Market Know-how: A Coin in the Money Box of Loyalty

The 90s generation can hardly imagine that the Internet never existed before. But technologies are constantly improving. Now, to take advantage of the World Wide Web, there are a number of mobile communication devices: notebooks, communicators or smartphones.

Wi-Fi technology allows you join the web without wires. Airports, hotels, restaurants, coffee houses - communication is everywhere. In the majority of places this service is free-of-charge. Experts say that it attracts additional visitors. And for those whose life is inseparable linked with the use of Internet-resources, often the fact that there is access becomes the solution in choosing a hotel or a place for business lunch.

Operator, connect me

In Moscow there are rather a lot of operators that render this service. Of those by ear are STsS Sovintel (Golden Telecom group), VimpelCom (Beeline brand), Megafon-Moscow, and Mobile TeleSystems (MTS).

According to the press-service of Golden Telecom, the company is the largest operator in providing city Wi-Fi in the world. The press-service notes that the company has almost 10,000 access points. More than 350 establishments use Golden Wi-Fi.

A source at one of the operators that wished to remain anonymous, says that installation of one hot-spot (an access point to the Internet) costs on average $300. However Golden Telecom has not confirmed this figure. The employee of the company explained to Vedomosti, that installation of points is a labor-consuming process. The main part of the expenditures is on expenses for optical fiber, a server, etc. According to him, each time the cost is different. Therefore it is extremely difficult to give a specific figure.

The cost depends on a set of factors: the reputation of the client, attendance to its establishments, interest in it of the operator, etc. For example, the press-service added that, in an educational institution or a well-known chain of restaurants installation may be free-of-charge.

There are two main models of work for the operator and the customer. Under the first the company pays for the installation of hot spots, having decided to introduce Wi-Fi themselves for end users to use free-of-charge. The second is the complete opposite. That is the operator installs the points of access free of charge, and the end user pays to use the product. For example, pays for traffic, having bought an access card.

Golden Telecom say that according to consulting company Json Partners, in September 2006 there was more than 140,000 hot spots in the world. 40 per cent were in cafes, 26 per cent in hotels, 12 per cent in shopping centers, 3 per cent in offices and 19 per cent in “other.” According to the forecasts of the company, at the end of 2007 this figure will have increased to 200,000, and in 2008 to 260,000. In Russia the active growth of Wi-Fi networks begun in 2004-2005. Now demand continues to grow. This is confirmed by the growth of the user base of the GWF network. In 9 months Golden Telecom has attracted 40,000 users and every month comes more than 5,000 users, says the press-service. And access to Wi-Fi is possible in a radius of 150 m from the location of the access point.

But it is not only Golden Telecom who has an increasing number of clients. Irina Osadchaya, press-secretary of MTS, says that in 2007 the company’s number of hot spots have increased more than three times, from 90 to 300 access points. She confirms that demand for services is growing, operators are establishing new spots, and the number of active users of Wi-Fi is growing. In her opinion, that fact that barriers on payment have been removed significantly promotes growth. For example, subscribers of MTS can pay for Wi-Fi access through SMS authorization.

According to the company, there are now various subscribers, from students to businessmen. They are people who actively travel and often visit the main points of access to Wi-Fi - restaurants, airports. It is the most demanded service at airports, argues Osadchaya, and in hotels, restaurants and business centers.

The company’s access points are located in various places. For example, at Sheremetyevo-1, Sheremetyevo-2, and Domodedovo airports. It has hot spots in the Shokolad chain of cafes, Tsifrova stores, and the Rolf dealer chain. MTS explains that installation of a hot spot has special requirements - transceivers, aerials, etc. Yekaterina Osadchaya, press secretary of VimpelCom, says that the company has offered access to the Internet through Wi-Fi since 2004. At that time Wi-Fi wireless access was put into operation at Sheremetyevo-2, Sokolniki expocenter, and the Iris and Vinograd Holiday Inn hotels. The nationwide project of a network of wireless access to the Internet from Beeline started on August 1, 2007. She says that the company has independently planned the project, which focuses on the large airports of Russia. In total 11 airports are involved. Since August 20 of this year VimpelCom has begun adding to them.

In installing Wi-Fi access points Cisco equipment is used, Osadchaya says. Beeline operates on the wireless standard IEEE 802.11b radio channel (frequency – 2.4 GHz, width of channel - 20 MHz, speed of data transmission - up to 11 MB/sec). The connection speed of hot spots is up to 2 MB. The radius of hot spots within a premises, are on average from 40 to 100 meters depending on the features of the premise.

Despite growing demand, mobile operators will not compete seriously with companies whose main business is Wi-Fi. At least in the near future. For them it is more likely a program of increasing the loyalty of subscribers.

Roman Prokolov, adviser of the general director of Megafon-Moscow, that only in the autumn of this year the company started to develop Wi-Fi services. In Moscow at present MegaFon has about 10 hot spots. Prokolov says that this year MegaFon is not going to compete with large Wi-Fi operators. The services will more likely be used to raise the loyalty of subscribers of the chain, than to become a source of serious income. In other words, until the end of this year users of the network will get Wi-Fi free of charge.

