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Google is trying pull US telcos round to its way of thinking with plans for a handset optimized for its online services. The precocious Silicon Valley company has reportedly spent millions of dollars prototyping cell phones tailored to its search, email and a planned new browser.

According to reports, the Googlephone features a camera, built-in WiFi, 3G and GPS capabilities. Google has also talked to cellcos over handset specs and made overtures to companies such as T-Mobile USA and Verizon Wireless.

Google doesn't plan to charge a licensing fee to OEMs or operators and has suggested phones carry the Google brand next to that of the operators or could be distributed without the Google name.

The search giant has already held talks with Orange in Europe, over similar plans.

News of the Google phone lends further credence to those who believe Google’s next step is to become a phone and internet service provider. The company has been widely reported to be buying up dark fiber across the US.

Those apparent aspirations became clearer with the proposal to offer the US government $4.7bn in return for the soon-to-be vacant 700MHz wireless spectrum.

Owning a chunk of telecoms infrastructure could save Google from paying US telcos to run its search traffic on their networks, in the post net-neutrality era.

The Federal Communications Commission (FCC) has dismissed Google's own attempts to influence carrier policy at a regulatory level. Google tried to get the regulator to alter the service terms for the winner of the 700MHz spectrum auction by attaching conditions to its own bid.

Google wanted the regulator to specify the winning bidder must give users freedom to connect any devices to the network, download any software, and the carrier must be prepared to sell of chunks of the spectrum to third parties wholesale.

Apparently, the FCC didn’t like being told what to do and Google’s terms were rejected in a move that could make a Google bid even more likely.

With a phone, though, Google could divide and conquer the carriers that would certainly have encouraged the FCC to reject its open network proposal. Chief executive Eric Schmidt said earlier this year that mobile ads are twice as profitable as those through a PC, because the ads are more personal.

The offer of additional cash would certainly appeal to some carriers, but would leave others conflicted as Google would be viewed as a potential competitor.

All this comes barely a month after Apple took its first step towards building a third business on the back of the telco sector, with the launch its iPhone on AT&T's rather poor Edge network.

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