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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?

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A good friend of mine pointed out the money phrase from Steve Jobs at this week’s iPad 2 introduction: “This is worth repeating. It’s in Apple’s DNA that technology is not enough. It’s tech married with the liberal arts and the humanities. Nowhere is that more true than in the post-PC products. Our competitors are looking at this like it’s the next PC market. That is not the right approach to this. These are post-PC devices that need to be easier to use than a PC, more intuitive.”

It’s an insightful even brilliant statement that’s 100 percent true. Then why doesn’t Steve Jobs practice what he preaches?

Jobs and Apple definitely have a better handle on the future of mobile devices and interfaces right now than any other CEO and company and are bold enough to come right out and say it: “Our competitors are looking at this like it’s the next PC market. That is not the right approach to this.” It’s a gutsy move, telling your competitors precisely what they are doing wrong to compete.

But then we come to this very rational critique of the iPad 2 from a blogger named Allahpundit who points out that despite the iPad 2 being thinner and faster and just as cheap as the original iPad with two new cameras to boot, it is still a pain in the ass to cut and paste text with one.

Why, given Steve Jobs’s boast that these are post-PC devices that need to be easier to use than a PC, would he build a device that is in this one important area is clearly harder to use than even a Windows PC?

It’s not like Apple couldn’t come up with clever gestures for cut and paste. It’s that they chose not to. And they chose not to because Steve is, well, a little bit of a hypocrite here.

For all Steve’s bold talk, Apple still relies on Mac sales for a quarter of its revenue — about $15 billion per year — which is a lot of revenue, so they have deliberately kept some things like production cutting and pasting text easier to do on a Mac than on an iPad 2.

Surely they have those gestures ready and waiting to go. Waiting for a dip in Mac sales or a blip in cloud capability or just for some other company to finally match or beat the iPad, forcing Apple to reveal these hidden capabilities and blow-up the MacBook line in an act of self-defense and technical imolation.

Yet until one of those precursor events happens Steve seems determined to have it both ways.

Nothing new there.

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Next week Apple will have a product event, presumably to announce the next generation of MacBook Pro notebooks. Every year we see these upgrades. The notebooks get faster with more storage and every couple years they look a little different. This time, however, there will be another change — the addition of a new type of peripheral data port called Light Peak that promises, at 10 gigabits-per-second — to be the fastest-yet connection between a Mac and a storage device or even from one Mac to another. And this latter use is key because in addition to Light Peak-equipped MacBook Pros, I expect to see next week a Light Peak Mac Mini. Now that’s interesting.

Light Peak was Apple’s idea in the first place, promoted to Intel by Cupertino as an interface to replace FireWire 800, USB 3.0, SCSI, SATA, you name it. There are precedents for Apple proposing new connection technologies like this. That’s how both FireWire (IEEE 1394) and WiFi (802.11) came to be. Like FireWire, Light Peak uses a daisy chain topology, so most computers will only need one or two Light Peak ports. But unlike FireWire, Light Peak will come in both optical and copper versions, with the machines to be announced next week likely to have Light Peak copper, which is limited to three meters per hop.

In time the optical versions of Light Peak will offer 100 gigabit-per-second speeds over distance up to 100 meters along with a separate electrical connection in the same cable that will easily power large displays. One size fits all.

In one sense it is easy to see Light Peak as just another Apple-inspired technology intended to keep peripheral profit margins higher for a generation or two. That’s what appears to have happened with Apple’s Mini Display Port screen connector. Light Peak is also Apple’s way to leapfrog USB 3.0 for a faster, again higher-margin, platform. But there’s a lot more to Light Peak than that.

MacBook Pros will mainly use the new ports to mount external hard drives for video editing, so we can expect a drive or two to be announced next week as well. But it’s the potential Mac Mini application of Light Peak that I find so fascinating.

Remember that last year Apple stopped making xServe, its 1U server platform, seemingly abandoning the server market and causing outrage in some customers. Apple at the time made lame excuses about how it was somehow more efficient to use big Mac Pro boxes which, yes, had more processors and more cores, but still made no sense at all in a data center environment. Apple was done with the enterprise, we all figured.

