McDonald's Will Serve Up Free Wi-Fi

McDonald's (MCD) will offer free Wi-Fi at almost all of its U.S. restaurants starting early next year. Until now, the fast food chain has been charging $2.95 for two hours of service. McDonald's U.S.A. Chief Information Officer David Grooms told The Wall Street Journal that the service will operate in 11,000 of the firm's 14,000 American outlets.

The benefits of the program are simple: McDonald's hopes people will linger at its stores and buy more food and coffee. This probably increases its competition with Starbucks (SBUX), where many people get work done while using the Wi-Fi connections.

But the plan doesn't come without a risk. McDonald's will lose the revenue it now gets from the millions of people who spend $2.95 for the Wi-Fi service. The fast food company hasn't said how many people pay for Wi-Fi each year, but the number is probably in the millions across the 11,000 stores that offer the service.

McDonald's probably doesn't care about the lost income since it's not a huge sum compared with overall sales. More important, its appears ready to break even or lose money on some items to increase market share in a slow economy -- it's hard to imagine that the company makes much money on $1 meals and $1 breakfast offerings.

McDonald's can offer free Wi-Fi and $1 food because it can afford to. It has decided, to some extent, that taking traffic from competition trumps margins, at least for now.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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