Google enters mobile phone market

By Eric Auchard and Sinead Carew

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.