starbucks

Is the end of paying for Wi-Fi near?

February 12, 2008: 2:51 PM ET

By Michal Lev-Ram

You know the feeling: You just ordered your caramel machiatto (extra foam), sat down at a table and opened up your laptop. You log on, hoping to quickly check your e-mail, when all of a sudden a screen pops up asking for your name and credit card information. That's when you realize that hopping online won't be as quick -- or as cheap-- as you'd hoped.

Say goodbye to all of that. On Monday Starbucks (SBUX) announced it was dropping T-Mobile's (DT)' s $6-an-hour Wi-Fi service for AT&T, which will provide coffee- house customers with two free hours of Internet access a day. With about 7,000 Starbucks locations in the United States, that's a major boon for AT&T (T). Now the question is, how long will hotels, airports and other venues be able to continue charging sky-high fees for a service that many people see as essential as running water and electricity.

"This is something that people want," says Morningstar analyst John Owens. "I think customers will embrace this move."

Of course, Starbucks' hopes free Wi-Fi will convince coffee drinkers to not only opt for Starbucks but also to stick around longer and buy more lattes. To log onto the company's new Internet service, customers will need to have an active Starbucks card.

"This is what customers have been asking for," says Starbucks spokeswoman Sonja Gould. She says a typical Starbucks Internet customer uses one hour of Wi-Fi a day. The company will begin rolling out the new service at select locations this spring. By end of 2008, it will be available at all Starbucks' U.S. stores.

When Starbucks first introduced its fee-based Wi-Fi service in 2002, it seemed like a novel idea. But today, when many consumers have become accustomed to getting their Wi-Fi for free, the model seems outdated. Last October the Seattle-based coffee chain began providing free Wi-Fi access for iPhone users to buy music on iTunes.

Put simply, people don't want to pay for Wi-Fi -- let alone deal with signing up for it. That's why JetBlue (JBLU) has begun testing a free in-flight Wi-Fi service that gives limited online access to its passengers.

Jupiter Research analyst Julie Ask says the Wi-Fi offered in hotels, restaurants, airplanes and coffee shops like Starbucks never needs to be completely unlimited and free. But most consumers -- who just want to check e-mail or get a quick read of the news -- do expect some form of free access.

"It's a tool that builds loyalty for companies," says Ask.

Many of Starbucks' competitors already offer limited free Wi-Fi. Minneapolis-based Caribou Coffee gives customers a free hour a day. Those who don't will probably need to if they want to compete.

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