Controlling Telecommunication Costs

By Robert Mandelbaum - Director of Research Information Services at CBRE Hotels and Michael Kane - Business Operations Manager in the Denver office of CBRE

2 July 2021
Robert  Mandelbaum
Robert Mandelbaum
Michael  Kane
Michael Kane

Although telecommunications costs account for a small percentage of expenses, data during 2015 through 2019 revealed a significant upward trend in telecom related expenditures. To achieve more efficient hotel operations and survive the changing landscape, hotel owners and operators are finding new ways to control telecommunications expenses.

To gain a better understanding of telecommunication expenditures at U.S. hotels, CBRE analyzed the costs of phone and internet service within the Information and Telecommunications Systems Department (IT Department) of nearly 3,000 hotels that participated in our annual Trends® in the Hotel Industry survey. Although telecom accounts for a small percentage of expenses, data during 2015 through 2019 revealed 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.

To achieve more efficient hotel operations and survive the changing landscape, hotel owners and operators are finding new ways to control telecom costs.

A Rising Cost

In 2015 the 11th edition of the Uniform System of Accounts for the Lodging Industry established the IT Department to provide greater transparency to the ever-growing expenses associated with the increased use of technology in hotel operations. The service costs associated with phones and internet for administrative needs among staff and complimentary guest phone calls and internet access are recorded in this department.

From 2015 through 2019, total operating expenses [1] increased at a compound average annual growth rate (CAGR) of 2.2% at the properties in our study sample. During this same period, the hotels’ cost for telecom service increased at a CAGR of 9.7%. Individually, the cost of phone service rose by a CAGR of 5.7%, while the cost of internet service increased at an average annual pace of 16.1%. The 9.7% 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%, compared to 1.5% for all operating expenses.

Telecom costs increased the most in the upper-midscale (CAGR 21.5%) and upscale (CAGR 13.9%) 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 to Do

In the current landscape, hotel owners and operators are pursuing strategies to simultaneously eliminate unnecessary spending and increase revenues while meeting guests’ evolving expectations. To control telecom costs and remain competitive, owners and operators are taking three primary approaches. To manage costs more efficiently, organizations within the industry are undergoing IT audits and consolidating telecom vendors across portfolios. At the same time, competitive organizations are recognizing the need to upgrade certain technologies.

While a small, yet vital, expense to the overall operations, 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 %.

Finally, deploying the appropriate technology can create an environment of “better, faster and cheaper.” Pricing in the industry continues to compress meaning that even recent contracts maybe subject to savings. For example, owners may be able to upgrade a Dedicated Internet Access (DIA) to current market pricing (i.e. save 20%) while improving the speed capabilities by 200 to 300%.

Telecom doesn’t limit itself to a specific type of provider or operator. The emphasis of connectivity within the hotel industry is unquestionably going to grow in the coming years, ultimately placing headwinds on balance sheets. Owners and operators across all segments of the industry are tasked with better managing and creating efficiencies with their property portfolios. Additionally, as portfolios become larger through acquisition across the globe, being able to limit disruption and deploy the best technology becomes even more important.

The Need to Watch

During the 2020 industry recession, hotel operators did a commendable job at cutting expenses to offset the severe revenue declines. Hotel owners will look for their operators to perpetuate these cost controls into the future. Finding ways to save telecom costs, in light of decreasing telecom revenue, will contribute to the continuation of efficient hotel operations.

[1] Operated department plus undistributed expenses. Before deductions for management fees and non-operating expenses.

Controlling Telecommunications Costs

Controlling Telecommunication Costs
Controlling Telecommunication Costs
Controlling Telecommunication Costs
Controlling Telecommunication Costs
Controlling Telecommunication Costs
Controlling Telecommunication Costs
Controlling Telecommunication Costs
Controlling Telecommunication Costs

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CBRE Hotels

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Atlanta, GA 30326
United States
Phone: (404) 812-5024
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Robert Mandelbaum

Robert Mandelbaum is the Director of Research Information Services for CBRE Hotels Americas Research. He is based in the firm’s Atlanta office, where he is in charge of Research Information Services. Research Information Services produces the annual Trends® in the Hotel Industry statistical report, along with customized financial and operational analyses for client projects. On a quarterly basis, CBRE Hotels produces five-year forecasts of performance for six national chain-scales, six national location categories, and 55 major U.S cities using its proprietary Hotel Horizons® econometric forecasting model. Mr. Mandelbaum began his hospitality industry career with Holiday Inns, Inc. in Memphis, Tennessee. He started his career with the firm in 1983 in the Memphis office of Pannell Kerr Forster, where he conducted market and financial feasibility studies and operational analyses for hotel, restaurant, club, and conference center clients. Prior to moving to Atlanta in November 1997, he also worked in PKF’s San Francisco office. Mr. Mandelbaum holds a Bachelor of Science degree from Cornell University. He serves on the American Hotel and Lodging Association’s (AH&LA) Financial Management Committee that is responsible for preparing the Uniform System of Accounts for the Lodging Industry (USALI). In addition, he is a member of the Hospitality Financial and Technology Professionals (HFTP) association. He is on the executive board of the Cornell Hotel Society, the author of articles for industry trade publications, a guest lecturer at college and university hotel school programs, and a speaker at industry forums.

Michael Kane

As a Business Operations Manager for CBRE’s Network Advisory Services Group, Michael helps technology and data providers make informed real estate and telecommunications decisions by offering in-depth analysis, market intelligence and strategic counsel. His work spans the globe focusing on providing clients—including providers, end-users, developers and property owners—with industry-leading research and decision-influencing insights. Through strategic, out-of-the-box thinking, Michael also helps identify business development and partnership opportunities. His goal is to connect the dots between companies and across services to uncover previously undetected avenues for adding value to a data center organization. With a diverse background that includes data centers, sports/event promotion, student housing property management and residential brokerage, Michael brings a different perspective to his team and fresh ideas to the world of commercial real estate. A few things that most people don’t know about Michael: he has performed in musicals, have been a NCAA Division I college mascot, and is currently training for a full marathon.

Robert Mandelbaum

Director of Research Information Services
Robert.Mandelbaum@cbre.com