Semi Pro

A rumor surfaced yesterday in Japan that Apple would by the end of the year introduce a radical new kind of Macintosh computer. That was it — new Mac, radical — yet dozens of sites ran with this non-information simply because Apple is a hot company and, who knows, it might be correct. In that same spirit, then, here’s my guess about what might be correct: I think Apple’s Macintosh Pro line of computers is dead.

Mac Pro’s are Apple’s big box PCs. They haven’t been refreshed since last summer and new models were expected this month with the new Minis, but for some reason the new Mac Pro’s failed to appear. Apple said nothing because, well, because Apple never says anything, instead relying on dopes like me to write non-stories like this one. But while the Mac pundits are generally still waiting for new Mac Pro’s to appear, I don’t think they are coming at all and will be replaced with a whole new approach toward high performance computing from Apple.  Maybe this is what the Japanese writers are picking up on.

Mac Pro’s were Apple’s most powerful computers, though the new Mac Mini I7 servers get pretty darned close, and that’s part of my point in making this prediction. Apple likes a simple product line and eliminating the Mac Pro’s, just as Apple last year dropped its xServe line, would certainly simplify things.

Dropping xServe, an Apple move that was wildly unpopular in some IT quarters, was I suspect some sort of Steve and Larry each bargaining with the Devil thing in which Apple steered even more clearly away from the enterprise in exchange for who knows what from Oracle/Sun. But I think dropping the Mac Pro, if it indeed happens, is a very different move intended to simplify the computer line while boosting the display line.

Mac Pro’s are dinosaurs in many respects. That big beautiful aluminum case with its clever air ducting is eight years old and enormous compared to most PCs. It exists primarily to allow users to pack their Macs with extra drives and third-party graphics cards for high-end gaming. But Apple is changing its whole approach to storage, presumably moving as much of it as possible to that big North Carolina data center.  Apple hates foreign cards (or indeed cards at all) installed in its machines. And then there’s those new 10 gigabit-per-second dual-channel Thunderbolt ports; where do they come in?

I expect Apple to move to a modular architecture where the building blocks for high performance computers are generally Mac Minis. Start with a new Mini or with a Thunderbolt iMac and expand both storage and processing by adding a stack of up to five more Thunderbolt-connected Minis. A maxed-out system would have six I7 processors with 24 cores, 24 gigabytes of DDR RAM (expandable to 96 GB!) and at least six terabytes of storage.  And at $6000, it would be half the price of an equivalently tricked-out Mac Pro.

Yeah, but what about the Graphics Processing Units (GPUs)?  What real gamer wants to be limited to the somewhat lame integrated Intel graphics found in the Mac Mini line?  That’s where the displays come in.

Apple’s Cinema Displays, while still lovely, have fallen way down the price-performance curve. They are too darned expensive for what you get. But Apple can hardly be a PC company without displays. They need to either (shudder) start to compete on price or more likely find us a new flavor of Kool-Aid, which I think we’ll see in upcoming Apple Thunderbolt displays.

There are only two Light Peak displays on the market right now.  I use the term Light Peak, which is what Thunderbolt is called in the non-Apple world, because while one display comes from Apple the other is from Sony and uses a different connector. I think that Sony display gives us a hint to Apple’s plan, because the Sony screen features an integrated GPU.   The new Apple Thunderbolt display may include a GPU, too, but nobody seems to know.

There are good reasons to put the GPU in the display. All those zillions of calculations, after all, are being performed specifically to drive the display. And putting the the GPU inside the screen allows the highest possible bandwidth connection between video memory and display pixels. In some ways putting the GPU in the screen may actually make the screen cheaper to build at such a high performance level.  Whether that is true or not, I am sure it is what Apple will tell us.

When Apple announces a 27-inch or 30-inch Retina Display, you can bet it will have an integrated GPU.

POW! Apple will be back in the business of selling $3000 displays and Hollywood, New York, and San Francisco will be back in the business of buying them. Mac Minis will become the Boeing 737 of performance computers. And Apple can at that point probably drive enough connections on its own to create a vibrant market for third-party Thunderbolt accessories.

Or I’m wrong.

Maybe the Japanese will know.

