Because Google exerts no control of Android, Baidu is working with smartphone makers to strip all references to it from phones shipped within China.
Verizon and Motorola have both shipped Android phones with Bing, not Google, as the default search engine.
The result is Google may find itself paying for search traffic on phones it designed. Carriers, not Google, are in the driver's seat.
Manufacturers can now compete directly with the iPhone, make their own deals on search, and return to the status quo that existed when Symbian ruled the mobile Earth, only without those nasty royalty payments, or having to learn Finnish.
What he doesn't do is offer Google a way out of the box, which I'm now about to do. (Tip for you James. Never leave a thesis half-finished when you can go off half-cocked.)
The answer is a Google phone. That is, an Android phone designed by Google, built under Google's direction, and sporting the Google name.
But won't it need a carrier, you ask. Not necessarily. Organize every WiFi network you can, run up Super WiFi antennae from your points of presence (those Google-in-a-box units at phone offices around the country) and enable people to switch the SIM card easily.
America actually has many cellular players below the "big four." Some are re-sellers, some are regional. Work to build cheap roaming agreements among the regionals and create an adhoc network. These folks (like MetroPCS) become your distribution channel.
Oh, and charge full price for the phone. It should be offered untethered to any carrier, which means it can't go for $200 but the $500 it's really worth. Sell the value proposition.
Make the thing durable, built to last, with parts that can easily be swapped-out once data has been uploaded to Google for syncing. Slogan -- The Last Mobile Device You'll Ever Need.
Before the carriers' Admiral Akhbars can say "It's a trap" they will be squid in your net.
That's what I would do if I were King of the Googleplex.