Yesterday I pointed out that the Google Phone has returned to the rumor mill. This morning The Wall Street Journal reported that Google is working on a cell phone but has declined to comment on the project. Looks like this dog will hunt.Here is what the Journal says about the long-awaited Google Phone:

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Google has invested hundreds of millions of dollars in the cellphone project, say people who have been briefed on it. It has developed prototype handsets, made overtures to operators such as T-Mobile USA and Verizon Wireless, and talked over technical specifications with phone manufacturers. It hopes multiple manufacturers will make devices based on its specs and multiple carriers will offer them.

For wireless operators, the plans are a double-edged sword. Google's powerful brand and its popular Web services could help operators sign up more subscribers to data packages, on which they increasingly rely as voice revenue declines. However, operators have been wary about losing control over the mobile-ad market.

The long-rumored Google phones are still in the planning stages, and wouldn't be available to consumers until next year at the earliest, say people familiar with the idea. Some details are likely to shift as the plans develop.

So Google isn't just making software for cell phones, it's actually making a cell phone too. Of course, Google hasn't confirmed any of this. Why is Google going to all the trouble of actually building a mobile device? It's all about mobile ad dollars.

While Google has had some success getting its software and applications on mobile phones, some carriers, like Verizon Wireless, have held Google at arm's length. Wireless carriers haven't given Google as much integration as it wants.

The Google Phone is another leverage point for Google, just like the search giant's plans to bid in the upcoming spectrum auction. Google could use this project as a way to force carriers to integrate more of its applications on the devices they sell. I think the Google Phone could just as easily be a dummy project designed to make the carriers roll over. If any company has the cash to play chicken, it's Google.

What do you think? Is Google really going to launch a cell phone? Or is Google just planning a phone designed to intimidate the carriers into giving the search giant what it wants?