Driving Miss Sadie

Last week I announced that I’m planning my own Android phone and the next thing you know Google does the same thing!  Coincidence? I think not.  Our motivations are somewhat different, however, and their budget, at $12.5 billion, is marginally higher. I’ve had plenty of time to think about this as I drive the dogs across country to our next home in California and there’s quite a bit more to this Motorola deal than other pundits have been saying.

Yes, it has a lot to do with patents and that might well explain Google’s goofy bidding behavior during the recent Nortel patent auction. Maybe Google already knew it was going for Moto at that point. Certainly with these 17,000 patents plus the $1 billion worth of patents acquired from IBM, Google can go toe-to-toe with Apple or anyone else in an IP battle. Cross-licenses of certain mobile technologies would certainly appear to be in the future for many of these companies.

And cross-licenses represent another important aspect of MotoGoogle that generally hasn’t been noticed — Motorola’s Java license. Oracle, the new owner of Java and all the rest of Sun Microsystem’s old IP, has been beating-up on Google in court, claiming the search giant has stolen Java technology. Not anymore. If this Motorola Mobility deal goes through (and I think it will) then Oracle loses grounds for its lawsuit, which is part of why Google is even doing the deal.

Okay, so Google is going into the phone business. Of course they are going to run the company as a separate business since that’s about the only way to spin the inevitable negative impact the deal will have on Google’s gross margins. Only Apple makes big margins on hardware and while MotoGoogle would like to be Apple, it isn’t.

What does this mean for Google Voice? I haven’t heard this question asked yet. If Google wants to sell phones they’ll mainly do so through the mobile carriers and every one of those carriers is threatened by Google Voice’s potential to disintermediate them and steal their revenue. I’m sure the carriers will ask for Google Voice to go away as a condition for handling MotoGoogle phones. It wouldn’t surprise me, either, if this turn of events for Google Voice surprises Google, which is a very smart company with occasional blind spots.

I think the deal is going to shake up the mobile voice and data businesses generally. And this might not be the end of it, either. What if, for example, Google mounted a bid for T-Mobile? Why not? Yes, it would be expensive but such a move would level the playing field in even more ways, giving Google a 4G network they could really use, shaking-up the incumbent carriers in the process.

What if, what if, what if… Google TV is so far a failure, but this deal could shake that up, too, with MotoGoogle perhaps entering the set-top box business. Certainly Motorola has technology to contribute and what will be interesting to see is how the business shakes out as a result.

This is a bold move on Google’s part. Not a bet the company move, but the move of a confident Larry Page who knows that bold action is required. He has guts, that boy.  And I think it is going to be fun to see how this plays out.

In Steve we trust.

All of us were reminded over and over and over during the last few days that Apple has more cash on hand than does the U.S. government. This coincidence means precisely nothing to either outfit.  We won’t see President Obama asking Steve Jobs for a loan, nor will we see Steve Jobs offering one. Yes, the government is broke and yes, Apple has a lot of cash. But GE has almost $50 billion more than Apple, so where are all the GE stories?

There’s a mystery about Apple’s cash and that mystery has to do with Steve’s strategy for holding all that money.  What’s it for? The predominant theory seems to be that Apple intends to make a huge acquisition and periodically there are rumors of Cupertino buying this big company or that, with Hulu being the latest supposed target. And maybe Apple will buy Hulu (actually, I don’t think so, but let’s assume they do) but that will still leave Steve with $74+ billion, so the Apple money story won’t be going away. I think Apple has raised all that money for the sole purpose of….. having a lot of money. I don’t think Steve intends to make any major acquisitions at all, though that says nothing about a post-Steve Apple.

The Silicon Valley corporate tendency to not pay dividends and instead accumulate vast quantities of cash was pioneered by Dave Packard at HP. Starting in the late 1950s, Hewlett-Packard was raking-in the dough but it was at the time also a privately-held company with just two shareholders — Bill Hewlett and Dave Packard.  The founders could easily have demanded dividends or even, I suppose, stock buy-backs, but they were earning plenty of money and preferred to let it ride.  Going further, Packard, as the money guy, didn’t like the Wall Street trend of taking on corporate debt to fund growth.  The less you paid out to shareholders (both of them) he decided, the more growth could be funded internally.  That’s not the way they do it anymore at HP, by the way — that habit having been broken by Fiorina, Hurd, and now Apotheker, though the last can’t really be blamed because the damage was mostly done before he came on watch.

