August 15, 2011, 8:01 PM — 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.