NEW YORK (Reuters) - T-Mobile USA will begin selling a new smartphone using Google Inc’s Android operating software in August, facing off against high-end devices such as Apple’s latest iPhone and the Palm Pre.

A woman holds a HTC T-Mobile G1, operating with Google's Android software, at the GSMA Mobile World Congress in Barcelona, February 19, 2009. REUTERS/Albert Gea

T-Mobile, an arm of Deutsche Telekom and the No. 4 U.S. mobile service, said the myTouch 3G phone is a slimmer and more advanced version of the G1, which was also made by Taiwan’s HTC Corp and based on Android technology.

The new phone will cost $199, the same as the 16-gigabyte model of Apple Inc’s iPhone 3GS and Palm Inc’s Pre after a rebate for a two-year service contract.

MyTouch’s advantage is that the phone can be personalized, such as with custom home screens and widgets, T-Mobile said. The Android platform can also learn user preferences and offer recommendations.

“The story is personalization,” said Andrew Sherrard, vice president of product innovation at T-Mobile. The iPhone had a “beautiful aesthetic, but you can’t change it,” he said.

Cupertino, California-based Apple introduced the iPhone two years ago, and it quickly became a consumer phenomenon and upped the game for other phone makers, including the more business-oriented BlackBerry from Research in Motion Ltd.

Apple’s latest iPhone, 3GS, hit stores last Friday with new features and faster speeds, intensifying competition in the high-end mobile device market. Apple and its U.S. carrier partner, AT&T Inc, also cut the price of an older iPhone model.

With more and more models on the market, there are questions what the market can support.

An outlook by RIM on Thursday that fell short of some investors’ expectations stoked concerns about consumer spending and fears that the smartphone market has become more cluttered with alternatives.

T-Mobile’s Sherrard acknowledged the economy has been weak, but said consumers will continue to seek feature-rich phones.

“We’re still living in a recessionary environment,” he said. “But people have hung onto their wireless devices. It’s become the way they communicate.”

The myTouch features a touch-screen display, and a 3.2-megapixel camera, a music player, and video capabilities to make it easier for users to share pictures and videos on sites like YouTube and Picasa.

The phone is also more lightweight in design compared to the G1, and will have longer battery life, T-Mobile said. It will come in white, black and wine red.

Customers already using T-Mobile can pre-order myTouch from July 8 onwards, and begin receiving the new gadget from July 29, the company said, adding that the price for upgraded users has not yet been finalized. T-Mobile expects more than half of the new phone’s buyers to be existing customers.