What was pioneered at HP was later emulated at Intel and every other big Silicon Valley company right up through Apple and Cisco today. And since they all did it and their stockholders made plenty of money from capital gains, nobody much complained until fairly recently when some of these companies began paying small dividends.

But not Apple.  Steve Jobs knew what it was like to be poor at Apple from 1976-77 and he knew what it was like to be really poor at NeXT in the early 1990s.  So when he returned to power at Apple in 1997 Steve embraced very conservative financial practices that kept Apple awash with cash to pay for what he was sure would be inevitable missteps. All that money was an insurance policy against Steve’s own inevitable failure.

Only he didn’t fail.

His bets were bold in scope but modest in cost and hardly ever failed.  So Apple’s cash accumulated and accumulated and accumulated until it reached the point where Jobs could no longer view it as an insurance policy. That’s when it became an acquisition fund — not because Steve had particular acquisitions in mind, but because thinking of it as being intended for acquisitions made not spending the money easier to do.

Apple could have made any number of acquisitions. Just as both John Sculley and Gil Amelio tried to sell Apple to Sun Microsystems and failed, Scott McNealy and Jonathan Schwartz tried to sell Sun Microsystems to Apple and failed.  But Steve didn’t make any major acquisitions, saying the opportunities weren’t good enough but also knowing in his heart that buying his way to scale would kill the Apple he was slowly building in his own image.

Remember we’re now 14 years into what is probably a 20-year Apple strategy.  Yes, it has evolved and expanded over time, but the strategy was always headed in the same direction.  Where the typical Silicon Valley CEO thinks about this quarter and next quarter, Steve Jobs had the leisure to think about this decade and next.

When it finally became clear inside Apple that Steve really wasn’t going to buy a big company (Apple’s biggest-ever acquisition, remember, was the recent $2.4 billion purchase of Nortel’s patent portfolio, which got Steve the IP he wanted without the lovely Canadian engineers he didn’t want) the company had to find another plausible reason for holding all that money.

And so Apple today uses its cash to buy parts in huge quantities.  Lately this has mainly meant buying flash RAM and iPhone displays in amounts that move whole markets and guarantee Apple the lowest prices anywhere.  This is important: in an era where interest rates on idling cash are averaging one percent, Apple is using its cash to get 15-20 percent discounts on parts. That’s exactly like earning a 15-20 percent interest rate.

Apple not only gets the lowest prices, they also get the most reliable supply. I won’t call it anti-trust, but I think it is fair to say Apple has an effective consumption-side monopoly for certain mobile components.

IBM tried to do exactly this back in the days of the IBM PC-AT when Big Blue bought Intel’s entire supply of 80286 chips — a bold move that backfired when Intel fell back on second source agreements and quickly doubled production.  IBM was stuck using the same 8 MHz 286 chips for nearly three years to blow through its supply, while Compaq, Dell and others jumped to the 386.  That’s when IBM lost its PC market leadership position, compounding it by requiring OS/2 to work on those stockpiled 286 chips, too.

Apple isn’t IBM.  Cupertino’s purchasing bets are bigger than IBM ever imagined and they’ve paid-off better, too, with Apple keeping an eye on the construction plans of its suppliers so it doesn’t make an IBM-type mistake.

For most Silicon Valley companies, then, holding lots of cash may increase financial flexibility and lower or eliminate short-term borrowing costs, but they also are a persistent drag on earnings just because there’s no way companies can make as much return on their cash holdings as they could make by rolling that money back into their business.  Only Apple is a clear exception to this rule.  Only Apple plays the game big and bold enough to never lose.  But to do that you have to have a bigger pot than the house, or in this case the government.

Who will buy Hulu, the IPTV streaming service and why should we care? I’m not sure I do care, now that Lie to Me has been canceled, but in case you are an American who feels the future of series television is important, here’s what I think is going on.

The Wall $treet Journal says Apple is thinking of making a bid for Hulu and Seattlepi.com says Microsoft’s is no longer interested, which leaves Amazon, Apple, Google, Yahoo, and any unnamed parties. I can’t think of any unnamed parties, by the way, so I’m guessing one of these will walk with Hulu, which went into play a couple weeks ago following an unsolicited (and still unidentified) bid.

