Verizon to carry its own Microsoft "Pink" Phone in 2010?

By AMOL SHARMA and NICK WINGFIELD

Microsoft Corp. is in discussions with Verizon Wireless to launch a touch-screen multimedia cellphone on the carrier's network early next year, in a bid to compete with Apple Inc.'s iPhone, people familiar with the matter said.

Microsoft's project, which is code-named "Pink," is aiming to produce a phone that extends the tech giant's Windows Mobile cellphone operating system, adding new software capabilities. It would also likely include Microsoft's new Windows Marketplace for Mobile, a mobile application store along the lines of Apple's, these people said.

While Microsoft is involved in the design of the phone's software and hardware, a third-party is expected to make the device, just as Google Inc. has worked closely with partners to make handsets based on its Android operating system, people familiar with the matter say.

The Microsoft-Verizon relationship is evolving from a more limited search-and-advertising partnership the companies struck early this year. The two companies are looking for a response to the iPhone, which has boosted the fortunes of their rivals, Apple and AT&T Inc. AT&T's exclusive rights to the iPhone in the U.S. expire next year, but the carrier is trying to get a one-year extension, people familiar with the matter say.

Apple has had discussions with Verizon in recent months about its product roadmap, including a mobile multimedia device that is bigger than the iPod Touch but smaller than a laptop, one person familiar with the situation said. However, the talks have not become advanced, the person said. Some analysts say Apple may simply be trying to gain negotiating leverage over AT&T by holding early talks with Verizon.

Verizon has performed well despite not having the iPhone. On Monday, the company reported solid first-quarter results in its wireless business, edging out AT&T in net customer additions. Still, Verizon has sought to come up with a true rival to the iPhone. Last year, it launched Research In Motion Ltd.'s touch-screen BlackBerry Storm.

The Pink project is the work of a team of designers within Microsoft's mobile division known as the premium mobile experiences group, which is focused on creating software for mobile phones that connect to a variety of online consumer services, such as social networking and photo-sharing applications. That group includes staffers from Danger Inc., a company that Microsoft acquired a year ago that designs the software in the Sidekick, a popular cellphone sold by T-Mobile.

Write to Amol Sharma at amol.sharma@wsj.com and Nick Wingfield at nick.wingfield@wsj.com