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Six ways the Starbucks-AT&T deal will change mobility

More free Wi-Fi means changes for mobile users

By David Haskin
February 14, 2008 12:00 PM ET

Computerworld - At first blush, Starbucks' decision to drop T-Mobile and use AT&T to provide in-store Wi-Fi access may look like just another inside business choice. A closer look, however, shows that this deal could change the way many of us are mobile.

As a practical matter, the transition to AT&T means that anybody with a Starbucks card, which provides in-store credit, will get two hours of free Wi-Fi access a day. Currently, all Starbucks customers using T-Mobile's Wi-Fi network must pay for access.

But free access is just the beginning. Here are six ways that the Starbucks-AT&T arrangement could change mobility and what those changes will mean for users.

1. More free Wi-Fi

Coffee and Wi-Fi have always been sold separately at Starbucks. However, that model isn't working for Starbucks anymore.

Now, Starbucks "will be using Wi-Fi to sell more of their core products," said Derek Kerton, principal of The Kerton Group, a telecommunications consulting firm. "Other coffee shops use [free or cheap] Wi-Fi to get people into the store, and Starbucks felt they were losing business."

Dan Lowden agreed that free-Wi-Fi benefits both customers and Starbucks. Lowden is vice president of marketing and business development at Wayport, which is the behind-the-scenes provider of the AT&T-branded Wi-Fi service that will be in Starbucks stores.

"It gives customers more value, and that makes them more sticky," Lowden said. "Sticky" refers to customers who spend more and come back more often. He said Wayport, which also provides Wi-Fi in locations such as McDonald's restaurants, has run frequent surveys that confirm that fact.

The bottom line: Expect to see even more free hot spots at a greater variety of venues now that Starbucks has taken the plunge.

2. More and better bundles

If this deal is a marketing win for Starbucks, it's also a big win for AT&T, even though the telecom supplier probably won't make much money directly from Wi-Fi.

"Is AT&T trying to make money on Wi-Fi hot spots?" asked Kerton. "No. Like Starbucks, they want to use it to sell their key products." And that, Kerton and others noted, means free or cheap Wi-Fi will increasingly be part of service bundles offered to customers.

Such bundles, for instance, could include any or all of AT&T's services, such as DSL and cellular voice and data, theoretically providing attractive pricing if customers are willing to lock into acquiring all those services from a single vendor.

"I think we'll definitely see a lot more bundles," said analyst Neil Strother of JupiterResearch. "AT&T and Verizon, in particular, are looking for the triple and quadruple play if they can get it. They can be your broadband ISP; they can provide TV, landline voice access and wireless. Now, with Wi-Fi, that's even better."

The bottom line: Bundling is not a new phenomenon, but expect to see many more bundles, particularly those involving access to hot spots. The benefit is better value for users. The gotcha: You must commit to a single provider for multiple services, which means less freedom of choice.

3. T-Mobile is hurt

T-Mobile tried to put a happy face on the loss but was also tight-lipped. It issued a statement noting that its roaming agreement with AT&T means existing T-Mobile subscribers will still be able to log on at Starbucks without additional charges. However, it refused to let its executives talk one-on-one with the media about Starbucks' decision.

"To put it bluntly, I think it's a tough loss for them," said Strother.

T-Mobile is the fourth-largest cellular operator in the U.S., and it has continued to add subscribers in recent months. However, it also is the only major U.S. carrier without a 3G network, which it is rushing to launch. Its Wi-Fi network was meant to provide connectivity until the 3G network could be launched.

Part of the problem was that T-Mobile was locked into an out-of-date business plan, Kerton said.

"T-Mobile's model was based on what hot spots were in 2002, and that model wasn't working anymore," Kerton said. "They haven't shown themselves very forward thinking or flexible in terms of pricing or keeping the Starbucks account. If it's a setback, it's of their own making."

The bottom line: It's way too early to tell how much T-Mobile will be hurt. But the loss of Starbucks certainly can't help, and if T-Mobile stumbles, competition in the cellular sector will lessen.



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