Google's new phone could have major impact on U.S. wireless market

Google is reportedly planning to unveil its Nexus One phone today, potentially starting a major shift in the U.S. smartphone market.

The handset will be the first real competitor to Apple's iPhone, which quickly dominated the market after being introduced three years ago. But one major drawback of the iPhone--it's exclusive partnership with AT&T--will be absent with Google's Nexus One. According to other media reports, Google is expected to sell the phone directly to consumers in an "unlocked" format, meaning consumers can choose any carrier's network they want for their phone.

Handset exclusivity--or the agreements many cellphone manufacturers have with carriers--is the subject of debate in Washington. The Federal Communications Commission is examining the effects of such exclusive arrangements on competition and price. And the agency's preference for "open" technology systems suggests it could be moving toward requiring manufacturers and carriers to give consumers more choice. 

It could also end up having an impact on another hot topic that is directly linked to exclusivity--early termination fees. Cellphone carriers charge customers a hefty fee for leaving their contracts early. The reasons most consumers switch carriers is to get a handset distributed exclusively by another carrier, or to go to another carrier's superior network.

Sen. Amy Klobuchar (D-Minn.) and Sen. Jay Rockefeller (D-W.Va.) are among the lawmakers who have the early termination fees in their sights, having introduce a bill that would require carriers to greatly reduce their "budget-busting" fees.

Carriers have long said they need to charge the fees to help offset the cost of subsidizing their handsets with one- or two-year contracts. But if customers buy an "unlocked" Nexus One phone, they can take it to any carrier, with or without a contract. That could throw a wrench in the industry's way of conducting business.

If Google's strategy is successful at getting other carriers to "unlock" popular handsets, it would move the U.S. closer to aligning with European and Asian markets, where consumers typically buy cellphones directly from manufacturers and then connect to any network they choose. This could put pressure on carriers to increasingly improve their network speeds and capacities, since they will no longer be able to lure customers only with the hottest handsets.

Google's "open" strategy began with its multi-billion-dollar bid for wireless spectrum in an FCC auction two years ago. The company bid enough to get open-access rules attached to some of the airwaves, but stopped short of actually purchasing any. Two years ago, the prevailing thought in the industry was that Google wasn't interested in getting into the cellphone business.

Then it introduced its Android operating system. And now the Nexus One handset. It seems Google is looking to make a splash in the cellphone business after all.