Microsoft, Verizon Near Search Deal: Report

Updated from 2:34 a.m. EST

Microsoft (MSFT) is moving closer to an agreement with Verizon Wireless to become the default search provider on the wireless carrier's cell phones, the Wall Street Journal reports.

Under the terms being considered, Microsoft would share with Verizon revenue from ads shown in response to cell phone Web searches, with guaranteed payments to the carrier of about $550 million to $650 million over five years, roughly twice what Google (GOOG) offered, the Journal reports, citing people familiar with the discussions.

Microsoft is separately negotiating a deal to put its Windows Mobile software in more Verizon devices. The combined value of the two deals could top $1 billion, although it isn't clear if Microsoft is offering to pay Verizon to use Windows Mobile, or would allow Verizon to use the software for free, the newspaper reports.

Verizon is tilting toward Microsoft because the software giant is offering significantly better financial incentives, but the telecom company is still in discussions with Google and the situation is fluid with both companies, according to the newspaper.

Verizon Wireless is a joint venture of Verizon Communications (VZ) and Vodafone (VOD). In June, the company struck a deal to acquire privately held Alltel. The $28.1 million deal recently received approval from the Federal Communications Commission.

Verizon will join Alltel's subscriber base of approximately 14 million with its 70 million Verizon Wireless subscribers to surpass AT&T (T) and become the largest U.S. wireless carrier, which makes a deal extremely attractive for both Microsoft and Google. Verizon Wireless is currently second in the U.S. behind AT&T, which has nearly 75 million subscribers.

The fight for search engine supremacy on mobile phones isn't the first time Microsoft and Google have gone head to head. In October 2007, Microsoft outbid Google for a $240 million equity stake in social-networking Web site Facebook.

The two tech giants also have sparred on deals involving Yahoo! (YHOO), with Yahoo! rejecting a buyout bid from Microsoft as too low before seeing an advertising agreement with Google scuttled.

The use of search on mobile platforms is still in its infancy, although the proliferation of high-speed data networks has brought an increase in usage. According to comScore M:Metrics data for the month of September, more than 17 million wireless subscribers, or 7.7% of total users, accessed a Web search.

Google is the leader in mobile search, according to the data. Of those 17 million subscribers, 60.1% used Google for their search needs, compared to 36.4% for Yahoo! and 10.3% for Microsoft.

Shares of Microsoft were lately down 2.2% to $20.73. Verizon was losing 2.4% to $29. Google was off 2.6% $303.51.