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« Starbucks Goes All-In: Free, Unlimited Wi-Fi Starting July 1st | Main | T-Mobile Expands HSPA+ Markets »

June 14, 2010

With Starbuck's Move and Widespread 3G, Who Pays for Wi-Fi at Hotspots?

Starbucks switch on July 1st to all-free service in the US leaves paltry few American users to pay at a dwindling number of fee-based destinations: Starbucks is the latest entry to the free party, deciding the Wi-Fi is an expected amenity to attract customers, rather than an exceptional service for which the coffee chain should be expected to receive some benefit.

Although free Wi-Fi took a long time to ignite, the drop in price for 3G cellular data along with cheaper smartphones and the 3G model of the iPad likely mean free will ultimately trump fee. AT&T's been a big help in that direction, both in decreasing 3G costs and in making Wi-Fi freely available to its customers.

That trend really started in 2008, when Starbucks moved to AT&T's network, and started offering limited free service with a Starbucks Card. That represented a significant expansion of AT&T hotspot network. AT&T purchased Wayport, which operated McDonald's network and well over 1,000 hotel properties and a few airports, in late 2008.

AT&T has over 32 million qualifying broadband, business, and smartphone subscribers who get free access. But with about 20,000 of AT&T 21,000 locations now free with the Starbucks transition--Starbucks 6,700 locations joining McDonald's roughly 12,000 and Barnes & Noble's 700-plus--what value does AT&T still offer?

The value is in AT&T's seamless integration on smartphones and laptops. It's in AT&T's interest to move 3G subscribers to Wi-Fi hotspots to offload use from the cell network--even when 3G users are paying by the megabyte or gigabyte. An uncongested network is worth more than the overage revenue. AT&T's experiment with a Times Square hotspot network solely for its own subscribers is part of that offload effort.

Beyond AT&T, who is left paying? There is still plenty of for-fee Wi-Fi if you look for it--or are caught in the wrong place. Most premium hotels still charge for Internet service, whether wired or Wi-Fi, while budget and mid-range hotels went free years ago. Yes: pay less for a hotel, and you get a $10-$15/night service at a luxury inn thrown in for free. (In Europe, hotels may charge remarkable amounts, such as $30 to $40 per day for access.)

It's not universal, of course. My family stayed at an Embassy Suites in Portland, Ore., a few weeks ago that wanted $10/night for Wi-Fi. I had brought my 3G iPad, and my wife and I had iPhones, so, no thank 'ee.

Convention centers and hotel conference centers also typically charge for Wi-Fi unless a conference organizer has paid truly insane amounts of money (often thousands of dollars per day for T-1-like--1.5 Mbps--access) to provide it free to attendees.

Airports used to be a reliable place in which you would have no choice but to pay for Wi-Fi unless you had a service plan, but several of the nation's largest airports have now switched to a free-with-ads model, with many second-tier but still bustling airports leading the way over the last few years. Seattle's Seatac went free in January after a holiday promotion by Google that provided free Wi-Fi at dozens of airports; Denver's been free for years.

Atlanta and some other larger airports have considered removing the fees, too, although most are trying to figure out how to pay for the cost. The biggest airports won't see an increase in passengers choosing them as a hub, but having happier passengers promotes more flying, I'm sure, as well as more spending at concessionaires who pay percentages to the airport authority.

I would imagine that all regular business travelers with the least bit of savvy have a 3G laptop modem, or rely on tethering or mobile hotspot service from a 3G phone.

Hotels saw exorbitant call, fax, and Internet fees dry up when guests began carrying cell phones and then cell data cards and 3G phones. The same pattern is likely to emerge in other venues.

Rather than give up a relationship with the customer or passenger altogether, opening up free service lets a restaurant, hotel, airport, or convention center engage with that person by providing captive portal information and advertising.

AT&T's recent switch away from unlimited iPhone and iPad plans means travelers will be more likely to want to offload data usage, and thus willing to accept advertising as a necessary component when on the road.

Starbucks is also trying to provide a specific value beyond free: this fall, when it launches its content network, you'll be able to read the Wall Street Journal for free (along with unspecified other downloads and services from other firms) when you're at a Starbucks.

In the not-too-distant future, the only place you need to pay for access will be in the friendly skies: there's little chance airborne Wi-Fi will go free, because it's the last captive venue.


Cruise ships also have started WiFi - but that, like airplanes, will cost you. On a recent cruise I saw a number of folks "surfing" electronically.

Old hat: I used Wi-Fi on a cruise ship in 2002! An early effort, but most cruise ships had Internet access back then, and started adding Wi-Fi a year or two later on bigger ships.

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