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Google Entering Wireless Biz? Will They Or Won't They?

Will they or won't they.

The net is rife with speculation now that Google plans to enter the wireless business with a free, advertising-supported cell phone that the company would sell, using wi-fi AND cell technology. Not just with new apps, but with the actual hardware.

Rumors about this have been around for months, but gained huge momentum last week after a Boston-area venture capitalist, Simeon Simeonov, claimed some kind of inside knowledge of a major initiative underway. When my producer Annie Pong got in touch with him a couple of days ago, he was backpedaling bigtime. He tells her he no longer wants to "speculate" about Google's cell phone plans, and doesn't want to be the "tail wagging the dog" on this one.

But since then, the story's been off to the races. And based on the sources I've talked to this week, there's plenty of fire behind all that smoke.

Engadget and Gizmodo have both printed nice pix of the purported phone that Google may or may not be working on with partner Samsung. A fair amount of skepticism here since both sites were loaded with Apple iPhone prototypes that were cool, but fakes.

So let's look at the facts: Google did hire Andy Rubin, a co-founder of Danger Inc. (one of my favorite company names, ever!), the company behind the wildly popular smartphone "Sidekick" from T-Mobile. And two sources say he's coordinating a team of at least 90 software and hardware engineers on a project they're not allowed to talk about.

Connect the dots.

Analysts who want to discuss this on the record are intrigued with the possibility. Charles Golvin at Forrester tells me today that any new entrant into the cell phone market faces a steep, uphill climb. Including Apple. And with smartphones still only a tiny percentage of the 1 billion handsets that'll sell globally this year, the value proposition may not be there yet.

But this sector of tech shows such huge promise, with such major growth potential, that Google may not be able to ignore it.

"The fact that Google would be entering a whole new business would generate a lot of enthusiasm," says Golvin.

But he also says beyond the excitement about Google and its hardware is how the industry could turn the wireless business on its ear. Not just with smartphone makers like Research in Motion , Palm , Motorola and Nokia and the brutal battle they're waging for smartphone marketshare. I'm hearing that the phone would be both cell and VOIP capable, meaning Google could end-run traditional cell towers where wi-fi is ubiquitous, and offer its own communications network if it so desired. Meaning a brand new headache for the likes of Verizon , AT&T Wireless and Sprint .

"Some of the speculation I'm reading is that Google would actually fund the marketing and the channel for sales of its devices to various carriers," says Golvin. "That would really change the business model for how sales and services are sold here in the United States."

Rob Enderle of the Enderle Group calls the Google phone "a good possibility. I think it is almost certain. The concept is a good one." For Google. Not necessarily for the carriers.

"It shifts the power dynamic. Right now the carriers dictate what goes in your phone, what services that you want, what services you can get and what features in your phone that actually work," he says. "With Google, because they have the money, the would be this huge buyer of cell phones and cell phone services, so they will have the power to tell the carrier what to do."

Kinda like the power shift going on with digital entertainment. It used to be that "content is king." But distribution, ala Google and YouTube, are wielding more power every day.

There is another drama playing out as well: Google vs. Apple. Apple's own hardware should hit store shelves in June. Google's Eric Schmidt even joined Apple CEO Steve Jobs on stage when the iPhone was unveiled, showing off new mobile Google apps. Schmidt is a member of Apple's board of directors. Al Gore is a member of Apple's board and also a special advisor to Google. Research teams, according to Schmidt, from both companies are working very closely together.

But Schmidt sees big things in mobile. In January, at that iPhone unveiling, Schmidt told the crowd: "This is the first of a whole new generation of data services where these powerful based cloud computers, Google being we hope a leading representative, provides HTML, XML and other sophisticated services, that the Safari browser embedded in the iPhone, and many other of its tech devices, and future devices out of Apple, will be able to take advantage of."

Wall Street is watching very carefully. If Google decides not merely to partner, but also compete with Apple in cell phones, that could unravel what some say could be Silicon Valley's most promising budding partnerships.

"If Google does come out with a Google-branded phone it would sour the relationship with Apple," says Gene Munster, who as of today now covers BOTH Apple AND Google for Piper Jaffray. "Ultimately a big part of the iPhone launch was Google and Google Maps as part of the iPhone. It's clear the companies are working together. If Google comes out with a phone, I think this would be a surprise to Apple and could sour the relationship."

Also, in case you're wondering, following the name-game controversy surrounding Apple's iPhone and Cisco's trademark ownership of the name: gPhone is already spoken for gphone.com is owned by GlobalPhone Corp. in Falls Church, Virginia. The company's been around since 1995, and they're probably watching the gaga over Google's cell phone entry a little closer than anyone else.

Questions? Comments? TechCheck@cnbc.com

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