Back in March the rumors about a Google Phone (or GPhone) were flying rampant. But the company eventually squelched those rumors by saying it was not, in fact, working on a phone - it was working on software for mobile phones. Producing mobile hardware would be a radical shift in it’s business practice, said Richard Kimber (Google managing director of sales and operations for Southeast Asia).

But now The Wall Street Journal is reporting that Google is actually working on a phone. Sort of. From The Wall Street Journal:

In recent months Google has rolled out mobile versions of products such as the YouTube video-sharing site. It has made deals to include its search engine or applications such as Google Maps and Gmail on select handsets. But the company has sometimes been frustrated at the limited distribution it has achieved. In some cases, Google has managed to get around operators. Its 411 location search service can be accessed by dialing an 800 number from any handset. […]

The specifications Google has laid out for devices suggest that manufacturers include cameras for photo and video, and built-in Wi-Fi technology to access the Web at hot spots such as airports, coffee shops and hotels. It also is recommending that the phones be designed to work on carriers’ fastest networks, known as 3G, to ensure that Web pages can be downloaded quickly. Google suggests the phones could include Global Positioning System technology that identifies where people are.

People who have seen Google’s prototype devices say they aren’t as revolutionary as the iPhone. One was likened to a slim Nokia Corp. phone with a keyboard that slides out. Another phone format presented by Google looked more like a Treo or a BlackBerry. It’s not clear which manufacturers might build Google wireless devices, though people familiar with the project say LG Electronics Co. of South Korea is one company that has held talks with Google. Google has already lined up a series of hardware component and software partners and signaled to carriers that it’s open to various degrees of cooperation on their part, the people say.

So technically Google isn’t working on a producing a phone itself. But it could very well be working on specifications and prototypes of phones. In theory Google could strike up a deal with another company to produce the phones. Deals and partnerships could get those phones on existing wireless networks or, as some suggest, Google could become a wireless carrier itself.

As expected, Google has declined to say much about the reports other than it has partnered with most of the major wireless carriers to include Google software on existing phones. The WSJ report goes on to say that Google is even working on it’s own mobile browser in a clandestine Boston office (Ok… the article doesn’t use the world “clandestine”… but you get the impression that this whole mobile venture is pretty secretive).

If Google offered a free wireless network I have no doubt it would be a hit. Cell phone bills are often some of the highest payouts consumers make each month. So I wouldn’t be surprised if such a project saw a wide adoption.

But I’m not sure declaring war on the mobile industry is the best way to go about its mobile agenda. The recent “recommendations” Google made to the FCC in regard to the 700mhz spectrum auction already have some mobile operators raising their eyebrows at the search company.

Many of the U.S. mobile operators are subsidiaries of or partnerships with international corporations. If Google goes around irritating U.S. operators in could impact the willingness of these multinational corporations to do business with them elsewhere. And unless Google plans on becoming a world-wide mobile operator, that just wouldn’t be a smart move.

Google has proven on several occasions that rocking the boat and taking a gamble can pay off - handsomely. So maybe it plans to do the same thing in the mobile world. But with so many billions of dollars at stake, I’m not sure it’s a gamble I’d take.

What do you think? Should Google branch out and have its own phones created? Should Google become a mobile operator? Or should they stick to what they do best and continue to work on innovative mobile software?

More discussion at Techmeme