Google Kicks Off Phone War With Apple

SAN FRANCISCO - Google(GOOG Quote - Cramer on GOOG - Stock Picks) took its first stab at competing with Apple(AAPL Quote - Cramer on AAPL - Stock Picks) in the mobile space by unveiling the Android operating system on the new G1 cell phone.

Now the true test will be if users pick up the device in enough numbers to make a dent in Apple's growing popularity with the iPhone.

Handset maker HTC came up with the device that will support the Android operating system -- the first phone on the market to do so. But with Deutsche Telekom's(DT Quote - Cramer on DT - Stock Picks) T-Mobile unit as the exclusive carrier for the G1, it could limit Android's reach in the U.S., making it tougher for Google to take on the iPhone.

T-Mobile is the fourth largest carrier in the U.S., behind Verizon(VZ Quote - Cramer on VZ - Stock Picks), AT&T(T Quote - Cramer on T - Stock Picks) and Sprint(S Quote - Cramer on S - Stock Picks) respectively. AT&T is the exclusive carrier for the iPhone.

First Look: TMobile's G1 Google Phone

Jeffrey Lindsay, an analyst for Sanford Bernstein, says the G1 also faces other challenges since it does not have a fully integrated system like the iPhone, which uses an Apple operating system.

"Apple is the market leader in basic design," Lindsay says. "It's in charge of the hardware and software, making it a huge advantage, which Apple would be well to preserve."

Apple has sold more than 6.1 million iPhones in its first year.

In the long term, however, Lindsay sees things tilting in Google's favor because Android uses an open platform, which allows developers to come up with new applications with fewer constraints than the iPhone. It also gives handset makers the freedom to design their own devices.

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