Lots of noise recently about Google and Orange hooking up. I'd heard rumours of this (without anything solid actually being talked about), but a lot of the hype sounds iffy to me (and in my experience the Observer tend to be a bit grotty when it comes to sensibly covering technology issues).
"Google are software experts and are doing some amazing work compressing data so that the mobile user gets a much better experience" eh? They have some bright folks, no doubt, but compression doesn't necessarily equate to a better user experience (didn't Pogo make some amazing claims in this area yonks back?), and I've not seen fantastic user experiences characterise Google's mobile offerings so far.
Location-based searches are inevitable dredged up as the strength of Google (despite LBS failing to get much real traction so far), but launching a handset just to enable these seems a pretty extreme way of getting them out there - particularly when they're likely to rely on location data shared by network operator. That is, until GPS kit is cheap enough to stick into every handset - and I've personally been shocked this year to discover just how cheap a Bluetooth GPS unit is.
My money would be on a mobilisation of AdSense, particularly at a time when we're starting to see others hint about new ad models for mobile that may impact on operators.