As a carrier's partner, Google may shine

Pitching Motorola's phones is a new challenge, but carriers like iPhone rivals, analysts say

Google's planned acquisition of Motorola Mobility will force the search giant into a whole new set of relationships with mobile operators, which could benefit the carriers but also create tension.

The dramatic success of Google's Android OS has further eroded the power of carriers, which had already seen their influence over phone software diminished by Apple's iPhone. Google has seized mobile advertising revenue and, along with Apple, mastered the sale of mobile applications where carriers have often struggled.

However, the service providers may have to grin and bear it if Google starts to design future versions of Android around Motorola or favor its own device maker with software updates, some analysts said. And a line of Motorola phones tightly bound to Google software and services might even create a welcome counterweight to the iPhone.

"From the carriers' perspective, Google is one of the market disruptors," said analyst Phil Marshall of Tolaga Research. Now, for the first time, the company will be dealing directly with service providers in a significant way as a hardware maker that needs distribution for a line of handsets.

The company's only direct experience as a branded handset vendor has been with its Nexus phones, which have been sold through a complicated variety of channels with mixed results. They have been made by third parties with software controlled by Google. All four of the biggest U.S. carriers have sold Nexus phones, some with subsidies and some without, while Google has also offered the phones on its own site. The Nexus One carried a hefty early termination fee when bought with a contract and subsidy from T-Mobile, and early customers complained of poor customer care. Sales of Nexus handsets have never rivalled major Android phones such as Motorola's Droid.

If the Motorola deal gains regulatory approval, Google will own one of the biggest handset makers in the world, purveyor of the popular Droid line of Android smartphones. In some markets, particularly the U.S., getting a smartphone into consumers' hands in large volumes requires getting it into a carrier's store. Mobile operators provide access to thousands of stores and millions of subscribers, subsidize phone prices and often mount extensive marketing campaigns.

But they may also dictate hardware settings, customize the user interface and decide what software is highlighted on a phone's "deck" of applications. Relying on carriers to distribute the products of a serious hardware business will be a new experience for Google, said analyst Roger Entner of Recon Analytics. With the exception of the Nexus phones, Google is used to dealing with service providers indirectly through its army of third-party handset vendors, so these new kinds of issues could cause tension, he said.

"The challenge is how they will transform from a partnership where they are an equal or a little more than an equal ... to a relationship where they are ... a little bit less than an equal," Entner said.

The good news for Google is that Motorola already has strong ties to U.S. operators and is improving relations with carriers in other countries.

"So long as Google doesn't disrupt the traditional channel that Motorola has with the carriers, I don't see it as a major problem," Marshall said.

Disruption could take the form of Google favoring its Motorola division with special features or early access to new versions of Android, which could hurt other handset makers that have helped to build a strong lineup of smartphones in carrier stores, analysts said.

The current state of the Android market, with numerous manufacturers adding phones to the mix at various price points, works best for the carriers, said analyst Avi Greengart of Current Analysis. It works best for Google, too, because the proliferation of Android phones opens up more opportunities to sell mobile advertising, he said. Its intent with the Motorola acquisition was to buy the company's massive patent portfolio and use it to defend Android from legal challenges, helping all Android device makers, he said.

Announcing the deal on Monday, Google vowed to run Motorola as a separate business and keep Android open. It will even keep developing its own branded Nexus phone and remain open to other manufacturers for building those products, the company said.

However, the acquisition is likely to shake up the Android ecosystem even if Google tries hard to preserve it, Entner said. Motorola will get the inside track on some new Android developments, he predicted.

"If you're working in the same company, even if there's no formal thing going on, informally it's inevitable," Entner said.

"No one has ever successfully competed with their licensees before," Greengart warned. "They're putting themselves in a tough spot."

Even if Google does change its tune and creates a vertical stack of hardware and software for Motorola's phones, possibly alienating other Android device makers, carriers might welcome it as an alternative to the iPhone, Marshall of Tolaga Research said.

"When the Apple guy shows up, with his turtleneck collar, he's not going to have as much leverage on the carrier if Google is successful, with Motorola, at catching up," Marshall said.

Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Stephen Lawson

IDG News Service
Topics: Motorola, Google, Carriers, consumer electronics, telecommunication, Android, smartphones, business management, Mergers and acquisitions
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