Of course the three big network owners of Hulu will guarantee five years of continued program access with the first two years exclusive. That’s because they have no money in Hulu and each stands to walk with $600+ million from the sale, but only if there is a sale. Without such an exclusivity period there will be no sale and no $600+ million. None of these networks can buy out the others for antitrust reasons so the “networks might balk” story is just to sell newspapers (or electrons). Hulu will be sold.

It will be interesting to see how much Hulu will cost the winner, though. The company appears to be managing the press brilliantly to generate buzz. Any of the interested parties could do the deal all in cash, no problem. But who will end up with it? Here’s my score sheet.

Apple will buy Hulu if the price is right, but how much higher than $2 Billion they will go? I suspect Apple may actually be just meddling here, trying to make it more expensive for the eventual winner.

Microsoft has already telegraphed that $2 billion is too high, but since they probably can’t afford to not be in this business that suggests they will put some smaller amount (still $1+ billion) into content deals.

For that matter, all the losers will be looking for content, so I’d say $4+ billion is up for grabs in Hollywood beyond Hulu. New cars all around!

Amazon just did a content deal with CBS (so did Netflix — remember them?) so buying Hulu would round out their content for Amazon Prime, likely bringing-in millions more customer accounts. But there, too, it depends on what is Amazon CEO Jeff Bezos’ price target. He and Jobs are very similar in that they will have a maximum in mind and probably won’t go higher.

My gut suggests that the auction will finally come down to Google and Yahoo, if Google can get this past the feds despite its dominant position with YouTube. Yahoo CEO Carol Bartz probably sees this as her best chance to avoid being fired so I think she’ll bid high. I suspect, too, that Yahoo’s unsolicited interest was what started Hulu in play in the first place, though that’s just a guess on my part.

Buying Hulu could also be Bartz’ undoing, though, because she could blow half her cash or more (I suspect Google will go to $3 billion and Yahoo will beat that) and then find herself in a position where she can’t make a profit on her purchase, especially since she’ll have to do her own CBS deal at that point and CBS CEO Les Moonves won’t make that cheap. Amazon reportedly paid $100+ million to CBS, but Moonves will try to hold out for closer to the $600+ million he would have received had CBS been a Hulu owner, seeing anything less as charity.

The fascinating scenario here, of course, is that Yahoo way overpays, damaging itself fatally in the process and ends up being acquired by one of the others, probably Microsoft.

No wonder Ballmer pulled out of the bidding, he’s playing the long game.

Roger with his axe

Roger McNamee is a smart guy and a very successful investor as a co-founder of Elevation Partners. He made a breakfast presentation last month at the Paley Center for Media in Los Angeles that is well worth watching. I could probably get half a dozen columns out of this one speech, but the part I want to concentrate on here is McNamee’s claim that when it comes to social media, Facebook (in which he was an early investor) has already won. I’m not here to say Roger is wrong, just that I am not exactly sure what Facebook is winning.

The core of McNamee’s speech didn’t have to do so much with Facebook as with Microsoft, Apple, Google, and HTML5. His point was that Microsoft is going down and that is freeing-up money from a decaying enterprise software business that can go to support new businesses based on HTML5. Google won’t be the beneficiary of Microsoft’s fall, according to Roger, because they’ve lost, too: the mobile transition effectively eliminates Google’s tollbooth on the Internet because smart phone users hardly search at all. So Apple wins by providing all the devices and Facebook wins, I guess, by providing the most popular destination.

Again, I’m not saying he’s wrong, but what I took away from this speech was first an image of Microsoft as the Roman Colosseum being mined for marble after the barbarian invasion, and second a sense that while Facebook is certainly a huge social, cultural, and business phenomenon, I just don’t see it being around for very long.

Facebook is a huge success. You can’t argue with 750 million users and growing. And I don’t see Google+ making a big dent in that. What I see instead is more properly the fading of the entire social media category, the victim of an ever-shortening event horizon.

Each era of computing seems to run for about a decade of total dominance by a given platform. Mainframes (1960-1970), minicomputers (1970-1980), character-based PCs (1980-1990), graphical PCs (1990-2000), notebooks (2000-2010), smart phones and tablets (2010-2020?). We could look at this in different ways like how these devices are connected but I don’t think it would make a huge difference.

