Internet with Your Latte May Be Disrupted at Starbucks

By eweek  |  Posted 2001-10-11

You might not be getting an Internet connection with your latte anymore. MobileStar, the company that Starbucks hired to build wireless local area networks in its coffee shops nationwide, may be close to shutting down.

"The company is considering ceasing operations due to deteriorating market conditions," said Dan Skaff, managing partner with Sienna Ventures. Sienna was on the board of MobileStar.

He said that at the last minute investments that would have developed MobileStar into a national wireless network provider pulled out.

Starbucks is aware that there may be an interruption in MobileStars service, but has not received notice of a bankruptcy filing by MobileStar, said a company spokeswoman.

MobileStar might run into problems because wireless networking gear was far more expensive in 1996, when the company entered the market, than it is today. As a result, MobileStar incurred a high level of debt when it began building networks.

"We looked at the company recently and said they cant get there from here. Theyre too debt laden," said Roland Van der Meer, a partner with venture capital firm ComVentures. "If they could have spent the money they had today, they could have done well."

MobileStar also may have tried to do too much. It branded service, installed gear and acted as a service provider to end-users. Other models could work better, at least in the short term, Van der Meer said. ComVentures invested in HereUare Communications, a company that helps businesses introduce for-pay wireless LAN networks under their own brands for customers. HereUare is hooking up 12 cafes in the Seattle area and already has 150 cafes online in the Bay area.

Cafe customers own the access points, but HereUare handles the billing and other back-end services for its customers. The businesses can also use a DSL line to connect to the Internet instead of expensive T1 lines, which MobileStar required in its Starbucks shops, Van der Meer said.

Van der Meer and Skaff both expressed confidence in the long term viability of the wireless LAN market.

Starbucks reports that is working on alternatives so that it can continue to offer wireless services to customers, but acknowledged that there is trouble. "Despite any interruption in service, Starbucks is still committed to offering customers wireless Internet access within its retail locations," read a Starbucks statement.

MobileStar did not respond to a request for comment.

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