Enter the Light Peak-equipped Mac Mini, hopefully next week as “one more thing.”

Remember that Mac-based supercomputer a few years ago at Virginia Tech? Apple got a lot of press from that installation first using G5-based Mac Pro boxes and then Intel-based xServes. But the installation was definitely non-trivial, as was the software.

Now imagine a supercomputer built from Light Peak-equipped Mac Minis.  You’d unpack the Minis, plug them into power, plug them into each other with one Light Peak cable each, then load your software in one of the Minis, reboot them all and go out for a frosty beverage. That’s it, thanks to Light Peak, xGrid, and Grand Central Dispatch.

Xgrid has been built into OS X for years, offering some nice loosely coupled multiprocessing capabilities that few people have taken advantage of. Grand Central dispatch is now built into OS X that allows high efficiency task scheduling not just on the local multi-core machine, but down to individual program threads between tightly coupled machines (think FiberChannel). But Light Peak makes FiberChannel look slow, is inexpensive (FiberChannel is not), and is super easy to set up. And don’t forget Apple has invested gigabucks in that huge North Carolina data center — a data center that is schedule to open very soon.

Start with a Light Peak-equipped Mac Mini. Need more horsepower? Just get another Mini and connect with Light Peak. Grand Central will automatically distribute the load across multiple devices. A 2U rack will hold eight Mac Minis that, tightly coupled, will run rings around an Xserve. Better yet, given a good high bandwidth connection, OS X will be able to access applications and data in the cloud as though it were local.

This combination of seamless local and cloud computing could open up whole new markets for Apple which you may also have noticed has started opening Business Stores.

It’s not that Apple doesn’t want enterprise business, they just want to support the enterprise market from the same simple product line, selling Mac Minis by the ton. With Light Peak, xGrid, Grand Central Dispatch and Mac Minis used as compute bricks, organizations will be able to build servers of any size, automatically backed-up from the woods of North Carolina.

Apple is out-Googling Google.

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At the Vatican, white smoke coming from a chimney at the Sistine Chapel indicates that a new Pope has been selected by the College of Cardinals. Well despite yesterday’s news of Steve Jobs’s departure again from Apple for medical reasons there is as yet no sign of white smoke in Cupertino where Jobs remains firmly in charge.

Readers expect me to comment on this news and I will, but frankly I’m still trying to figure it out so here are a number of random thoughts.

I sent an e-mail to Steve Jobs early last week and he didn’t respond. That’s not in itself such a big deal because Steve periodically ignores me. But other folks at Apple were copied on the message and they didn’t respond, either. That is telling. What it tells me is that this medical leave was no last-moment thing, that it was well on its way 10 days ago.

Well sure, you say, what’s the big deal with that?

The big deal is that Steve Jobs was supposed to participate with Rupert Murdoch later this week in the announcement of The Daily — News Corp’s electronic newspaper for the iPad. Suddenly that announcement has been pushed-back, supposedly over subscription prices. Yeah, right. It’s pushed back because Jobs was no longer available. But until yesterday Apple was quite happy to have us all thinking Steve would appear in New York later this week.

There’s a lot of slick timing at work here. First the Verizon iPhone then killer earnings followed by the Daily, but then that all went kerblooey so when do you announce the bad news while keeping the damage — both legal and financial — to a minimum? Yesterday was the best they could do. thanks to Martin Luther King.

I have no idea what’s going on with Steve’s health. He could be having a whole-body transplant for all I know. But he’s neither a fool nor a sentimentalist — just a narcissist — so I am sure he’s been giving a lot of thought to the succession at Apple. And it is my guess the next Apple CEO won’t be Tim Cook, not because Tim isn’t a good executive but because he isn’t Steve’s creation.

When the white smoke finally drifts over Cupertino that new CEO is going to be a surprise to everyone.

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Apple has a long history of milking early adopters. Even the crappy products (remember the Newton? the Mac Cube?) would sell a few hundred thousand units to the faithful before those faithful learned the sad truth. But just as they were learning that truth, along would come Steve Jobs (okay, not in the case of the Newton, but generally) gleefully proffering the real fantastic product people had been expecting months before. Then those same early adopters, reenergized, would buy all over again, whether it was an iMac, iPod, MacBook, iPhone, whatever. Why should we think this week’s Verizon iPhone announcement is any different?

