Google's Gphone is set to launch next week

The world’s largest search giant, which is looking to grab a sizable chunk of the potentially highly lucrative wireless and mobile advertising markets, is expected to produce a prototype mobile handset next week at the Mobile World Congress show in Barcelona, according to the Times newspaper.

The move will intensify the battle between Google and its rival, Microsoft. The two are currently sparring over Microsoft’s audacious $44.6 billion bid for rival Yahoo!.

Microsoft launched its own operating system for mobile phones several years ago, Windows Mobile, and has negotiated tie-ups with a number of major handset makers including HTC, i-Mate, and E-Ten. Google revealed late last year that it had developed a new operating system for mobile phones but refused to elaborate on the kind of handsets in which its system, called Android, would be installed. Industry analysts believe that Google has been collaborating with Dell over a handset that is customised to showcase the software.

The computer group has dabbled in the mobile market before and last year poached Ron Garriques from Motorola, the world’s third-biggest mobile handset maker. The extent of Google’s ambitions in mobile has been underlined by its participation in the multibillion-dollar Federal Communications Commission spectrum auction under way in America. Bids have already passed $4 billion.

The failure of 3G services on mobile phones and a lack of “web-friendly” handsets had held back the market for mobile advertising. However, with phones becoming more sophisticated and mobile network speeds faster, mobile is now seen as the next battle-ground for advertisers. More than 20 per cent of UK mobile subscribers are expected to have access to the mobile internet at broadband speeds by the end of this year.

Informa Telecoms and Media, an analyst, estimates that mobile advertising could be worth over $11 billion by 2011. Google believes that the possibilities of location-based search advertising opened up by the mobile internet are “the recreation of the PC story”.