“Probably, there will be bonus programs. For example, if you stay on our network for two hours you will get two cinema tickets in the love seats,” says Prokolov. But everything is at the development stage, he adds. The top-manager emphasizes that in any case it will be an additional bow to the main services. He also added that the task before the company is to provide Wi-Fi to subscribers in those places where there is no access to the usual Internet. This is in airports, railway stations, parks, shopping and entertainment centers, Manezhnaya Ploshchad or any boulevard in the city center.

“It is possible to put 3,000 hot spots in the city and collect $10 million from them, and it is possible to put 300 hot spots in the busiest places and collect $5 million from them. For our company the second is an interesting business-model," explains Prokolov.

Having analyzed Russian and world experience, Megafon-Moscow considers Wi-Fi in a greater degree as an image project, which increases the trust of subscribers to the operator. At the same time its five-year business plan talks about its profitability. The first tens of Wi-Fi points in Moscow which will appear in the near future will allow to check these hypotheses and if necessary bring updates to the plan of construction of the network, says the company. And such an approach will not damage the budget.

Vasily Kuzichev, director of development at Megafon-Moscow, says that at the first stage the sum of investments of the project for the company is minimal and less than $200,000. This is connected with the fact that Megafon already has a network, capable of taking additional traffic, and a prepared solution in St. Petersburg, which can be used for work. For example, if the network was being expanded to 10,000 hotspots the investment would be “just a few million dollars."

Now in the world I don’t know of a Wi-Fi project, which would be 100 per cent profitable. For example, the Yandex project. A person comes to a cafe, pays for a meal and in passing looks through some websites,” explains Kuzichev. Since January of next year a tariff for Wi-Fi will be introduced. According to Kuzichev, in most likelihood in 90 per cent of cases using the service will cost 100 rubles. Final confirmation of all the programs currently being developed should take place at the end of the first quarter of next year, he adds.

Internet for dinner

Going to a restaurant with a notebook has become completely normal. Whilst having dinner, it is possible to look through your mail, combining business with pleasure.

In May 2004 the first restaurants of Rosinter Restaurants Holding started to render visitors Wi-Fi services free-of-charge. This opportunity is also available to the workers of the chain of restaurants. The service is part of a package of proposals of the employer to the employees, Nikolai Burov, general manager for information technologies at Rosinter Restaurants Holding says.

Technically it is simple to develop Wi-Fi services. It is already a worked through and rather stable technology with "a clear complex of equipment and software. It is not difficult to organize an area of coverage, and limit it, he says. For example, in a shopping center near to a restaurant of the holding there is a competing restaurant. Or near a conceptual restaurant there is a food court. In such a situation it is shortsighted to provide coverage of a network for the tables of the competitor. But this is not so much a technical complexity, than it is a business issue, considers Burlov.

In his opinion, Wi-Fi providers are even more interested in development, than those who have introduced the service itself. Competition in granting this service is heated. Practically all providers are prepared to incur expenses on connection and some even operational expenses. Now, in truth, not at all restaurants of the holding have wireless access, but the companies "are aiming for 100 per cent coverage.”

It is possible to not only allocate the category of users of this service, but also to correlate peaks of activity at certain times of the day, says the holding. Lunchtime is typical for a business-lunch during which businessmen use the Internet to access mail while they are outside the office, to read the news, etc. After 4pm and up until the evening there are young men (schoolboys, students) who are mainly interested in blogs, chat, etc. In the evening the categories are mixed: looking at entertainment websites, chat, and mail traffic prevail.

But it is not only restaurants that are ready to connect their clients to the Internet. Wi-Fi will also be in coffee houses. For example, in Shokoladnitsa, the service was rendered more than a year ago, Gennady Sbytov, director of the IT department of the chain, says. At the moment Wi-Fi is available in more than 77 Shokoladnitsas. And this figure, approves Sbytov, is growing all the time.

From the point of view of introducing the service in an establishment he considers the main problem as gaining approval from the owner of the building for the arrival of a telecommunications operator to lay a cable and install an aerial (for radio access). The rest is rather simple. Sbytov does not name the costs of installing a hot spot or how much users have to pay. However he estimates them as "rather accessible".

Sbytov it is sure that the service will develop both in terms of availability (coverage zone), cost per hour (a reduction) and connection speeds (an increase). There are different schemes of cooperation with telecommunications operators, he explains. The main one at the moment in Russia is agential. That is to say a company sells Wi-Fi access cards of any operator and receives a percentage from the sum of the sold cards.

Free-of-charge Wi-Fi or not, it attracts additional visitors who need communications, summarizes Sbytov.