Now look at the dominant players in each succession – IBM (1960-1985), DEC (1965-1980), Microsoft (1987-2003), Google (2000-2010), Facebook (2007-?). That’s 25 years, 15 years, 15 years, 10 years, and how long will Facebook reign supreme? Not 15 years and I don’t think even 10. I give Facebook seven years or until 2014 to peak.

Does this feel wrong to you?  Listen to your gut and I think you’ll agree with me even if we don’t exactly know why.

Roger may not care since he will have already made his Facebook fortune and then some. But I think this foreshortening is important because it makes Facebook the winner, yes, but the winner of what? Super-IPO of the decade? Yes. Dow-30 company of 2025? No.

My interest is in what follows Facebook, which I think must be its disintermediation by all of us reclaiming our personal data, possibly through our embracing the very HTML5 that Roger loves so much. The trend is clear from “the computer is the computer” through “the network is the computer” to what’s next, which I believe is “the data is the computer.”

You’ll notice I didn’t mention Apple. Black swan.

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Nortel Networks, the bankrupt Canadian telecom company, came that much closer to disappearing completely yesterday with the cash sale of its portfolio of 6000 patents for $4.5 billion to a consortium of companies including Apple, EMC, Ericsson, Microsoft, Research In Motion (RIM), and Sony. The bidding, which began with a $900 million offer from Google, went far higher than most observers expected and only ended, I’m guessing, when Google realized that Apple and its partners had deeper pockets and would have paid anything to win. This transaction is a huge blow to Google’s Android platform, which was precisely the consortium’s goal.

Google is the youngest of these companies and has probably the smallest patent portfolio, most of which isn’t mobile or telecom related. This puts Google and Android at a legal disadvantage and explains the 45 patent infringement suits that one analyst says Google in presently facing in the mobile area alone.

Google would have preferred to win the auction, but with the consortium sitting on more than $100 billion in cash, the outcome came down to determination, not resources. Google stayed in it only long enough to make sure of the consortium’s intentions and to make the purchase more painful for them, if that mattered.

It certainly mattered to Google, because that $4.5 billion number will be at the heart of the inevitable anti-trust lawsuit Google will file almost immediately. Every good anti-trust lawyer in America just cancelled his or her July 4th holiday to prepare their pitch for Google, which will probably claim Restraint of Trade as well.

Given that the courts will shortly be involved, Google can probably operate unfettered for another 2-3 years, during which they’ll try to build their own mobile patent portfolio. Google may well be able to use the courts to slow the actual Nortel transaction, too, according to my lawyer friends.

So the “Android is dead” story here is way premature.

In the long run, remember, Google will probably be able to use its legal strategy to force the consortium to at least license some or all of the patents. They’ll get a royalty from Google, I suppose, and thus benefit from Android’s success, but then Google is unlikely to be completely deterred, either.

The story everyone seems to be missing here is who gets what in this consortium deal? Most journalists and bloggers seem to assume the winners will all share equally in the IP spoils. But I have people who know people and the word I am hearing it that’s not the way the consortium works at all.

Some consortium members get patents, some get royalties, and some just get freedom from having to pay royalties.

Notice Nokia isn’t in the consortium? The Finnish company is apparently covered by Microsoft, tying Nokia even more firmly to Windows Phone.

Here’s the consortium participation as I understand it. RIM and Ericsson together put up $1.1 billion with Ericsson getting a fully paid-up license to the portfolio while RIM, as a Canadian company like Nortel, gets a paid-up license plus possibly some carry forward operating losses from Nortel, which has plenty of such losses to spare. For RIM the deal might actually have a net zero cost after tax savings, which the Canadian business press hasn’t yet figured out.

Microsoft and Sony put up another $1 billion.

There is a reportedly a side deal for about $400 million with EMC that has the storage company walking with sole ownership of an unspecified subset of the Nortel patents.

Finally Apple put up $2 billion for outright ownership of Nortel’s Long Term Evolution (4G) patents as well as another package of patents supposedly intended to hobble Android.

At the end of the day this deal isn’t about royalties. It is about trying to kill Android.

Note — Here’s a pretty good account from Reuters of the Nortel patent auction. You’ll notice they don’t include the participation breakdown of the winning bid (who gets what) that so far appears no place but here.

