It was Apple and Google--not the traditional phone companies AT&T and Verizon Communications--that took center stage in the telephony market in 2007.

In January, Apple announced the iPhone and named AT&T its exclusive carrier in the U.S. For almost six months, anticipation and hype surrounding the iPhone grew into a frenzy until the June 30 launch.

With an innovative touch screen that allows people to shrink and magnify Web pages with the pinch of their fingers, the iPhone has set the bar for future mobile devices in terms of usability, functionality, and design.

But the iPhone wasn't without problems. Some users initially had trouble signing up for service. And then there was the $200 price cut a few months after the product debuted that left many early adopters seething. By far the biggest complaint has been about the 2.5G data network the iPhone uses. Many iPhone users say it is painfully slow when it comes to accessing e-mail or surfing the Web.

In addition to Apple, Google also made headlines in the mobile market. Early in the year, Google joined the debate over rules for the Federal Communication Commission's upcoming 700MHz spectrum auction. The auction, which is set to begin January 24, reallocates wireless spectrum licenses that have been used to deliver analog TV. This spectrum is viewed as the industry's best hope to usher in a new era of wireless broadband service.

Google was instrumental in getting the FCC to adopt auction rules that would ultimately give consumers more choice in the devices they use on these new networks. And in November, Google CEO Eric Schmidt committed the company to bidding in the auction, promising to spend at least $4.6 billion on licenses.

Exactly what Google plans to do with the spectrum if it wins licenses is still unknown. But its participation raises the stakes, especially for traditional telephony players.

Getting into the spectrum auction wasn't the only wireless initiative Google was cooking up in 2007. Soon after the iPhone launch, rumors of a Google phone surfaced. And in October, Google revealed not a phone, but a new mobile operating system that could be used by handset makers and mobile-phone operators.

This new software, coupled with its own wireless network, would not only give Google the ability to put its brand on millions of mobile devices, it would allow the company to control the Internet experience on these devices. In a nutshell, Google could determine the next-generation wireless network.

This is a huge change not only for Google, but the entire wireless industry. From the beginning, carriers have controlled every aspect of the wireless experience. In the U.S. market, carriers determine which phones can be used on their networks and even which features will be enabled. And they decide which software or applications can be accessed. Depending on what happens with the spectrum auction and how Google's software initiative fares, the company could become a major player in telecommunications in the next several years.

To be fair, moves by Apple and Google in 2007 haven't revolutionized the wireless phone market just yet. AT&T and Verizon Wireless are still the dominant carriers. And Nokia is still the No. 1 mobile-phone maker. But change is on the horizon, and small steps are already being taken. Only a few weeks ago, Verizon said it would open up restrictions on devices that could access its network.

In the final analysis, 2007 was just the beginning, which only heightens anticipation for what's to come in 2008 and beyond.