The Observer reports that Google is in talks with Orange "about a multi-billion-dollar partnership to create a 'Google phone' which makes it easy to search the web wherever you are".A Google-branded phone could include a browser that uses Google's transcoder to optimize web pages for the phone, easy to access Google search, maps, Gmail, Blogger and maybe more.
"The device would not be revolutionary: manufactured by HTC, a Taiwanese firm specializing in smart phones and Personal Data Assistants (PDAs), it might have a screen similar to a video iPod."
Last month, Eric Schmidt said: "Your mobile phone should be free. It just makes sense that subsidies should increase"
While a Google Phone is just a rumor for the moment, you can't deny it's an interesting idea.
Update: Many rumors floated since this article was posted. Here's a list of the most trustworthy rumors about the Google Phone.
Update 2: Google Phone turned out to be a mobile platform - Android.