"Is Google Turning Into a Mobile Phone Company?" asks the headline in Andrew Ross Sorkin's New York Times story. Wrong question, IMHO.
But is Google doing the deal at least partly to give it leverage over wireless providers? I think so. The biggest threat to the growth of Smart Phones and tablets and other Google businesses like YouTube is the imposition of data caps and metered pricing by wireless providers like at&t and Verizon Wireless.
The providers would like to charge by the number of bytes transferred – similar to the way they charge for voice minutes today. Content providers (including Google) don't want an expensive impediment in the way of their content distribution. Providers of software and hardware for tablets, Smart Phones, and computers (including Google) don't want these devices to be less useful because content delivery to the devices is expensive. Not a moral issue here but a business one, although – in the long term – I think unlimited data plans lead to more growth for everyone (and proved that to my own satisfaction with the launch of AT&T WorldNet, which popularized all-you-can eat pricing way back in dialup days).
Today the handset manufacturers, with the exception of Apple, are at the mercy of the carriers, especially in the US where most phone are locked to the wireless network that subsidizes their initial purchase. If the manufacturer doesn't have a deal with Verizon or at&t, they can't get the volumes they need to be a serious player in the US market. iPhone as a must-have device for networks began to upset that balance of power; but Steve Jobs hasn't yet used Apple's muscle to build a US market for open iPads or iPhones which can run on any network given the right prepaid SIM card.
But Google is much more in the content business than Apple is – even given iTunes. Google has more to gain by stopping the spread of bandwidth caps and metered pricing before they become universal for wireless and spread to wireline as well. Google knows that the wireline providers, especially the cablecos who don't want their chokehold on content delivery loosened, would like nothing better than to move to metered pricing themselves.
A handset maker owned by Google can introduce a product without carrier backing and without the need to lock into any network. The product can be cheap to grab marketshare; the product can be subsidized through ads delivered rather than voice or data minutes sold. If the product is incredibly compelling as well, the major carriers will be forced to let it onto their networks as an open device. Customers who bought their phones from Googlerola will find it easy to switch between networks to get the best deal. Competition between carriers will then be based on service quality and pricing only; competitive pressures may well force them back to offering unlimited data. Google wins both as a content provider and as a client provider.
The announced at&t/t-mobile deal will, if approved, shift power to the carriers by eliminating a disruptive competitor and concentrating spectrum ownership. The Google/Motorola deal shifts the balance of power away from the carriers.
Dan Frommer speculates:
"If Google and Motorola can push the price of smartphones down even more, and if carriers can accelerate the uptake of mobile data plans, this could be good for them. But there's also the chance that Larry Page has a long list of wacky, disruptive ideas he wants to try, focused around handset distribution and pricing, ad subsidies, etc., which could take real leverage away from carriers. Their path toward dumb pipe status seems to be increasing by the deal. This will likely end up better for consumers but could be annoying for the carriers."
But it doesn't stop there. As Peter Kafka points out on All Things D, Motorola Mobility, the company that Google is proposing to buy, is the world's largest provider of set-top boxes. Suppose set-top boxes were not subsidized by or distributed through cable and satellite companies. Suppose they came from Googlerola and were so good at what they did and so cheap on the open market that the content distribution networks had to offer them without a specific lock to their content in order to stay in the broadband ISP business (even though they'd still be able to charge for content). That would be the end of any thought of metered pricing for wireline Internet service. Another threat to Google would be eliminated. More content opportunities would open up.
The acqusition be all about the patents as most people are saying and as Google broadly hinted; but, as Stacey Higginbotham and Katie Fehrenbacher writing on GIGAOM say: "if Google wants to use Android as a way into the home, Motorola's home automation, set-top box and broadband gear businesses now gives Google a platform from which to jump."