The news: Google's (NASDAQ:GOOG) Aug. 15 announcement that it would pay $12.5 billion to buy Motorola Mobility (NYSE:MMI) was the second-biggest shocker of year in the wireless, second only to the AT&T/T-Mobile deal.
Google executives stressed that the deal is as much about Motorola's patent portfolio as anything else, explaining that Motorola's patent portfolio will bolster Android's position against patent lawsuits. A number of companies, including Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), have sued Android licensees for patent infringement. Verizon Communications (NYSE:VZ), for one, hoped Google's proposed purchase of Motorola would help bring some stability to the patent wars that have been raging ever since 2010, when Apple sued HTC for patent-infringement (part of late Apple co-founder Steve Jobs' willingness to wage "thermonuclear war" on Android).
Nokia (NYSE:NOK) CEO Stephen Elop said the purchase should worry Android handset makers, since Google might favor Motorola with Android phones. And even though Google Chairman Eric Schmidt said that Google bought Motorola for more than its patents, he vowed Google would not "screw up" the Android ecosystem as a result of the deal.
Why it was significant: Google's acquisition of Motorola came just weeks after it failed to win Nortel Networks' vast patent portfolio in an auction of the Canadian telecommunication company's assets. A coalition of six companies--Apple, EMC Corp., Ericsson (NASDAQ:ERIC), Microsoft, Research In Motion (NASDAQ:RIMM) and Sony--paid $4.5 billion for Nortel's patents (Apple contributed $2.6 billion). The fact that Google increased its bid for Motorola by 33 percent before settling on the $12.5 billion figure demonstrates how badly Google wanted Motorola's 17,000 patents.
The premium that companies paid for patents during 2011 reflects the growing importance of the courtroom as a smartphone battleground. However, with court cases still playing out, it's unclear that Google's Motorola purchase will give Android the legal protection Google says it needs. After all, Microsoft said this fall that companies responsible for 53 percent of U.S. Android shipments in the second quarter now license Microsoft patents--a list that includes HTC and Samsung, but notably not Motorola. LTE outages in April and December, Verizon has a clear lead in both LTE coverage and device selection. AT&T Mobility (NYSE:T) is trying to catch up, and recently said it remains on target to cover 70 million POPs with LTE by year-end. Even T-Mobile USA, which has no plans to deploy LTE, is trumpeting that its HSPA+42 network now covers180 million POPs and provides speeds similar to LTE. The battle lines have shifted away from an airy, somewhat theoretical debate on technology choices to a ground battle over coverage, capacity and subscribers in 2012.