The phone, manufactured by HTC, has a number of code names such as HTC Passion, Dream or Nexus One and could be available directly though the Google website as early as January 5, according to the source.
Google said on its official blog on Saturday that it was testing a new mobile device with its employees. Media reports have said that Google will sell an unlocked version of the touch screen phone, allowing consumers to pick a carrier of their choice to provide wireless service.
Another version will be linked to Deutsche Telekom's T-Mobile USA, which will subsidize the cost of the phone for U.S. consumers who agree to a service contract, the source said. Pricing details were not available.
"In the long term Google will become a seller and get commission from operators," the source said, adding that other operators are expected to follow T-Mobile's lead eventually and agree to Google's terms.
The phone is similar to Apple Inc's iPhone but has, among other features, an exchangeable battery, a somewhat larger screen and the ability for consumers to add a memory card to the device. Any operator who wants to make the phone available to its customers will have to go through Google, the source said.
"Apple had a phone so hot it changed the business model and got operators to agree to revenue sharing. This is going to change the business too," the person added.
A T-Mobile representative said the company does not comment on rumors or speculation.
A Google representative would not comment beyond the blog post on Saturday, which said that Google employees were testing an Android-based device to "experiment with new mobile features and capabilities."
Baird Research analyst Will Power said: "We expect the launch of a new competitive device to be directionally negative for most of the existing smart phone markers, including Apple, Research in Motion, Nokia Oyg, HTC, Motorola Inc, Palm Inc, Samsung and others, while perhaps most negative for the existing Android partners."
Until now, Google has partnered with many handset makers by offering its open-source Android software as a freely available operating system for smart phones.
As of last month, Google said that more than a dozen phones were available with Android, including the heavily promoted Motorola Droid phone that is available with Verizon Wireless, a unit of Verizon Communications and Vodafone.
Question - What can the Google Phone do that a Nokia N810 Internet Tablet running the Android OS cannot do? From my perspective, the only thing that separates one from the other is that nasty cell phone contract. Why pay into a cell phone contract when all you really need is to be in a Wi-Fi hot spot with a Skype-in number on a Nokia N810?
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