Google Opens New Front in Smart Phone Battle

By JESSICA E. VASCELLARO And NIRAJ SHETH

Google Inc. muscled its way further into the mobile industry, unveiling its own branded mobile phone dubbed Nexus One and debuting a new online phone store through which it plans to sell the device and others directly to consumers.

The News Hub panel discusses rumors of a new Google phone, aimed at Apple's iPhone market, that may shake up the cellphone industry.

The launch of Nexus One, a thin touch-screen device that runs Google's Android mobile operating system, thrusts the Mountain View, Calif., company deeper into competition with Apple Inc., which makes the popular iPhone.

But unlike Apple, which sells its devices through wireless carriers as well as through Apple stores and retail outlets such as Best Buy, Google is banking on a new business and distribution model to sell Nexus One. The device, built by partner HTC Corp., is being sold exclusively online and Google is lining up operators to offer wireless plans through its site.

Most U.S. consumers buy their phones from carriers like AT&T Inc. and Verizon Wireless who play a big role designing devices and spend to market them. The carriers also subsidize the cost for consumers, in exchange for getting them to sign up for service contracts.

Google, which has butted heads with carriers about which Google applications it will support, believes selling phones directly to consumers online will get mobile devices with more advanced features into the market faster and lower the costs of high-end phones over time, executives said.

Online sales of cellphones will change the business "just the way Web stores revolutionized [the choice and cost of] how you buy something like a digital camera," said Andy Rubin, a Google vice president responsible for Android, at an event the company's headquarters.

Nexus One initially will be available without wireless service for $529 from Google's Web site, or for $179 with a two-year contract from Deutsche Telekom AG's T-Mobile USA. T-Mobile's plan costs $79.99 a month for 500 voice minutes and unlimited data and texting. The cheapest iPhone plan costs $69.99 for 450 minutes and unlimited data, with texting extra.

Users who buy the phone without service must insert their own SIM cards, which they can purchase from some wireless carriers with compatible technology or take from an already-purchased device.

Google said Verizon Wireless in the U.S. and Vodafone PLC in Europe plan to offer service for the device through Google's online store in the spring. A Verizon spokesman declined to comment on pricing.

Google is pushing to extend its dominance in Internet usage and ads to mobile phones. In 2008, Google, in conjunction with HTC and T-Mobile, introduced the first phone running its Android software. Since then, around 20 phones running Android have been announced.

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European Pressphoto Agency

HTC CEO Peter Chou shows off the Google Nexus One phone Tuesday, which is produced by his company.

By creating its own online store and branded phone, Google risks alienating partners, like wireless carriers and handset makers, whose cooperation it needs to continue to grow the number of devices running its Android system.

Google executive Mario Queiroz said the company kept looking for a way to better showcase new mobile technology and opted to design a phone loaded with features that push the limit of what a phone can do.

The Nexus One, which is as thin as a pencil and about the same weight as an iPhone, has features that aren't common in other phones. For instance, every text box on the phone is voice-activated, meaning consumers can dictate anything they would type on the phone.

Mr. Rubin said Google hopes to benefit financially by continuing to grow its mobile-advertising revenue, but that there was also "some opportunity to make some margin on the unit sales." Google declined to comment further on its deal with T-Mobile or other potential partners.

A spokesman for Verizon, which recently began selling a Google-powered device made by Motorola Inc. called the Droid, said supporting the Nexus is "a continuation of our relationship with Google."

Motorola co-Chief Executive Sanjay Jha, who appeared on stage with Google executives Tuesday, said "I don't see it as a threat. It is potentially an expansion of the marketplace."

Some analysts said the Nexus doesn't appear to have much functionality beyond other Android phones. "There's not a whole lot of difference between Nexus One and the Droid," said Tero Kuittinen, a senior analyst at MKM Partners.

Still, he noted Google has its "image and sex appeal" going for it. "It's going to be a steep hill to climb for other Android vendors," said Mr. Kuittinen.

Google said it plans to focus its marketing on the phone online for now, a decision some analysts questioned in light of Apple's marketing blitz for the iPhone. "Unless [Google] gives it a big push with marketing dollars, which they are not, consumers aren't going to know the phone exists," said Current Analysis analyst Avi Greengart.

—Scott Morrison contributed to this article.


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