Report: Google shows phone prototype to manufacturers

Google has developed a prototype cell phone that could reach markets within a year, and plans to offer consumers free subscriptions by bundling advertisements with its search engine, e-mail and Web browser software applications, according to a story published Thursday in The Wall Street Journal .

Google is showing the prototype to cell phone manufacturers and network operators as it continues to hone the technical specifications that will allow the phone to offer a better mobile Web browsing experience than current products, the story said.

Google did not return calls for comment.

The move would echo another recent product launched by a phone industry outsider, Apple’s iPhone. But Google’s product would draw its revenue from a sharply different source, relying on commercial advertising dollars instead of the sticker price of at least $499 for an iPhone and $60 per month for the AT&T service plan.

Negotiating the fairest way to split those advertising revenues with service providers could be a big hurdle for Google, one analyst said. Another problem is the potential that consumers could be scared off by the prospect of listening to advertisements before being able to make phone calls, said Jeff Kagan, a wireless and telecommunications industry analyst in Atlanta.

“I don’t know how successful it’s going to be. The model of an ad-supported wireless Web has not been successful over the past 10 years,” he said, referring to municipal Wi-Fi networks that offer free Internet connections to users willing to view advertisements while they surf the Web.

“The average adult who can afford a cell phone is not going to want to listen to ads. So this is mainly for teenagers, twenty-somethings, high schoolers or people who can’t afford a phone,” said Kagan.

Industry watchers have long heard rumors that Google was designing its own mobile phone. Google added fuel to that speculation in July when it announced it was willing to spend $4.6 billion to buy wireless spectrum in a U.S. Federal Communications Commission auction.

At the same time, an increasing number of industry newcomers have made bids to enter the market, such as Apple with the iPhone and The Walt Disney Co., which launched a wireless version of its ESPN cable sports channel that ultimately failed.

“We see the cell phone industry continuing to evolve,” Kagan said. “We’re still going to see traditional handsets, but the Apple iPhone was a brand new category in wireless, and it wasn’t from a handset vendor and wasn’t from a network.”

Google’s success in its venture will depend largely on the details it is still defining with its manufacturing and network partners, and whether customers are willing to trade user fees for intrusive advertising, he said.

“There are a lot of unknowns, but generally speaking, it hasn’t worked yet,” said Kagan.

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