Where’s the Long Term Evolution (LTE) network? Where’s surfing while talking? Where’s the damned white case?

June.

We’ve been here before, remember? The first iPhone worked only on AT&T’s slower Edge network so the early adopters all upgraded to 3G a few months later, paying again. Worse still there was that big price drop only weeks after the original iPhone introduction when Apple clearly intended to punish the faithful for being, well, faithful.

What will happen if, come February, AT&T drops its iPhone 4 price to $99? Verizon will follow suit, that’s what, and a million early adopters will have been burned.

Steve Jobs can’t help himself. It’s in his blood.

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Verizon announced its iPhone 4 today, as expected, but it was CDMA, not LTE, and it wasn’t white, which would seem to defy one of my 2011 predictions made only last week — that Verizon would get an exclusive on white iPhones. Rather than capitulate, though, I’ll tell a story about the invention of the nibble copier, followed by some dirt about Verizon’s LTE network that might be a big concern for corporations.

Steve Wozniak invented the Apple ][ disk drive with its Integrated Woz Machine (IWM) controller, which was revolutionary for its time. And unlike competing disk drives (these were floppies, by the way — hard drives and optical drives had yet to make it to PCs) the Apple drives had copy protection built-in. That is until Woz decided to defeat his own design by inventing the first nibble copier so he could copy his VisiCalc disks.

Competing floppies of the time used hard sectors determined by little holes punched in the disk. Copying those floppies was easy because it was simple to see where the sectors were. But the IWM ignored hard sectors completely, using its own sectoring scheme that could be varied by a command embedded on the disk and read by the IWM firmware. This copy protection was finally defeated by the nibble copier, which also ignored sectors and simply made perfect copies of an entire disk, one little nibble (half-byte) at a time.

Having invented the nibble copier, which was sold under the name Locksmith, Woz then went on to defeat it, again undermining his own design. His motivation in this case was two-fold: 1) to have fun, and; 2) to keep Locksmith disks, themselves, from being copied. He did this by embedding a sequence on the Locksmith disks that effectively said, “do not copy this disk.” It helps when you control both the software and the hardware upon which it runs, eh?

Eventually Woz and Henry Roberts developed a further copy protection scheme that hid the sector information in a pseudo-random number. That was about 30 years ago and last we heard Woz was trying to defeat himself again by using heat from a laundry iron to essentially push bits from one floppy through to another, again making a perfect copy.

Here is where we return to the present. Andy Hertzfeld, who told me this story, predicted that Woz would never be able to copy a floppy using an iron. But Woz has yet to capitulate on this, claiming that — 30 years later — he is still trying.

And so it is with me. I still believe the white iPhones will come from Verizon, but they’ll be LTE models that we’ll see later this year.

And speaking of the Verizon Long Term Evolution 4G network, customers are learning that it won’t support certain Cisco Virtual Private Network (VPN) devices. This came from a corporate Verizon customer now stuck with a boatload of useless Cisco gear and was confirmed by another such customer when I reached out last night.

Verizon engineers, by the way, say nothing is wrong. Now that pisses me off.

There’s this disconnect that takes place sometimes where users and service providers see a problem completely differently. In this case customers are clearly being inconvenienced yet Verizon engineers are saying, “no they aren’t,” which actually means, “there shouldn’t be a problem and if there is that problem is on the customer’s end, not ours.”

Who is right?

The customer is always right. If Verizon doesn’t get that, then Verizon is headed for trouble with all those dissatisfied iPhone customers they are expecting to grab from AT&T. Chronic complainers will be the first to jump ship.

Here’s the question nobody asked (but should have) at today’s Verizon iPhone event in New York: “Why don’t corporate VPN’s work on your 4G network?” Had someone asked that question I’d bet by Monday the problem would be fixed.

But since it wasn’t asked, Verizon will remain in denial until thousands of customers are inconvenienced and the carrier is finally forced to admit that yes, there is a problem.