Free phone service from Google?

By BusinessWeek

Imagine your cell phone as a mini marketing machine. As you head into your car after dinner, a text alert pops onto the screen of your handset announcing the 9 p.m. lineup at a nearby cineplex. You choose the Jodi Foster flick "The Brave One," and a promo video for the next Warner Bros. release, a George Clooney movie, starts running. Afterward, more text appears, prompting you to launch the phone's Web browser so that you can click through to buy the movie's ring tones and wallpaper.

That kind of 24/7 advertising engagement -- on a phone, no less -- may sound like a nightmare. But what if you could determine the kinds of products you get pitched? Or when your flight gets canceled in a faraway airport, text messages pop up for the best hotel deals in town? No random insurance ads or airline deals for trips to places you never visit.

Best of all: Watch or read the custom ads, and your phone minutes are free.

For big cell carriers, that's the real nightmare. And it may be coming in the form of a Google phone.

Wireless-industry consultants and marketing executives with knowledge of Google's plans say it has been showing prototypes of a new phone to handset manufacturers and network operators for a couple of months.

Its plans have been kept top-secret, but Google (GOOG, news, msgs) is expected to tap a company on the Pacific Rim that specializes in mobile design and manufacturing to build a handset to its specs. Google could then apply its expertise in operating software and user applications, says Paul Catalano, a partner at consultancy RelevantC Business.

Google officials won't talk about phones, and industry sources don't expect one before the second half of 2008.

The next channel for information

Still, Google has made it clear it has an interest in wireless. It is experimenting with wireless broadband networks in a couple of U.S. cities. In August, CEO Eric Schmidt announced his intention to participate in a federal auction early next year of the sort of radio spectrum that would help pull off a phone service.

Google officials won't talk about phones, and industry sources don't expect one before the second half of 2008.

Still, Google has made it clear it has an interest in wireless. It is experimenting with wireless broadband networks in a couple of U.S. cities. In August, CEO Eric Schmidt announced his intention to participate in a federal auction early next year of the sort of radio spectrum that would help pull off a phone service.

So far only a few outfits in Europe and the United States have dabbled with ways to serve up ad-based service. Most, like Virgin Mobile USA, have limited control over ad delivery because their service runs over a network leased from one of the big players. Moreover, there are good reasons that advertising accounts for less than 1% of phone company revenues: Consumers remain skittish about ads on their phone. Networks and handsets are only now getting sophisticated enough to deliver colorful, location-specific ads.

And Verizon Communications (VZ, news, msgs), AT&T (T, news, msgs) and T-Mobile have no interest in giving up their fat subscription fees.

That equation goes out the window, though, once you combine Google's financial heft with its ultrasophisticated ability to target ads to specific customers.

"The day is coming when wireless users will experience nirvana scenarios -- mobile ads tied to your individual behavior, what you are doing and where you are," says Linda Barrabee, a wireless analyst at researcher Yankee Group.

Google and advertisers drool over the growth potential in wireless. The more than 2 1/2 billion phones in use worldwide exceed the number of personal computers and TVs combined.

Continued: Play the games, earn minutes

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