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

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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 there are at least six ways this decision 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 users must pay for access.

But free access is just the beginning. Here are six changes that have been created—or at least clarified—by the Starbucks-AT&T arrangement and what those changes will mean for users.

1. More free Wi-Fi

Coffee and Wi-Fi have always been sold separately in 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 for 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 hotspots 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 hotspots?” 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&Ts 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 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 hotspots. 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 JupiterMedia’s 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.

4. More iPhones and other wireless devices

Analysts and industry types agreed that more free hotspots could lead to increased sales of Wi-Fi-equipped mobile devices and, in particular, more iPhones.

“iPhone is a wonderful device but (free Wi-Fi) will help sell all types Wi-Fi devices like gaming devices, music devices, cameras, notebooks, tablets, ultra-mobile PCs,” Wayport’s Lowden said.

For example, photographers with Wi-Fi-equipped cameras could stop into a coffee shop and upload photos to a photo service. Or, wireless game devices could be used to play interactive games, Lowden said. However, Apple is likely to particularly benefit from the move because, in the U.S., AT&T has an exclusive arrangement to sell the iPhone. And Apple already has a deal in place in which iPhone users can access music for free when they’re in Starbucks.

“AT&T could bundle Starbucks into the iPhone service,” said Phil Redman, an analyst for Gartner, echoing widespread speculation that has been circulating around the Web.

The bottom line: The Starbucks-AT&T plan could both be the nudge needed to popularize a host of new Wi-Fi-ready devices and could also provide an additional boost for the already-popular iPhone.

5. Mobile media everywhere

Deals such as the one between Starbucks and Apple to give free tunes to iPhone users while they sip their lattes could become more common, some analysts said. Such offerings are meant to further increase store traffic.

“It makes Starbucks another point of access (for music) with Apple selling tracks or giving them away,” said Strother. “We’ll see more of that sort of thing—giving away songs as teasers or get free music when you’re in a store.”

Another example, Strother noted, is that Nokia is talking about giving away free music for a year if you buy a specific type of phone. “This trend hasn’t really arrived yet, but Starbucks definitely could play into it.”

Certainly, the infrastructure exists at places such as Starbucks. Lowden said that much free media can be stored on local servers that Wayport will install in each Starbucks store.

“Our strategy is to enable all kinds of public and private side applications on the network,” Lowden said.

The bottom line: Music and Wi-Fi combined would make a powerful marketing tool and Starbucks has already dipped its toe in those waters. It is likely that, in the future, whether you are in a coffee shop or getting your oil changed, you’ll have easy access to more media.

6. Small, independent coffee shops could be hurt

In Seattle, where coffee is something of an obsession, Starbucks has long had a reputation of moving into neighborhoods and pushing out small, independent coffee shops. Whether or not that reputation is warranted, many fear that small coffee shops will be further imperiled by Starbucks move since those smaller shops often use free Wi-Fi to attract customers.

Wayport’s Lowden disagreed.

“I honestly think it’s good for everyone,” he said. “If more people use (free Wi-Fi) at strategic brands (like Starbucks), they’ll become used to having it everywhere when they’re mobile. More people will use it, whether they’re at a strategic brand or a mom-and-pop store.”

The bottom line: Admittedly, this isn’t a technology issue, but this move could result in fewer choices when it’s time to get your go-juice and log in.

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