5 Reasons a Google Phone Still Won’t Disrupt Carriers

Here in the U.S., there have been high hopes that Google’s Nexus One (s goog) might break the control of the wireless carriers. That didn’t happen for many reasons, however, and now James Allworth at the Harvard Business Review suggests that Google faces the risk of its Android cash cow running dry. Phone makers and carriers are stripping Google’s revenue opportunities from the platform by choosing different search engines, for example. Allworth points to a potentially dire future for Google, even though the search giant recently reported mobile search revenues topping $1 billion:

It won’t be long before Google’s “allies” in the Open Handset Alliance — the manufacturers making Android phones — realize that Google needs them a lot more than they need Google, and auction off the default search services on the phones they ship. Google may have no choice but to buy their support, too. And it surely won’t come cheap.

Dana Blankenhorn, a ZDNet (s cbs) writer covering Linux and open source, agrees with Allworth, but takes the conversation one step further by suggesting that Google revisit building their own handset. I applaud this idea, and in fact, had hoped Google would begin to loosen the grip that carriers have over U.S. consumers with the Nexus One. But the reasons why he suggests this could happen with a second effort aren’t very convincing. Here’s why:

Going it alone hurts hardware partners. For Google to succeed in this vision of the future, it needs to build the best, most appealing Android phone on the market. To do that, if it were even possible to do, would be a stab in the back of the very hardware partners that have helped make Android a success: Think Motorola (s mot), HTC, Samsung, LG and others. If Google were a hardware company, it might take that risk, but Google isn’t a hardware company. Simply put: Google needs hardware partners.

Forget the carriers and their networks. Blankenhorn suggests that Google skip the cellular networks and “organize every Wi-Fi network” it can with “Super WiFi antennae from your points of presence (those Google-in-a-box units at phone offices around the country) and enable people to switch the SIM card easily.” If it were that easy these days to divorce phone service from the cellular networks, wouldn’t Apple (s aapl) have already done that with the Wi-Fi-capable iPod touch? Wi-Fi is more of a localized connection, not a national network. Had Google nabbed spectrum for WiMAX a few years back, this approach might have been feasible, but still challenging. That didn’t happen though, so Google’s best chance for creating its own network from auctioned airwaves is behind it.

A Google MVNO or regional partners? An interesting suggestion from Blankenhorn is to have Google partner up with regional carriers to create an ad-hoc network. He specifically mentions MetroPCS, which is a good example. But MetroPCS doesn’t even have a 3G network of its own; it’s a value carrier that focuses on offering low-cost voice minutes and messages. The carrier is just now rolling out an LTE network, but it’s very limited in terms of coverage and likely more comparable to current 3G network speeds. (Note: I’ll be reviewing the MetroPCS LTE network next week.) Without a fast network, a Google Android superphone is far less useful to customers and therefore, less of a revenue generator for Google. And guess where some of those other small carriers get their network capacity from? The big four carriers such as Sprint (s s), whose wholesale network business is thriving. Carriers still use different technologies and frequencies too, adding more complexity for choice among networks.

Forget the subsidy. Blankenhorn thinks Google should charge the full price for its magical phone and bypass any carrier subsidies. As someone who paid the full $529 price-tag for a Nexus One, I can see how that might work, but then I’m probably in the minority. Like a drug, U.S. consumers are addicted to lower-priced handsets because they can’t fathom spending $500 or more for a phone. Handset subsidies are part of the economic mindset here, and if you don’t believe me, just ask Nokia (s nok); with few subsidized handsets available, Nokia smartphones are all but absent outside of tech circles in the U.S.

The “Last Device You’ll Ever Need.” The last suggestion sounds good on paper: Create the phone with hot-swappable parts. Figuring that data can be synchronized with Google, the idea is that a higher up-front cost would be depreciated over time because the handset can be upgraded. That’s intriguing, but would require hardware expertise for a modular design. Of course, Google would have alienated itself from any potential hardware partners by going it alone, so who’s going to engineer such a beast? And will consumers want to swap out the 5 megapixel camera sensor for one with 8 megapixels? Some may, but phones are becoming viewed as consumer electronics devices: people want to turn them on and have them simply work.

Again, I’d love to see Google reduce carrier control, both here and abroad. And there’s some merit to the thought that Google’s openness for Android distribution could hurt the company financially, especially if bidding wars ensue on which search engine appears on what phone. But the fact remains that Google has already gone down this path once and it didn’t make a dent in the control exerted by carriers. To think it can do so the second time around is naive.

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