Verizon Doesn't Plan to Distribute Google's Nexus Phone

Verizon Wireless, the largest U.S. mobile-phone company, retreated from plans to offer service for Google Inc.’s Nexus One phone, saying it will focus on other Android-powered handsets instead.

Until this morning, Google’s Web site showed that the Nexus One would be available through Verizon in spring of 2010. The site now points Verizon users seeking phones that run Google’s Android operating system to HTC Corp.’s Incredible model.

Without a Verizon partnership, Google loses access to the carrier’s more than 90 million customers, potentially blocking the phone from gaining more widespread popularity and hurting its competition with Apple Inc.’s iPhone. The breakdown of the deal signals Verizon may view Google as a competitor rather than a partner when it comes to Nexus One sales, said analyst Colin Gillis at BGC Partners LP in New York.

“It’s really a flop for Google,” said Gillis, who advises investors to hold Google shares and doesn’t own any. “They paid a price to roll out their own branded phone -- it’s a price of trust and relationship with some of the other players in the space.”

Carriers aren’t allowed to sell the phone in their stores, forcing customers to buy the device on Google’s Web site. AT&T Inc. didn’t endorse a version of the phone for its network technology, which is now being sold without a contract on the Google site. Verizon probably sold less than half a million Nexus Ones since the phone’s January debut, Gillis said.

‘We’re Open’

Google decided against selling the Nexus One with Verizon because of “amazing innovation happening across the open Android ecosystem,” spokesman Anthony House said in an e-mailed statement.

Verizon Wireless, based in Basking Ridge, New Jersey, has no current plans to sell service for the Nexus One phone, spokesman Marquett Smith said. “If they want to do business with us or sell the device, we’re open to that.”

The loss is a blow to Google’s attempt to establish itself as it struggles against the iPhone, which is exclusively carried in the U.S. by AT&T, said James Dailey, a portfolio manager at Team Financial Asset Management LLC in Harrisburg, Pennsylvania.

The iPhone’s software was shipped in 24.9 million phones worldwide last year, making up 14.4 percent of the market, according to Gartner Inc. research. The Android operating system made up 3.9 percent of sales.

Relationship With Verizon

“It’s strictly been this Verizon relationship that’s allowed them to get a market-share footprint in the U.S.,” said Dailey, whose fund manages $145 million, including shares of AT&T and Verizon. If the iPhone “comes out on the Verizon platform, I wouldn’t be thrilled about Google’s future, at least in the short-to-intermediate term.”

Verizon Communications Inc., which co-owns Verizon with Vodafone Group Plc, fell 11 cents to $28.94 at 4 p.m. in New York Stock Exchange composite trading. Google, based in Mountain View, California, dropped $13.35 to $531.64 on the Nasdaq Stock Market.

Verizon has broadened its smartphone line as it vies with rivals like AT&T and Sprint Nextel Corp. for a shrinking pool of new customers, with more than 9 phones for every 10 people in the U.S.

Carriers have turned to smartphones as more consumers seek devices that can function as pocket computers, surfing the Web and playing video. Smartphone sales probably will climb 46 percent this year, more than triple the pace of the overall handset market, according to Gartner.

Android Significance

While Google’s Nexus One may not be a hit, the company’s Android operating system will help anchor the carrier in mobile, Gillis said.

“Beyond any single phone, the real point is that Android itself as a platform is significant,” said Gillis. “We’re going to see it on more devices beyond phones, whether it’s netbooks or laptops.”

T-Mobile USA Inc. already carries the phone, while Sprint, the third-largest mobile carrier, has said it will debut the device as well. Vodafone said today it will sell the device to customers in the U.K. on April 30.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

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