A new report from CBRE analyzed the costs of phone and internet service within the information and telecommunications systems department of nearly 3,000 hotels that participated in the firm’s annual Trends in the Hotel Industry survey.
The report, which examines data from 2015 through 2019, found a significant upward trend in telecom-related expenditures. At the same time, the data also revealed a steep decline in revenue generation from charges for phone calls and internet access.
Rising Costs
From 2015 through 2019, total operating expenses increased at a compound average annual growth rate of 2.2 percent at the properties in the study sample. 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. 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.
Telecom costs increased at a greater pace than total operating costs across all chain scale categories except luxury hotels. At these high-end properties, telecom costs rose at a CAGR of 1.1 percent, compared to 1.5 percent for all operating expenses.
Telecom costs increased the most in the upper-midscale (CAGR 21.5 percent) and upscale (CAGR 13.9 percent) chain scales. Expanded offerings of complimentary phone and internet at the select-service properties that operate within these two segments contributed to the increased cost.
What Hoteliers Can Do
Owners and operators are taking three primary approaches to control telecom costs. As part of efficient cost control, organizations within the industry are undergoing IT audits and consolidating telecom vendors across portfolios. At the same time, organizations are upgrading certain technologies.
The first step is to understand an operator’s technology status through an IT audit and evaluation. This is designed to detail an organization’s current technology landscape, how it performs and what additional needs exist. From there, focusing on vendor consolidation, as hotel portfolios are geographically dispersed, can save costs and time. These first two methods typically identify combined savings of approximately 20 to 30 percent.
Finally, as pricing in the industry continues to compress, even recent contracts maybe subject to savings. Owners may be able to upgrade a Dedicated Internet Access to current market pricing—saving 20 percent in the process—while improving the speed capabilities by 200 to 300 percent.