March 5 (Bloomberg) -- Yahoo! Inc., the owner of the second most-used search engine in the U.S., is in talks with Vodafone Group Plc about the distribution of its mobile search product in Europe, people familiar with the talks said.

The agreement may make Yahoo’s mobile search product the default software on phones sold by Newbury, England-based Vodafone in Europe, said one person, who asked not to be named because no contract has been signed. Vodafone has a distribution deal with Google Inc. that expires this year, and Yahoo isn’t the only party the carrier is talking to, the people said.

Yahoo, striving to close the gap on Google in Internet advertising, agreed to power Web searches on T-Mobile USA’s phones in November after striking a similar deal with AT&T Inc. in September. Yahoo already has such partnerships in Europe with wireless operators including Deutsche Telekom AG’s T-Mobile unit and Telefonica SA’s O2 unit, Zealous Wiley, a Yahoo spokesman, said by telephone yesterday.

Yahoo is in talks with “a number of operators around the world, including Europe,” about its mobile search product, Wiley said. Those talks are with carriers Yahoo currently doesn’t have a distribution deal with, he said.

Simon Gordon, a Vodafone spokesman, declined to comment and didn’t say whether the deal with Google will expire this year. Anthony House, a U.K.-based spokesman for Google, said the company’s agreement with Vodafone from 2006 is “still active.”

Existing Contract

A potential search deal between Vodafone, the world’s biggest mobile-phone company, and Yahoo would add to existing agreements between the two companies. The companies in 2006 signed a contract for Yahoo to sell advertising on Vodafone’s handsets in the U.K.

“In the long run, mobile phones are just as important as the desktop to have a strong position in,” said Jack Neele, a fund manager at Robeco NV in Rotterdam, which oversees the equivalent of $138 billion. “It’s important for Yahoo to get these deals, certainly with a carrier like Vodafone, which has an incredibly big number of customers.”

Vodafone fell 3.3 percent to 118 pence in London trading. Before today, the stock had lost 12 percent since the start of the year, compared with an 18 percent slide in the U.K. benchmark FTSE 100 Index. Yahoo fell 3 percent to $12.77 at 12:22 p.m. New York time in Nasdaq Stock Market trading.

Vodafone has a market value of $87.5 billion, while Yahoo is worth $17.8 billion.

New Platforms

Search companies aim to extend their offerings to new platforms such as cellular phones, while operators are keen to expand and offer new services to boost data traffic to make up for falling prices in the traditional voice business. About three years ago, Vodafone agreed to include Google’s search functions in the Vodafone Live! Web service, the default Internet access product for phones sold by the carrier.

Consumers can also use those search products by surfing to the providers’ Web sites on their mobile phones or by downloading applications, which are offered by both Google and Yahoo. Sunnyvale, California-based Yahoo has more than 70 distribution deals for mobile search worldwide, Wiley said.

To contact the reporters on this story: Marcel van de Hoef in Amsterdam at mvandehoef@bloomberg.net; Simon Thiel in London at sthiel1@bloomberg.net

Last Updated: March 5, 2009 12:26 EST