October 30, 2007 / 11:42 PM / 12 years ago

Google phone could be tough sell to U.S. carriers

NEW YORK (Reuters) - Google Inc (GOOG.O), which is used to dominating the Web search advertising business, may find negotiating its way into the cell phone market a tougher task.

Dealing with America’s largest mobile companies, which keep control of devices and features, could force the Web search leader to make concessions that cut into future revenue from wireless, an area Google has long said would be key to growth.

So far no U.S. carrier has confirmed working with Google on a new mobile platform. No. 2 U.S. carrier Verizon Wireless is in active talks about putting Google applications on phones it offers, people familiar with the matter told Reuters.

“There are good useful talks going on and they could result in a deal,” one of the sources said.

For months media and analyst reports have said Google might design an entire phone with partners, or offer software that would include its current services such as maps and e-mail.

“If Google is going to make a splash, it’s going to have to say (to operators) ‘offer our phone and we’ll share the revenue’,” said Current Analysis analyst Avi Greengart. He sees a Google phone being most successful if it gives consumers a free device or service in exchange for viewing ads.

But for now Google is offering service providers financial terms “somewhere between nothing and only a small proportion,” according to one industry source who asked not to be named.

As a result it will have a harder time selling a device or software in the United States than in regions such as Europe where it is easier for consumers to choose their own phone models.

“Google is developing a device that allows them to go directly to consumers. That works much better in Europe than here,” said Roger Entner, vice president for the communications sector for IAG Research.

The Wall Street Journal reported on Tuesday that Google would announce in the next two weeks advanced software and services that will allow handset makers to bring Google-powered phones to market by mid-2008. Google declined to comment.

Anian, a Reuters company that tracks industry trends for institutional investors, reported this summer that Google had engaged Taiwan’s High Tech Computer Corp (2498.TW) to design a Linux software-based phone for launch in the first quarter of 2008.

HTC has declined comment on the report.


AT&T Inc (T.N), the largest U.S. carrier, surprised some analysts when it allowed Apple Inc (AAPL.O) to decide which applications the Apple iPhone would support as part of its exclusive U.S. agreement to sell the phone.

But unlike Apple — maker of leading portable music player iPod — Google does not have a big enough name in services for portable devices or a history of hardware design. It has also fought U.S. operators in pushing for more open requirements for an upcoming airwaves auction, in which it said it may bid.

In talks with operators, these factors would all add up to less leverage for Google than Apple achieved, analysts said.

Even in Europe, where customers can choose their own devices to a large extent, Google’s success is not a given, as it would face stiff competition from phone makers such as Nokia Oyj NOK1V.HE, Greengart said.

France Telecom FTE.PA on Tuesday denied that its mobile business Orange is in talks with Google to introduce handsets running its software.

An official for 3, a high-speed wireless service provider in several countries including the UK, would not comment on whether the company was in talks with Google but said that “a Google phone sounds like an interesting product.”

The company, owned by Hutchison Whampoa 0013.HK, already offers its customers Google features such as e-mail and maps.

“We have a close relationship with Google,” said 3 spokesman Guy Middleton.

Verizon Communications (VZ.N) Chief Operating Officer Denny Strigl said during an investor call on Monday that the service provider talks to a lot of companies including Google, but would not elaborate. Verizon owns Verizon Wireless with Vodafone Group Plc (VOD.L).

Sprint Nextel (S.N) said in August that it would work with Google on some Web services for future phones. But any further involvement would depend on who takes the helm at Sprint, which is searching for a new chief executive.

Deutsche Telekom’s (DTEGn.DE) T-Mobile USA might use a Google phone to gain attention when it catches up with bigger rivals on high-speed wireless services, Entner said. T-Mobile USA has started development on a fast network and plans to build it in major markets in 2008, a representative said.

Officials for Sprint and T-Mobile USA declined comment on Google phone plans.

Even if it is not clear whether Google will enjoy the same success in wireless as in the wired Web, Greengart noted that it appeared to be testing all routes in the wireless industry.

“Google’s strategy appears to be to bet on every horse so that they can’t lose,” he said.

Additional reporting by Ritsuko Ando, Justin Grant and Michele Gershberg in New York, Astrid Wendlandt in Paris and Kirstin Ridley in London; editing by Phil Berlowitz

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