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Death Star

I’ve been thinking about Apple’s App Store and the industry paradigm shift it represents. Apple loves to change the game like this, simultaneously unseating previously entrenched adversaries while building for itself a defensible system for the future. The trick to making it work is to not appear to be too greedy and I think Apple is accomplishing that. They are greedy, of course, but as Fernando used to say, “It is better to look good than to feel (or be?) good.”

Apple’s original App store was for the iPhone — a portable and for the most part cloud based method of distributing and updating iPhone apps. This was followed by Apple’s App Store for OS X, which did much the same for Macs. Both are being extended fully into the cloud next month with the release of OS X 10.7. For users the App Store lowers the cost of applications, keeps them updated and synced, and allows their deployment across several computers. For Apple, the App Store destroys shrink wrapped software, eliminates product serial numbers, vanquishes piracy, and punishes competitors like Adobe.

Software goes from being a box of bits to a cloud of electrons. Remember Larry Ellison railing against the box of bits metaphor in my show Nerds 2.01: A Brief History of the Internet? That was back in 1998. None of us, even Larry, knew it would take 13 years for that vision to be realized.

With the App Store prices are lower because costs are lower, but also because Apple wants prices lower to gain market share for both its devices and the associated ecosystem. That’s an important but little recognized part of this paradigm shift. The old question used to be whether Apple was a hardware company that sold software or a software company that packaged its products in hardware. The new reality is that Apple is an ecosystem in which hardware and software are important but then so is the cloud that lies behind both.

At the same time that the App Store allows you to run one $299 copy of the new Final Cut X on all your computers, it becomes nearly impossible to pirate that software without first hacking Apple’s data center in North Carolina. This is huge and its effects will be profound, keeping legit customers honest at little cost while pushing pirates toward other solutions, especially Open Source.

But what about Adobe or Microsoft or Symantec? They can sell their software through Apple’s store, accepting lower prices and sharing 30 percent of the money with Apple. Or they can stick with serial numbers and piracy. Or they can roll their own app stores, but in doing so forgo the power of the Apple ID or risk infringing Apple IP by somehow reverse engineering it.

It’s a tour du force that will have painful consequences for competitive products like Adobe’s Creative Suite. Apple to Adobe: we win, you lose.

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Apple’s announcements yesterday about OS X 10.7 pricing (cheap), upgrading (easy), iOS 5, and iCloud storage, syncing, and media service can all be viewed as increasing ease of use, but from the perspective of Apple CEO Steve Jobs they perform an even more vital function — killing Microsoft.

Here is the money line from Jobs yesterday: “We’re going to demote the PC and the Mac to just be a device – just like an iPad, an iPhone or an iPod Touch. We’re going to move the hub of your digital life to the cloud.”

Just like they used to say at Sun Microsystems, the network is the computer. Or we could go even further and say our data is the computer.

This redefines digital incumbency. The incumbent platform today is Windows because it is in Windows machines that nearly all of our data and our ability to use that data have been trapped. But the Apple announcement changes all that. Suddenly the competition isn’t about platforms at all, but about data, with that data being crunched on a variety of platforms through the use of cheap downloaded apps.

What this requires from Apple is a bold move that Microsoft would never make: Jobs is going to sacrifice the Macintosh in order to kill Windows. He isn’t beating Windows, he’s making Windows inconsequential.

Having been shown the way by Apple, I expect Google to shortly do the same thing, adding automated backup, synchronization and migration to Android and Chrome.

Both companies will be grabbing for data, claiming territory, and leaving Microsoft alone to defend a desktop that will soon cease to exist.

And what happens once all our data is in that iCloud, is there any easy way to get it back out? Nope. It’s in there forever and we are captive customers — trapped more completely than Microsoft ever imagined.

Apple and Google will compete like crazy for our data because once they have it we’ll be their customers forever.

This transition will take at most two hardware generations and we’re talking mobile generations, which means three years, total.

With no mobile market share to speak of and Windows 8 not due until 2013, Microsoft is likely to be too late to the party, with much of Redmond’s market cap transplanted eventually to Apple and Google.

Some will say this is unlikely because of Microsoft’s grip on enterprise sales, but consumers have been leading the IT market for the last decade and the mobile transition will only accelerate this trend.

