Google phone with T-Mobile contract in January: source

The phone, manufactured by HTC, has a number of code names such as HTC Passion, Dream or Nexus One and could be available directly though the Google website as early as January 5, the source said.

Google said on its official blog on Saturday that it was testing a new mobile device with its employees. Media reports have said that Google will sell an unlocked version of the phone, allowing consumers to pick a carrier of their choice to provide wireless service.

Seemingly, Google will offer the touchscreen phone, which is based on its Android operating system software, in two configurations: an unlocked version, and a version that comes bundled with a T-Mobile service contract and a price tag that the carrier subsidizes.

In the long term Google will become a seller and get commission from operators, the source said, adding that other operators are expected to follow T-Mobile's lead eventually and agree to Google's terms.

It was not clear what the pricing will be for the phone.

A T-Mobile representative said the company does not comment on rumors or speculation.

A Google representative would not comment beyond the blog post on Saturday, which said that Google employees were testing an Android-based device to experiment with new mobile features and capabilities.

(Reporting by Nicola Leske in Frankfurt, additional reporting by Alexei Oreskovic in San Francisco; Editing by Phil Berlowitz)