Telecommunication in Retail Centers
Retail centers are one of the biggest users of telecommunications services. Thanks to a diversity of tenants and current market dynamics, the needs of retail properties for high-quality telecommunication systems are no less than those of business centers.
The telecommunications infrastructure of any shopping center plays a major role in attracting its tenants. This is why these services are garnering so much attention. As a rule, telecommunications infrastructure generally includes mobile and fixed phone systems, widespread access to the internet, data transfer, video observation, information systems, and a general system for storage management. According to telecommunication specialists, a shopping center must offer the same sort of telecommunication equipment that is seen at any class C business center. Most of the tenants present at any shopping center require, at minimum, access to telephones and internet.
Essential Components
As observed by the director of development for WestCall, Ivan Lopatin, “The telecommunications elements that must be offered in any location generally depend on the zone where the shop is situated within the center. The shopping zones include the non-food items like clothing and jewelry, grocery supermarkets and hypermarkets, the food court, and the restaurants. For tenants located within the non-food zone, the types of telecommunications services are not so large – phone-lines and internet are essential, as is a peer-to-peer channel for keeping in contact with the central office. The grocery sector requires a data transfer channel, insuring a link between the hypermarket and the central office, where pricing data is constantly fluctuating, creating a very real need for this reliable channel in this sector. Restaurants often may require Wi-Fi access to the internet and VPN channels, as well as a WEB terminal for the wireless communication needs of employees and visitors. Sometimes cable television will be requested. In connection with the specific needs of each zone, the components of the telecommunication infrastructure are assembled and monitored through the structural cable system, or SCS.”
These needs are considered basic for the properties presented on a shopping and entertainment property. Clients may also be looking for services outside the classic package, needs which can be satisfied through unique telecommunication solutions. For example, basic Wi-Fi technology can also be used to create an internal network to guarantee personal mobile links under fixed fees. Communication between the shopping center and the central office can be achieved via the VPN channels or through fiber-optic cables. The large networks that require an immediate linkup between several shopping centers at once prefer a private connection, since it guarantees greater reliability and confidentiality of information.
“Ultimately, the number of required services at a shopping center is high, making specific demands on the distribution networks within the building and requiring the establishment of powerful long-distance communication networks,” explains Anna Pletneva, head of commercial real estate projects and elite residences for Komstar-OTS. Mobile operators must have the opportunity to provide shopping centers with a wide variety of services. This includes a telephone with multiple lines, preferred numbers, personal networks, and the integration of telecommunications systems at the local branch with the company’s central offices.
Additionally, the retail centers are quite demanding when it comes to the quality of their telecommunications services. This specifically includes those services which play a role in the retail, entertainment, and office segments of the property – for these operators, communication with the outside world can be a vital necessity, and even a short-term interruption can be critical.
As the head of divisional sales for corporate and small business clients at Golden Telecom, Kevin Kaff, observed, certain shopping centers today work simultaneously with two operators. One of them provides clients with basic networking services, while the other provides a reserve system in the event of an accidental interruption in communication.
Construction and Installation
In the opinion of Kevin Kaff, “The sooner work starts on the creation of the telecommunications network, the better.” Theoretically there exists a risk that those telecommunications systems planned well ahead of time may already be obsolete by the time construction is accomplished, if for this or that reason construction work falls particular far behind schedule. This may cause changes in the design of the shopping center under construction. In such instances, the functions supported by the purchased equipment systems may not be adequate. Such problems come up rarely, however, says Kevin Kaff. “The majority of developers today prefer to plan out their telecommunications systems ahead of time and test it well before the opening of the property up for operators.”
Generally, the developer chooses an operator through a bidding process, allowing him to choose the ideal ratios of cost and quality. Afterwards, the winner of the tender will help to shape the design plan, including the means for implementing the telecommunication solutions. Recently, schemes of shared investment have gained popularity, by which operators create their telecommunications infrastructure at their own cost, later formally becoming the owners of these systems and taking care of repairs and updates themselves. In these situations, there are advantages for the developer as well as for the tenants, who use the services at market price after acquiring them directly from the supplier. The developer in turn economizes his own resources, which often make up 10% of a construction project’s total budget. Not all specialists consider this shared investment format entirely profitable for both partners, however.
“A widespread mistake currently plaguing investors and developers in this stage is the transfer of more and more of the complex’s work to the network operator, who will presumably handle everything with his own money. Despite the apparent advantages, such a scheme also has a lot of disadvantages in the majority of cases, since the network operator will reasonably demand the right to the role of exclusive provider of essential services within this project. Clearly, this is very profitable for the network operator, and this is why so many of them are so vocal in offering developers these sorts of schemes,” says the director of development for Gars-Telecom, Ruslan Aliev.
“Very often the telecommunications operator, who contributes his own equipment to a project, demands an exclusive contract which essentially ties the hands of the managing company to limit his future actions in serving his clients,” warns managing partner of London Consulting & Management Company, Dmitry Zolin. According to Kevin Kaff, “The implementation costs of a telecommunication system in a shopping center may vary from $100,000 to several million dollars. Of course, any proprietor wants to avoid ineffective costs. This is why we recommend active consultations with the accounting departments of the operating company, in order to choose from the better options.”
Often the retail networks acquire and rebuild old Soviet department stores. The new proprietors are presented with a logical question – wouldn’t it be cheaper to perfect the already existing telecommunications infrastructure? “In these cases, it’s almost always more profitable to start from scratch, since there are big differences between the old and new forms of equipment,” says Kevin Kaff.