The quicker Microsoft can turn itself into IBM the better for Redmond, because that appears to be their only chance.

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I was in Los Angeles last Friday for TV meetings and lost my iPhone 4. It was on my belt and suddenly it wasn’t. Then in one of those deja vu experiences I noticed that I was only steps from an Apple Store, so I went inside to trace my iPhone using the Where is my iPhone? app. But my iPhone was nowhere.

Understand it was fully-charged and I had been using it less than 10 minutes before. My phone was nowhere to be found.

Sadly the kids at the Apple Store knew far too well what had happened because they hear the story every day. My phone was most likely stolen straight from its clip on my belt by a professional iPhone 4 thief. The moment it was grabbed from my belt the thief handed it to an accomplice. Within a minute the phone was powered-off and untraceable. They didn’t want my data, just my iPhone.

An iPhone 4 can go for $300 in China. They replace the SIM card, spoof the MAC address or sell it for use on a network that doesn’t care. The street price in L. A. for my phone is $100. An industrious criminal can grab several phones per day.

My friend Bill, hearing my story, said it is even worse in New York where thieves will steal the iPhone 4 right out of your hand, running off into the inevitable crowd of pedestrians. That will teach us not to use our mobile smart phones when, well, mobile.

I have had a hand-held phone continuously since 1993 and while I have broken phones a variety of ways including dropping one in a toilet, this is the first phone I’ve had stolen in 18 years. It’s not that I felt naked without the phone, I felt violated.

So what do you do? Go back to the Apple Store and pay full price ($599) for a replacement iPhone 4 because AT&T didn’t offer insurance and you didn’t think to buy a policy from a third-party provider

Nope. I bought for a quarter that price an iPhone 3GS which nobody wants to steal.

It’s good enough for me.

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So AT&T is buying T-Mobile USA for $39 billion in a deal that makes perfect sense if you are an RF engineer or a fat-cat telco tycoon, but my question is what happens to all the jailbroken and unlocked iPhones?

T-Mobile and AT&T are the USA’s only GSM wireless network operators, so if you had an iPhone and wanted to dump AT&T to allow things like free tethering, the obvious (and frankly only) way for Americans to do so was by jumping from cranky old AT&T to the much friendlier T-Mobile. And so tens of thousands — maybe hundreds of thousands — of AT&T customer did just that, and were gratefully accepted by T-Mobile.

But now with the T-Mobile brand, back office, and customer service likely to go away, will AT&T turn all those iPhones into bricks?  It depends in part on Apple, on the Apple-AT&T contract, but mainly I think it depends on terms set by regulators in return for approving the deal.

AT&T has said it will grandfather T-Mobile customers, honoring their often lower monthly fees and continued use of T-Mobile phones, but AT&T has had nothing specific to say yet about T-Mobile iPhones.

Apple hates jailbroken and unlocked iPhones, of course, and would like to see them all die, but since Verizon began selling iPhones in the USA, Apple has lost some clout with AT&T.

So my guess is that AT&T will allow jailbroken and unlocked iPhones to run on their network if the Federal Communications Commission or Federal Trade Commission or Department of Justice demand it as a condition for approving the merger, which they will if we demand it. And if that happens, the even more important question becomes whether Apple will lose some control of its ecosystem?  Will jailbreaking and unlocking — enabling iPhones to add software features and do things beyond the ken of Cupertino — become the norm?

I hope so.

Update — According to a report this morning in Forbes: “AT&T said Monday that it in the year after the closing, it plans to rearrange how T-Mobile’s cell towers work. The spectrum they use for third-generation services, or 3G, will be repurposed for 4G, which is faster.  That would leave current T-Mobile phones without 3G. They would need to be replaced with phones that use AT&T’s 3G frequencies. AT&T said it had factored the cost of replacement phones into the total cost of the acquisition.”

This would seem to suggest that AT&T will give you a free replacement for your jailbroken, unlocked iPhone on the T-Mobile network.

But wait, there’s more! If AT&T is repurposing T-Mobile 3G service to 4G, doesn’t that strongly suggest that 3G is going away completely on AT&T?  It looks that way to me. So will AT&T be giving EVERYONE a free 4G phone upgrade or just the jailbroken unlocked iPhones?

Ironic, eh?