In the Coffee House chain of coffee houses Wi-Fi has been available since the start of 2006. This is an image service and is directed to attract visitors to coffee houses, Svetlana Travyanskaya, manager of the company’s marketing department says. “Carrying out Wi-Fi services is included in a package deal of our operator. But there are objective reasons as to why in some coffee houses it is impossible to have Wi-Fi: not all shopping centers permit our operator, themselves having their own operator and its services. And sometimes it is the remoteness of a coffee house,” she says. Nevertheless 56 coffee houses of the chain have introduced wireless access. Also, according to Travyanskaya, this service allows us “to keep up to date, and not lag behind in high technologies.” But the company does not receive any additional income from Wi-Fi.

Hotels with access

Representatives of hotel chains say that more and more often the hotel a client chooses is based on its interest in whether or not there is Wi-Fi on its territory.

One of the main technical requirements for all hotels operated Rezidor Hotel Group, is Wi-Fi coverage, Michel Stalport, regional vice-president for Russia, the CIS, the Baltics and Turkey at Rezidor Hotels Group, told Vedomosti. The service is given to visitors free of charge.

In the Kosmos hotel (belonging to Intourist and managed by Intourist Hotel Group) Wi-Fi Internet access services have been available since April 2007. If a hotel is small, 100-200 rooms, it is possible for the whole hotel to have coverage. Except for in the rooms where you are still able to access the Internet through dial-up connection, Yulia Krylov, the chief mass media expert from the department of external communications at Intourist, explains. In the Kosmos there is one Wi-Fi zone (hot spot), and in other hotels of the company there are up to 21. The size of a premise is unimportant, what is important is for what purposes it will be used. More often people use the Internet in their rooms, in the restaurant and in the conference halls.

If the installation of a Wi-Fi point is for the needs of the customer, the owner of a premises pays for the installation of а hot spot and a monthly payment for using the services under special tariffs for corporate users is set up. Having installed hot spots, for example, in a conference hall, employees or visitors have the opportunity to connect to the local Wi-Fi network, go on the Internet or receive information from network disks. This variant is optimum for guaranteeing high-speed access to the Internet in significant territories - in large office centers, hotels and showrooms, she summarizes.

In the Ritz-Carlton Moscow hotel since July 1 of this year it has also been possible to take advantage of the Internet without superfluous wires and without payment. According to Sergey Logvinov, director of public relations at Ritz-Carlton, the service was introduced not to try to get additional profit, but to meet the desires of guests. Wireless access is available on the whole of the territory of the Ritz-Carlton: in public zones, restaurants, hotel rooms, bars.

And since February 2007 the Ararat Park Hayatt has joined the list of hotels, which have hot spots. According to the press-service of the hotel, there are 46 access points.

In flight with a notebook

Airports are not lagging behind, they also have Wi-Fi coverage zones. A passenger can wait for his or her flight without taking a break from activities on a gadget in his or her hands.

At Domodedovo international airport any interested person can take advantage of Wi-Fi since November 2003. All over the world, airports are ranked as the most profitable premises from the point of view of expanding networks of wireless access, therefore suppliers of the services create Wi-Fi zones first of all there, Darya Korshunova, director for external communications at Domodedovo, says.

The mobility of the population and the need for telecommunication services is constantly increasing. Therefore the popularity of Wi-Fi will grow due to the ordinary visitors of the airport who use notebooks, smartphones and communicators to entertain themselves, and due to business passengers who need easy Internet access for business purposes, she assures.

Now in the territory of Domodedovo there are about 60 hot spots and during the expansion of the airport their number will grow, specifies Korshunova. The transmitter has a circular coverage zone. Before installation metering and inspection of the territory or premises are carried out. Installation of transmitters is on the basis of mutually overlapping waves for confident access without ‘holes’. The weight of the transmitter is about 1.7 kg, which allows for them to be easily fixed wherever necessary. The expenditures on carrying out design work and installation of transmitters are born by the operator, says Korshunova. It pays the airport a rental rate for the right to accommodate a hot spot and as a concessionaire for the Internet center located on the 2nd floor of the airport. For the end user the cost of the service for one hour is 150 rubles. Korshunova thinks that Wi-Fi is unlikely to influence the choice of airport for the passenger, but it certainly raises the quality of service.

At Sheremetyevo international airport Wi-Fi services were introduced in 2004. Igor Khokhlov, director of the management for information technologies at Sheremetyevo, says that now in the territory of the whole airport (Terminal 1, Terminal 2 and Terminal C) and in adjoining premises (hotels, business centers) there are more than 20 access points, and it is planned for an increase in their number in the terminals. The majority of users, in his opinion, are business passengers for who notebooks or communicators are a constant satellite.

According to Khokhlov, for Sheremetyevo the introduction of Wi-Fi does not cost anything for them. Charges are covered by the operator rendering the service. However he recognizes that the presence of Wi-Fi brings a certain share of proceeds to Sheremetyevo.

Khokhlov is sure that demand for service of wireless Wi-Fi access to the Internet will grow unprecedently, while there will is no cheaper and or more productive technology in the market. And he agrees that the presence of wireless access to the Internet “is far from a determinative in choosing an airport.”