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 today 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.

The move would echo another recent product launched by a phone industry outsider, Apple Inc.'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.

Well Google rarely makes moves like this without knowing something. I doubt they'd be willing to fork out 4.6 billion dollars without having a great deal of confidence that they're business model would work.

Its only a matter of time before Google launches it own operating system, which if its
unix - freebsd based should be another hard blow to Microsoft.

Yea with that much leverage Google could really hammer Microsoft.

I support Google completely. Net neutrality is a dying idea in our current situation. It is about time that these tyrants are brought down. Should you be required to pay 175 dollars to cancel a cell phone subscription? Should a person be limited on which phone they can use per provider? I think not. Its just like when AT&T use to charge their customers for the number of phones they had in their house and not a single monthly fee. The current cell phone providers do not care if they loose customers because they all know that customers will stay with them usually until the contract ends, or risk paying extremely high fees; and if they do leave they could eventually come back. Should we not have freedom when it comes to cell phones? Google is trying to do a great thing, they are even slowing buying infrastructure to preserve net neutrality. The Android platform is what Google is standing behind, its the idea of an open source platform for cell phones.

Here it is.

http://www.openhandsetalliance.com/android_overview.html