Costs ultimately depend on the location of the shopping center. For example, in connection with the low level of development found in the regions, the creation of modern telecommunications infrastructure for a retail center can be considerably more expensive than in the capital. When a retail operator begins work in the regions, he is not always able to equip and maintain his infrastructure with the help of firms from the capital. “If we have an office in a given region, of course we take care of the maintenance. If we don’t operate out there regularly, then there are a couple of scenarios. Either we or the proprietor himself can rent out a channel from a local operator, which can be linked up to the provider at West Call. But to begin operation in a region for the sake of one shopping center is just not economically feasible,” points out Ivan Lopatin. “Many telecommunications firms in the capital and in Saint Petersburg enter the regions in conjunction with the retail networks and developers, but most often this process begins with collaboration with the local telecommunications companies,” observes the managing partner of LCMC, Dmitry Zolin. After the telecommunications operator has established the necessary infrastructure, operation can begin and clients can be served.
Operation
The management company or the proprietor can also choose from a number of scenarios when he begins to operate his telecommunications infrastructure. Firstly, operation can be guaranteed to any operator involved in the creation of the project. A second option exists to invite a number of operators into the shopping center. The third option is to create and operate a private and independent infrastructure.
The advantages of following the first scenario must be considered during the planning stages. While formulating the distinct and transparent mechanisms for cooperation, the operator and the proprietor must settle upon a plan with detailed descriptions of adequate rates and sufficient human and technical resources. The operator must have enough experience in the equipage of shopping centers and the technical ability to link up with all of the city’s networks, in order to allow the tenants of the shopping center full access to its provided services.
“Often this second scenario is preferred by tenants who, when first beginning their work at the retail center, bring with them the operators who they have worked with successfully in the past. But a number of problems come up: there is a danger associated with unauthorized users working in the same building linking up to the networks and, additionally, the possibility of disagreeing payment plans and so on. This endangers and complicates the work of the tenants and in the final count the complaints will come down on the management company. The third option may be attractive for the management company as well as for the tenants. The management company sees a chance at high revenues, the option to guide and control the tenants, as well as the efficiency and dependability of the individual services. On the more negative side, the management company has no way of insuring itself against mistakes, as the creation of private units requires highly qualified personnel and practical experience. Additionally, this type of activity requires specific licensing and quite significant expenses in the acquisition of the appropriate equipment. As a result, there is a danger that tenants will not be satisfied with the quality of the services offered, or with their cost,” explains the general director of Torgovyi Kvartal, Nikolai Volchkov.
“Creating a personalized telecommunications structure for a shopping center is not effective. A managing company may guarantee a well-run infrastructure, but this sort of technical network is just not commercially feasible. It’s connected to the high costs of organizing these kinds of services – you have to get the licenses, work through the various state institutions, and connect with various operators. Sometimes we completely outfit a shopping center. Sometimes proprietors independently operate the SCS system, and the operators provide the outside link. This all depends on the legal and commercial conditions,” observes Ivan Lopatin.
“After cursory analysis, the possibility of creating a personalized telecommunications network and making additional revenue by selling services to tenants may seem like a good idea. But in practice not one of these pocket operators has successfully turned a profit. Experience shows that the commission which operators traditionally pay to the developer when providing a property with services, is either equal to or greater than the profit of the local operator. The reason that the pocket operator loses money is the significant volume of expenses, including the formulation of a technical staff, purchasing and repairing equipment, organizing a support service, securing all the necessary permissions and licenses, and, finally, the necessity of generating permanent investment in the company. In the end, the creation of a pocket operator makes a company an exclusive provider of telecommunications services and simultaneous creates a new reason for tenants to refuse the services of the business center in the first place. The pocket operator is in fact considered a big disadvantage for serious tenants,” says Ruslan Aliev.
Dmitry Zolin, however, does not agree. “If we are speaking about an individual development project, it may certainly be profitable to outsource. But if you’re building up a network, it is certainly simpler and more profitable to organize a personalized telecommunications structure. Today the market is full of examples of both variants.”
The Future of Shopping Center Telecommunications
Today there is a great deal of competition on the telecommunications market. According to Ivan Lopatin, this is because “the telecommunications market is actively developing, new technical solutions are appearing every day, and new standards of quality are being raised. This is creating a consolidation on the market, the merging of smaller companies and larger ones and in many circumstances the confederation of company groups behind a single preferred operator. At the services auctions for every project, we usually see only two or three major companies take part in the usual bidding process, no matter what the project may be.”
“Developers are demonstrating a readiness to work with a greater and greater quantity of operators. There are quite a lot of operators currently working on the market, and all of them, especially recently, have preferred to work with the managers of the properties, rather than with the individual clients who do business on them from day to day. As a rule, the shopping center guarantees the operator exclusive access to his property’s telecommunications infrastructure and the operator’s presence helps to make the property more attractive for tenants,” says Anna Pletneva.
The high level of competition seen among shopping centers mandates that operators perfect the technological services which they offer to their clients, particularly as applies to connection speed and bandwidth, and to the increasingly popular Wi-Fi technology. “In the near future, developers and operators will pay more attention to energy efficient technology, which is already a very widespread reality in the West,” says Kevin Kaff. As for the prices of the telecommunications services, experts agree that they will gradually decrease, in consistency with the steady trends that have been observed over the past several years.