Last week there was a very interesting deal that I've been trying to get my head around. Starbucks has decided that its Wi-Fi hotspots needed an upgrade, and to get it the king of retail coffee is ditching AT&T and going for a service to be provided by none other than Google and Level 3.
Level 3 will be providing the connectivity and managing the hardware, while it appears that Google will be handling the actual interface with users/customers. They'll be starting the upgrade over the next month, with some 7,000 stores to get significantly higher speeds over an 18-month roll-out.
Leaving aside the star power here, this really is a harbinger of a deal that will reverberate throughout the industry. First of all, AT&T has been feeding Starbucks' Wi-Fi with T-1 pipes, which these days barely count as broadband. To boost that by around 10x as advertised and to keep up with further demand, Level 3 will surely be using a mix of direct fiber connectivity and other tools like Ethernet-over-Copper.
One thing you can be sure of is that they won't be bringing 7,000 sites on-net in 18 months all by themselves. As extensive as it is, their network doesn't go everywhere, and they don't have enough hands or trucks to roll even if it did go everywhere. That means there's a big opportunity here for competitive operators of all stripes around the country to get a piece of this pie.
Another thing to note here is that Level 3 is surely looking at this as a foot in the door to more of the retail sector. Starbucks is generally near, well, everything else right? Once they've got fiber close, the neighboring businesses will know about it quickly enough when the signs go up. And how many multi-location retail outfits are often conveniently right near a Starbucks in dozens of markets? Hmm...
But what exactly does Google get out of this? The money involved will be minor to them, but it's about the customer relationships and the wresting of more eyeballs from a monopoly controlled last mile. In light of their expansion of Google Fiber to new markets, their long dalliance with WiFi overall, and the submarine cables they've been dabbling in, they're now unequivocally a network operator in addition to being a content provider. And given the simmering disputes between content and the last mile, the more endpoints that are free of the incumbent the better for their long term opportunities.
In fact, I think that this deal will sooner or later (and probably sooner) resurrect the rumor that Google could buy Level 3. And actually, such a thing is starting to actually make sense even to me -- and I've made a hobby out of shooting down such rumors.
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