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Some may be surprised to learn that Taiwanese phone maker HTC Corporation is really behind the eagerly anticipated “Google phone”. While it was widely reported that the Internet titan masterminded the device, Google (GOOG) recently made clear that it left the design and manufacturing up to HTC.

Regardless of who made it, the Nexus One is among the most technologically advanced smartphones on the market today. This, coupled with Google’s marketing prowess, gives phone makers like Motorola (MOT) and Apple (AAPL) some cause for concern.

So what’s all the fuss about anyway? For starters, the Nexus One is the only smartphone that runs the latest version of Google’s mobile operating system, Android 2.1. The newly upgraded OS offers such features as animated wallpapers, an improved picture gallery, and the ability to convert speech to text.

Motorola’s flagship device, the Droid, currently uses the slightly less advanced Android 2.0, but the president of its handset division, Sanjay Jha, has said that he “thinks” the company will upgrade to Android 2.1 soon.

On the hardware front, the Nexus One raises the bar significantly by incorporating one of the fastest and most powerful application processors available, Qualcomm’s (QCOM) 1Ghz Snapdragon chipset. This silicon lets users maneuver around the operating system a little faster than the competition and allows the phone to run a greater number of complex applications simultaneously.  The Nexus One is also thinner and lighter than both the Droid and Apple’s iPhone 3GS.

One thing that the Droid has over Google’s handset is a slide-out physical keyboard. This trait’s ability to sell phones shouldn’t be underestimated as many people consider it to be a must-have. Case in point: the QWERTY king, Research in Motion (RIMM), has sold two BlackBerry smartphones for every one iPhone according to Forrester Research. In all fairness, having its phones available on most every carrier has also helped the Canadian powerhouse.

Despite being the number two smartphone company, Apple can certainly hold its own in this war. The iPhone 3GS boasts a number of enticing features including the most applications and big-name developers, intuitive touchscreen gestures like “pinch-to-zoom”,  and arguably the most attractive and user-friendly interface.  Keep in mind that Apple has released a new iPhone during each of the past three summers, so new hardware in six months time doesn’t seem farfetched.

You can buy a Nexus One through Google’s new online phone store for the subsidized price of $179 with a two-year service contract from Deutsche Telekom (DT) owned T-Mobile. Or,  you can pay $529 to buy the phone unlocked (open for use with any GSM cellular network), but if you’re looking to get AT&T (T) service you must settle for the slower EDGE data network instead of 3G because of frequency limitations.

According to Google’s Website, the phone will be coming to America’s largest network, Verizon (VZ), and the world’s second largest carrier Vodafone (VOD) in the spring of 2010 for undisclosed sums. Google’s management said that all sales will be conducted through its Website, not carriers’ physical retail outlets.

Although the Nexus One may currently have many of the premier smartphone features, in all reality it’s not that much more technologically advanced than the Droid. Also, the Nexus One will only be available on a tiny network for the next few months and there’s risk that something better will come along by the time a Verizon friendly version gets rolled out. 

Google’s VP of Engineering, Andy Rubin, said that there is an opportunity “to make some margin on the unit sales”, but the company seems more concerned with radically changing the relationship between cellphone makers, service providers, and consumers. 

Normally, a smartphone designer strikes an exclusive deal with a wireless services provider in exchange for hefty subsidies and help with distribution and marketing. The phone maker sells phones and the service provider sells two-year contracts with expensive data plans and everyone is happy… except for those consumers who had to pay a huge termination fee in order to get “this” phone or “that” service.

Google’s plan is to eventually sell lots of different unlocked Android phones through its online store and have the various service providers compete with one another over who can offer the most attractive a la carte service plans. If more people start using the Android operating system, Google should eventually start selling ads on the mobile Web like it does on the regular Internet. Currently, most of the “sponsored links” that can be seen on a regular Google search results page don’t show up on the mobile site. 

It remains to be seen whether or not a substantial portion of consumers will prefer buying phones online rather than going to an actual store and talking with a sales clerk.  Even if Google moves a huge number of devices, there is no guarantee that carriers like Verizon and AT&T will be willing to change their beloved two –year contract model. Therefore, the decision may ultimately rest in the hands of telecom regulators. Still, those looking to try and put an end to long commitments, lofty monthly rates, and restricted access to the most popular devices may want to buy their next phone from Google.