The Internet giant appears to hold a number
of keys that will get it into this space in a big way.

Google is shaping up to be the second largest story of the year in wireless. In the last few months, the Internet giant reportedly is in talks with top-tier wireless operators, is credited with driving the open-access requirements, is thought to be bidding in next year’s 700 MHz auctions and is making its own wireless smartphone. Of course, much of this is conjecture at this point, but here’s what we do know.

Rhonda Wickham Editor-in-Chief

Last month, Google’s stock broke the $700 mark. In fact, it is still rising at press time. We haven’t seen this kind of tech stock performance since before the dot.com bust. The rising stock price, which rose $100 in a month’s time, signals that its effort to move into new markets such as wireless is meeting with positive support. The latest boost in share price seems to have been triggered by news that the Internet giant is in “advanced talks” with Verizon Wireless and Sprint Nextel, as well as with Deutsche Telekom, parent of T-Mobile USA.

The discussions, which first broke in The Wall Street Journal’s online edition, reportedly involve these operators carrying Google-powered cell phones. Citing unnamed sources, the story said that later this month, Google is expected to announce a set of software and services that could be used by cell phone makers. This software would allow third parties to add applications. It’s quite likely that the deal also will bring a tight integration of Google’s applications including Gmail, Gtalk and Google Maps. And let’s not forget Google’s history of bringing services to market for free by using targeted and contextual advertising.

If Google can line up agreements with the major wireless operators for its software, it extends its dominance to the wireless broadband world. This might help explain away the rumors of the Google launching the gPhone. Earlier this year, it was confirmed that HTC would make 50,000 units for the Internet behemoth. However, as UBS analyst Benjamin Schachter wrote in an investor note, these devices would not be for general consumption but rather to help developers understand how Google’s operating system would work.

As good as the company is at what it does, developing consumer electronics isn’t exactly its forte. And what new player wants to follow in Apple’s footsteps? It is much better that Google try to get its software and service on many phones than try to eke out a few market share percentage points in the highly competitive handset market.

That brings me to the question of Google’s involvement in the 700 MHz auctions in January. Google lobbied long and hard to get the open-access rules implemented. Many industry watchers predicted that Google would bid on those licenses. As interesting as that could make things, it doesn’t really make sense that this company would drop hundreds of billions of dollars to build out a telecom network, even though it probably has deep enough pockets to do so.

Andy Seybold, Wireless Week’s contributing editor and resident industry expert, suggested that Google holding spectrum, or even the threat of it holding the precious resource, might give it more bargaining power with wireless carriers.

UBS’ Schachter agreed in another note that Google may threaten to spend billions on its own wireless spectrum to get the carriers in line. Google “may be using its potential spectrum acquisition as a hedge against carrier intransigence,” Schachter wrote.

And perhaps that opened the doors for Google to sit down with Tier 1s and talk about its software and services. No telling what will come of the meetings, especially since one of the central questions will no doubt focus on the advertising model that Google has perfected. And this may ultimately gum up the works. Mobile advertising revenues are expected to surge from this year’s estimated $106.8 million to $5.08 billion in 2012, according to Local Mobile Search, an advisory service of Opus Research.

Although wireless operators do not have a corner on the mobile advertising market yet, they do recognize its huge potential for revenue growth. Ultimately, I’m betting it will all come down to how willing wireless carriers and Google are to share those revenues that will seal the deal. And that is anything but a sure bet.