Google CEO Eric Schmidt speaks at Mobile World Congress 2011.

BARCELONA, Spain--Google today unveiled Movie Studio, a new application for the upcoming Honeycomb era of Android tablets that lets people edit videos.

The software, which Google Chief Executive Eric Schmidt announced during a speech here at Mobile World Congress, is designed to expand on a phone's abilities to capture imagery.

With it, people can combine still images and videos to create broader video that can be shared online. People will be able to add musical soundtracks, fade to black at the end of the video, and add effects like the Ken Burns-style panning so common on Apple video software.

The software requires Android 3.0, the tablet-optimized version of Android set to debut soon with Motorola's Xoom tablet.

"When you play with Honeycomb, you'll get the sense of beauty and power we have with the new interface," Schmidt said. "I just really love it.

Android releases proceed alphabetically, with Gingerbread being the present version for phones and Honeycomb soon to come for tablets. The "I" version of Android will marry elements of both, Schmidt said.

He also said Google likes a six-month development cycle for Android. With Gingerbread released in late 2010, that suggests the sequel should arrive in the second quarter of this year.

Google's biggest Android rival is Apple, which makes not only the iOS mobile operating system but also the iPhones, iPads, and iPod Touches on which it runs. Google has outflanked the iPhone with Android on cheaper phones that, though not always up to the full potential of Android, still are a big improvement over earlier-era smartphones.

Perhaps not coincidentally, however, rumors surfaced this week of a smaller, cheaper iPhone.

"Beyond helping address a potential saturation challenge, we believe that the possible introduction of a lower-priced iPhone is strategically important for Apple, and we are surprised the company hasn't introduced a lower-priced offering previously," Bernstein Research analyst Toni Sacconaghi said in a research note today. "We believe that Apple's ultimate intention is to be the dominant smartphone vendor globally, and that the company has market share aspirations that are akin to its iPod business (rather that its Mac business, where it faces a sticky Wintel platform.)"

Competing with Microsoft Google faces another rival in the newly paired Microsoft and Nokia, trying to create a third ecosystem to rival iOS and Android. With Windows Phone 7, Microsoft is trying to steer a middle course between the locked-down control of Apple with iOS and the free-for-all near-chaos that is the Android realm.

Indeed, in the big picture, Schmidt listed Microsoft as the company's top competitor.

"No question, our strongest competitor is Microsoft," Schmidt said. "They have a strong advertising model. They have the cash, the scale, the brand, and the reach to do good and amazing things."

Facebook, on the other hand, is not a problem at present, Schmidt said.

"Facebook appears to be additive," Schmdit said. "Facebook users use Google more. There's no evidence they're hurting our ad business. At this point we think Facebook is zero to net positive."

He left unsaid other aspects of the competitive reality, though: Google has been trying furiously for years now with little success to come up with services that match Facebook as a place where people congregate and share information online.

Regarding Nokia, Schmidt said the door is still open for the Finnish phone maker to join the Android realm. "We would have loved it if they'd chosen Android," he said.

Google has another operating system effort under way besides Android: Chrome OS. This is a browser-based project that runs Web apps rather than the native apps found on personal computers and Android.

It's possible someday it will merge with Android, Schmidt said.

"Don't force technology to merge when it's not ready," he said. "Wait for them to be ready."

Answering audience questions, Schmidt acknowledged fragmentation is something of an issue for Android programmers who want their apps to run well on multiple phones. But, he said, an antifragmentation clause and the Android Market dynamics will keep companies from straying too far.

The antifragmentation clause requires members of the Open Handset Alliance to include mandatory Android interfaces that software needs. And straying too far also will mean that apps aren't available in the Android Market--and no carriers want to miss out on the Android ecosystem, he said.

Moreover, he added, Android 2.3 will smooth over differences.

"We've released Gingerbread, which in a month or two everybody will upgrade to. At that point everybody will be on a common platform, which should address a lot of your concerns," he said, perhaps optimistically presuming that older phones will get the upgrade.

Updated 10:35 a.m. PT with further comments from Schmidt.