Google enters mobile phone market

SAN FRANCISCO/NEW YORK Mon Nov 5, 2007 6:06pm EST

A Google search page is seen through the spectacles of a computer user in Leicester, central England July 20, 2007. Google will unveil its mobile strategy on Monday, including a phone operating system and a broad alliance with multiple wireless service providers and handset vendors, people familiar with the matter said on Friday. REUTERS/Darren Staples

A Google search page is seen through the spectacles of a computer user in Leicester, central England July 20, 2007. Google will unveil its mobile strategy on Monday, including a phone operating system and a broad alliance with multiple wireless service providers and handset vendors, people familiar with the matter said on Friday.

Credit: Reuters/Darren Staples

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SAN FRANCISCO/NEW YORK (Reuters) - Google Inc said on Monday it would offer a software system to make the Internet work as smoothly on mobile phones as it does on computers, seeking to spur change in a tightly controlled industry.

In its long-rumored entry into the mobile phone market, the world's leading Internet company said it would start next week by allowing independent designers to tinker with its software, known as "Android." Google-based phones are due to appear in the latter half of next year.

Deutsche Telekom's T-Mobile will start selling Google software-based phones next year. China Mobile Ltd, the world's largest mobile carrier, Japan's NTT DoCoMo and KDDI and European and Latin American operator Telefonica also said they were working with handset makers to develop Google-based phones.

Google, which has no immediate plans to make phones of its own, said it forged an alliance with 33 companies, including phone makers Motorola Inc Samsung Electronics Co Ltd and High Tech Computer Corp.

"We're hoping thousands of different mobile phones will be powered by Android," Google Chief Executive Eric Schmidt told reporters on a conference call following the announcement.

Google said it is in no rush to see operators alter the way they charge for service, but new ways of making money such as advertising-subsidized offerings would eventually be possible.

"Let's put the technology enablers in place and figure out how to monetize it later," Andy Rubin, the official in charge of Google's mobile phone push, told Reuters in an interview. "You won't see a completely ad-driven cell phone on this system for some time," he said during a company news conference.

Since Google is offering the software for free, Rubin said operators may pass along something like 10 percent savings to customers through phone subsidies or lower monthly fees.

Google is looking to strike revenue-sharing deals with carriers who agree to lower monthly data charges, expanding the potential audience for use of the Web on phones, Rubin said.

CHALLENGING MOBILE CONVENTIONS

Google said it aims to expand the range of Web services it now offers for computer browsers to the far-larger mobile phone market, where Internet use is hobbled by hundreds of conflicting handset designs and software standards.

The move pits Google against mobile operating systems backed by Nokia, Microsoft Corp and Google partner Apple Inc, maker of the iPhone. A number of Google partners said they would still work with rival systems.

Traditionally, network operators tightly control the software and services customers can use on their phones and often get a hefty cut of resulting revenue from third parties.

By contrast, Google said Android does not differentiate between a phone's core functions -- typically pre-installed by handset makers or network operators -- and any independently created applications added by customers later.

Research firm Strategy Analytics estimated Android would be in 2 percent of smartphones in 2008. Smartphones are expected to be only 6 percent of the total U.S. phone market this year, according to Yankee Group.

"The potential is there for this to be a game-changing development, but it remains to be seen," said Greg Sterling, an Internet industry analyst with Opus Research. "This is a set of tools that have to be turned into something."

WHAT'S IN STORE

Google and its backers say they aim to bring the innovation made possible on computers online to phones, allowing millions of programmers to mix and match products with other software. Online auction leader eBay Inc said it hoped to make it easier to buy or sell goods and services on such phones.

Rubin, a veteran Silicon Valley gadget designer, said Android would also work offline, allowing air travelers to, say, check address books mid-flight. He created the innovative Sidekick mobile Internet device at start-up Danger Inc.

Google has long been rumored to be working on a new class of free or low-cost ad-supported phone of its own, known as the "Gphone." CEO Schmidt would not rule out Google developing its own devices, but said it had no immediate plans to do so.

The company said its alliance, known as the Open Handset Alliance (www.openhandsetalliance.com/), will be like an "open source" software project, with no central leadership.

Android is based on Linux technology that allows hardware or software makers to adapt it freely. Asked whether such free licensing could allow carriers to control everything on such phones, Schmidt said "it's both possible and highly unlikely" because such devices would lose out on rapid new innovations.

Google shares ended up 2 percent, or $14.40, at $725.65 on Nasdaq after reaching a new intraday high of $730.23 earlier.

The stock traded around $480 in mid-August before speculation about the impact of Google's push into mobile phones -- as well as new forms of online advertising, such as video -- propelled shares to current record levels.

(Additional reporting by Gina Keating in Los Angeles, Georgina Prodhan in Frankfurt, John Bowker in London, Scott Hillis in San Francisco, Daisuke Wakabayashi in Seattle, Tarmo Virki in Helsinki and Adam Cox in Stockholm; Editing by Phil Berlowitz and Braden Reddall)

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