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October 11, 2007

Free Wi-Fi from Starbucks? Ha

By Glenn Fleishman

Mike Elgan, who, please note, I like and have worked for and with in the past, so don’t take this wrong, is bloody foolishly wrong: Elgan predicts that Starbucks will drop its fees for access in the next year. Ain’t. Gunna. Happen.

Let’s get to facts about who operates this network first. Elgan says that Starbucks offers Wi-Fi along with partners T-Mobile and HP. Now, I don’t know how HP wound up getting its name inserted in there—Compaq had a multi-year supplier deal with Starbucks that HP acquired in the merger—but T-Mobile is the Wi-Fi provider; Starbucks is its customer, perhaps branded as a “partner,” because Starbucks remains the single largest tenant on the T-Mobile USA HotSpot network, and a significant customer in Europe, too.

Elgan says we get free Wi-Fi of a sort already: with the right gear, you can buy songs from Apple via iTunes over a Starbucks-located T-Mobile hotspot. Right. And I can drink my own coffee in Starbucks, too, as long as I purchase it from them. Not really the same as free Wi-Fi when it’s simply an alternate retail delivery channel for digital media—not Internet access.

The reason that Elgan thinks that Starbucks might go free is because of McDonald’s: the two giant chains now compete in some categories, with McDonald’s providing pretty good coffee and Starbucks offering things that resemble upscale Egg McMuffins.

Here’s where things go off the rails. Elgan writes that with UK McDonald’s offering free Wi-Fi over the coming months, that the quick-service restaurant franchiser and owner will “gradually roll out Wi-Fi at restaurants in other countries—including in the U.S.” Mike, sorry to tell you this: McDonald’s has Wi-Fi at over 8,000 locations in the U.S., with Wayport providing the service. McDonald’s uses it for internal purposes, AT&T resells it for $0 to $2 to its DSL customers as part of AT&T WiFi, Nintendo DS users access it for free (since 2005), and so on. (McDonald’s has over 15,000 restaurants unwired worldwide.)

This rollout started in 2004 after a heated competition among Cometa, Toshiba, and Wayport. Wayport won. Toshiba exited the business. Cometa shut down. Man, I wrote a lot about that back then. How soon we forget.

Also important to recall that McDonald’s is organized into national divisions, and it’s unlikely that a directive would spread worldwide for something like Wi-Fi access, which intersects with culture and technology in each country. Ditto, T-Mobile, which has a separate U.S. organization, and sells hotspot access on a separate basis in the U.S. from its European operations. (There’s a roaming deal that’s purely on a metered basis between T-Mobile’s European and U.S. Wi-Fi customers.) In the UK, hourly charges for Wi-Fi are ridiculously high (several pounds an hour isn’t unheard of), and there’s a countervailing movement to bring more free Wi-Fi to the front, as well as inexpensive unlimited plans; thus, McDonald’s UK hopping on that trend.

I have never had a conversation with T-Mobile about its hotspot network in which it wasn’t made clear that they were perfectly happy, if not occasionally ecstatic, about the usage, its growth, and the resultant effect on their segment of the corporate bottomline, even though I’ve never been told dollar figures. Occasionally, T-Mobile releases usage numbers, and they’re awfully good. That’s partly because T-Mobile’s network is designed to reduce churn and retain customers. Customers who pay the $30 per month as voice subscribers for unlimited EDGE and unlimited Wi-Fi must be fairly happy—and they’re not paying $6/hour to use a Starbucks Wi-Fi network, either.

If Starbucks went free, T-Mobile would lose a large portion of its customers paying it for unlimited Wi-Fi. And their churn would increase. And they’d lose the portion of walk-up dollars, which is probably a decent amount in the several airports they cover. Thus Starbucks would need to pay T-Mobile a fairly significant amount of money, perhaps tens of millions of dollars a year, if that money could begin to cover long-term customer retention on top of real revenue.

So. Ain’t. Gunna. Happen.

Posted by Glennf at October 11, 2007 1:58 PM

Categories: Cluelessness, Hot Spot

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