Google has decided against creating just one cellphone, for now, opting instead to make possible "a thousand" with its Android operating system. (AP Photo/Paul Sakuma)

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Cellphones: What will the mobile internet bring?

When Telus Corp. was in the midst of its ultimately-aborted bid to buy Bell Canada Inc. earlier this year, the company's chief executive officer, Darren Entwistle, put forward an offbeat rationale for the merger: The Google monster was coming.

"They're looking to come in and completely usurp the telcos at both the business level and the consumer level," Entwistle said of the internet search Goliath.

Google Inc., which makes most of its money from search-related advertising, was no longer content to dominate the computer-based fixed internet and would soon want to migrate its hunger for ad dollars onto the cellphone-based mobile internet, he said. As distasteful as a merger between Telus and Bell might have seemed to consumer and monopoly watchdogs, Entwistle argued, it was a necessary move to combat the girth of the looming giant.

It turns out the Telus CEO was right — the Google monster is indeed coming. With an announcement in November that it was leading a 34-company alliance devoted to disrupting how cellphones have traditionally been developed and built, Google signalled it is in fact out to change how the wireless game is played, if not usurp control of it from the existing carriers.

Smartphone operating system market share

Smartphone operating system market share

• Symbian 64.9%
• Linux 11.4%
• Windows 10.5%
• BlackBerry 9.6%
• Palm 2.6%
• Mac 1.8%
• Other 0%

Source: IDC, 2007

The result may be a future where the cellphone business — in Canada at least — is dominated not by the likes of Telus, Bell or Rogers Communications Inc., but rather by technology companies such as Google, Apple Inc. and Skype. "The carriers will have much less control than they have today," says Rob Enderle, president of California-based technology consultancy the Enderle Group. "If Google is successful, they will have an impressive amount of power."

The Google-led Open Handset Alliance is championing a standardized and open software base for mobile phones called Android, which anyone — from the biggest corporations to the lone computer geek at home — can develop features for. The group wants to spur the same kind of equality of innovation on the mobile internet as that on the fixed internet, which has spawned companies and websites such as eBay, Amazon, Mapquest, Skype, Facebook and — ironically enough — Google itself. "I don't think anyone could have sat back in 1994 when Netscape went public and said, 'You know what? I bet there's going to be this company called Facebook that's making this little application where people can create a social network," says Nathan Beard, Google's director of new business development. "You're going to see the same thing developed for the Android platform. There are going to be things created that none of us have ever dreamed of."

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"Google is paying you to take the platform and that is a game changer."
- technology analyst Rob Enderle

The search giant has considerable heft — its near-$200-billion U.S. market value makes it one of the biggest companies in the world, and it dwarfs the combined $65-billion value of Canada's three main cellphone providers. As if that weren't enough, members of Google's alliance include heavyweight microchip makers Intel Corp. and Qualcomm Inc., as well as major phone manufacturers Motorola Inc., Samsung Group and LG Electronics.

Most importantly, several major cellphone carriers — including Sprint Nextel in the United States, Germany's T-Mobile, China Mobile, and Japan's KDDI — have opted to join the group rather than fight against it. The carrier members account for more than 800 million cellphone customers worldwide, or more than a quarter of the three billion global total, giving the pushers of Android a huge potential subscriber base to sell phones to.

A screenshot from an Android demonstration video showing a Google Earth-type application.

Canadian cellphone companies, as well as the largest U.S. providers — AT&T; Inc. and Verizon Communications Inc. — have so far opted to sit out of the alliance. UK-based Vodafone Group PLC, the world's largest provider outside of China, is also not a member.

Software the challenge

The biggest change the alliance is looking to make is in unifying the basic software that phones use. Unlike home computers, where Microsoft Corp.'s Windows runs on more than 90 per cent of the world's PCs, the mobile phone operating system market is considerably more fragmented. Nokia Corp. has about 65 per cent of the smartphone market with its Symbian system, according to 2007 figures from global research firm IDC, but its lead is far from dominant with four strong challengers in the field.

That fragmentation has made it difficult for software developers to design for advanced phones, which has resulted for the most part in a less-than-thrilling mobile internet experience for customers.

Carriers have also kept a tight grip on what kinds of software customers can put on their phones, often banning applications such as free calling service Skype, which can eat into revenue generated by their own services.

Google's advantage is that Android is essentially free, Enderle says. Whereas cellphone makers such as Motorola currently have to pay Microsoft fees to use Windows on their devices, the Google operating system will carry only a marginal licensing cost, undercutting rivals.

Google can also entice carriers to favour its system by offering them a slice of its advertising revenues, which it expects will flourish once the mobile internet takes off. That is likely how the company was able to convince carriers such as China Mobile and Sprint Nextel to join its alliance, Enderle says.

"With their platform they bring money, with everybody else you're paying money out to use the platform," he says. "Google is paying you to take the platform and that is a game changer."

