Oct. 30 (Bloomberg) -- Google Inc. is in talks with Verizon Communications Inc., the second-largest U.S. telephone company, to work together on mobile-phone software and services, a person with knowledge of the discussions said.

Google, owner of the world's most popular Internet search engine, may build its own operating system software or programs for phones, said the person, who asked to remain anonymous because the talks are private. The Wall Street Journal reported that Google was also in talks with Sprint Nextel Corp., the third-largest U.S. phone company, about a partnership.

The partnerships would help Mountain View, California-based Google parlay its dominance of Internet advertising into the wireless market. For Verizon and Sprint, the pacts may expand the companies' sales of more profitable data services such as Web browsing. About 1 billion Web-enabled phones will be sold by 2011, according to researcher IDC in Framingham, Massachusetts.

Verizon and Google aren't close to an agreement, said the person. Verizon Wireless spokesman Jim Gerace confirmed that the companies have talked, declining to comment further. Google spokeswoman Erin Fors also refused to comment. Sprint spokesman James Fisher didn't immediately return a phone message. The Wall Street Journal said Google may make an announcement in two weeks.

Google and Verizon are discussing how they would put together a partnership and ways to make money off the developments, the person said.

Google shares rose $15.54 to $694.77 at 4 p.m. on the Nasdaq Stock Market. New York-based Verizon, which co-owns Verizon Wireless with Vodafone Group Plc, fell 63 cents to $45.36 on the New York Stock Exchange.

Auction Bid?

As part of its expansion into the mobile industry, Google said in July that it may bid at least $4.6 billion to buy wireless airwaves at a U.S. federal auction. The company might work with smaller service providers to create its own network. Verizon Wireless also has said it plans to bid in the auction.

An operating system would give Google another way to profit from sales of mobile phones, which outsold personal computers by more than 4-to-1 last year, according to research firm Gartner Inc.

Google has developed versions of its maps, calendar and messaging software for wireless devices. Last month, it adapted its AdSense software for mobile Web pages, letting marketers show ads relevant to the sites' content. In January, Google began offering search services on mobile phones from China Mobile Ltd., the world's biggest wireless carrier by users.

Mobile Users

Chief Executive Officer Eric Schmidt noted the importance of the mobile-phone market at a press briefing in May, before Google's annual shareholders' meeting.

``Many people in the next five to 10 years -- their first experience in the Internet will be through a mobile phone,'' Schmidt said.

Verizon Wireless subscribers spent $10.59 a month, or 20 percent of their bills, on data such as text messaging and music downloads in the third quarter. That was an increase of 43 percent from the same period last year.

The company has staved off a challenge from AT&T Inc., the largest U.S. wireless service provider, which began offering Apple Inc.'s iPhone on June 29. The handset includes the features of an iPod music player.

Verizon added 1.7 million subscribers to long-term contracts in the third quarter, compared with AT&T's 1.2 million.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net

Last Updated: October 30, 2007 19:59 EDT