue per account” were virtually identical. 

None of that makes sense in any market where serious facilities-based competition exists. 

Twenty years later, that metric was not useful. There was a significant difference between deployed assets and take rates: an active line passing a location might, or might not, have a paying customer. So “revenue per line” and “revenue per account” were no longer comparable. 

After U.S. cable companies started selling broadband access and voice, while telcos sold video entertainment and broadband, matters were even more complicated. A single house might buy voice, video entertainment or broadband, in any combination. 

Revenue contribution per product, and profit margin per product were distinct. Also, the question of how to define revenue contribution from any single location became complicated. So the concept of “revenue generating unit” arose. A house buying two services represented two RGUs. 

That concept replaced the concept of counting “subscribers.” RGU is a measure of units sold; a subscriber is an account. 

Similar issues arose with the concept of average revenue per user, in the mobile business especially, when the majority of accounts served multiple users on the same account. Average revenue per account and ARPU diverged. 

In the business segment, as competitive local exchange carriers emerged, upstarts wanted some way to describe sales in ways that generated larger numbers, since sales were often largely T-1 data lines. So the concept of the “voice grade equivalent” arose, representing the virtual number of voice grade circuits sold, at 64 kbps each. So a single T-1 line represented 24 VGUs. 

Undersea networks and other long-haul transport networks use dark fiber and lit fiber as metrics. 

Now Telstra uses a metric called “transacting minimum monthly commitment” (TMMC). It applies to postpaid mobile accounts.  TMMC is regarded as a lead indicator of ARPU trends, since actual ARPU might vary based on roaming revenue, handset revenue and out-of-bundle revenue. 

TMMC might be considered a measure of service contract value. 

The point is that new metrics reflect changes in the core business. Deploying lines or capacity is different from sales of capacity. Accounts and units sold are different. Revenue for products varies, as does profit margin. Contract value provides insight in a way that total revenues might not. 

Nearly all changes in terminology reflect changes in business models.

Small Firm Execs Say Work from Home Harmed Productivity

Big firms behave differently than small ones, in almost every respect. Big firms often can support and even benefit from regulations that add cost to running a business. Small firms have almost no ability to leverage regulatory overhead for business advantage. 

Large businesses can survive a significant number of underperforming employees. Few small businesses can do so. 

Some large businesses believe work at home for most employees will not harm productivity. But 45 percent of U.S. small business employers say employee productivity decreased while working from home, according to a survey conducted by Digital. 

source: Digital