The alliance's rivals, however, say Google has a long way to go before it can make any inroads. Software companies such as Microsoft, for example, have been in the market for a long time and are only now starting to make any headway, says Paul Chapple, general manager of Nokia Canada.

"Building phones is really hard. Making announcements is easy," he says. "It's taken a long time for software companies with a great deal of expertise to get this right." Spokespeople from Rogers and Telus would not comment on the potential threat their companies face from Google. A spokesman for Bell said the company is watching the alliance for developments.

Other potential weapons

The first Android phones won't be out until the second half of 2008, but Google also has several weapons in hand with which it could further change the industry before then. One is a full-fledged entry into the U.S. wireless market through buying a licence for radio airwaves; the other is its own "gPhone" device.

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"With the existing data rates, who in their right mind is going to go buy [the iPhone]?"
- IDC Canada telecommunications analyst Lawrence Surtees

Google chief executive officer Eric Schmidt earlier this year pledged to bid at least $4.6 billion U.S. in an auction of wireless airwaves, to be held by the Federal Communications Commission in January, if the regulator imposed several open-access rules on any winners. The FCC complied with most of Google's requests, including forcing auction winners to make their phones operate on rivals' networks, and Schmidt said in May that Google would "probably" make a bid.

A spokesman for the company said Android and the Open Handset Alliance do not change that position.

Google could then rent those airwaves to smaller companies looking to compete with the likes of AT&T; and Verizon, but who don't have the financial wherewithal to buy their own.

Before the Android announcement, there was also rampant speculation that Google would enter the wireless market with its own custom-designed phone, dubbed the "gPhone" after Apple's iPhone, released in June. In a conference call with reporters following the alliance announcement, Schmidt said Android was better than a gPhone because it would result in many new and innovative handsets being developed.

"Think of not just one gPhone, but a thousand," he said.

Still, Schmidt refused to rule out the possibility of launching a Google-branded phone, which analysts say would run Android, come loaded with Google applications such as Maps and YouTube, and be built by companies such as LG and Taiwan's HTC. The cost of the phone would be offset by Google ads on it and therefore come cheaper than those offered by traditional carriers.

Apple wants in too

Google, however, is not the only wireless industry outsider trying to bring prices down and mobile internet usage up. Apple has rocked the cellphone industry with the iPhone, a device designed for video and web surfing, and has forced data rates down wherever it has been released, says Lawrence Surtees, principal analyst of communications research at IDC.

"That's a profound event," Surtees says. "That's going to completely stimulate the whole wireless data market."

AT&T;, the first cellphone provider in the world to get the iPhone, attached a $60 U.S. monthly plan to the device, which included 5,450 minutes, 200 text messages and unlimited data downloading. Carriers in the U.K. and Germany began selling the device in November with similar monthly prices.

In Canada, however, the iPhone is nowhere in sight. Neither Apple nor Rogers, the only carrier with a network that is compatible with the device, will comment on a possible Canadian release date. An iPhone plan from the company on existing rates that is comparable to AT&T;'s would cost nearly $150 a month.

Most analysts believe it is only a matter of time before Rogers does launch the iPhone, but as with elsewhere, the company will have to play ball with Apple's demands and lower its rates.

"With the existing data rates, who in their right mind is going to go buy it?" Surtees wonders.

Some analysts have pointed out that Canadian carriers are already dropping data rates in anticipation of the iPhone's arrival. A November report by telecommunications consultancy The SeaBoard Group found data rates have dropped in "breath-taking" fashion over the past year, although they still remain high compared to other countries.

The 3,700 potential customers who have signed an online petition urging Rogers to further drop its rates to AT&T;'s level agree with Surtees, and certainly won't buy the iPhone with existing data prices.

Tom Bielecki, the 18-year-old engineering student at the University of Calgary who started the iPhone petition, submitted the signatures to Apple and Rogers in October but has not heard back from either company yet. He is still hopeful that Rogers will bring its rates in line, and that Canada can catch up to advanced wireless internet services — such as mobile banking — that are already available in Europe and Asia. "It's taken quite a while for the West to get that assumption of the device. There are so many different technologies that we just don't have yet," he says. "We're definitely behind the curve."

Canada is also behind in adopting mobile voice over internet protocol services offered by providers such as Skype. While Asian and European countries are rolling out cellphones with wi-fi connectivity, which can connect and make calls over the internet for free rather than over a cellular network, Canadian providers are blocking such abilities. Certain less popular wi-fi phones from makers such as HTC are available in Canada, but devices from major manufacturers such as Nokia and Research In Motion are either not available or are sold as modified versions without wi-fi.

Inevitably, however, analysts say the vast majority of voice calls will be made through VoIP services. And, like the looming changes being forced by Google and Apple, in this case Canadian carriers are merely delaying the inevitable.

"These companies are like a river, they want the path of least resistance," Surtees says. "But it's not a question of if, it's a question of when."