Exclusive: Verizon Snubs Palm Pre

Updated from Thursday, Sept. 24

SUNNYVALE, Calif. ( TheStreet) -- Palm's ( PALM) Pre phone isn't making the cut at Verizon ( VZ).

The Pre, Palm's premier touch-screen smartphone, which has been an exclusive offering this year at Sprint ( S), had been scheduled to arrive at Verizon in January. But people close to the discussions say Verizon has decided not to support the Pre.

The move would be a dramatic setback for the up-from-the-ashes Palm story. The company desperately needs to secure more telco partners to sell its flagship phone. In addition to Sprint, Palm has named only Bell Mobility in Canada and Telefonica's ( TEF) O2 units in the U.K. and Germany as its exclusive partners.

Reached for comment on Verizon, a Palm representative says the company has never named Verizon as one of its partners.

If the snub is true, the move would also be a reversal of Verizon's position in May, when wireless chief Lowell McAdam told investors the Pre was coming in six months.
Palm Pre Smartphone

Verizon reps declined to comment.

Sources did say that Verizon could be more delicate about the decision and order just a small amount of Pre phones with no intention of lending much marketing support.

The reason for Verizon's change of heart on Palm has to do with several factors, say these sources. The fact that the Palm Pre has not been the blockbuster in sales that it was expected to be is one problem. To date, Sprint's fading No.3 status has not been compelling enough to get the Pre phone sales over the crucial 1 million-sold mark.

Another snag is that Verizon wants VCast, its applications and mobile media download service, to be featured heavily on its phones. This is in direct conflict with Palm's app store, according to these sources.
Palm Pre Smartphone

And another factor working against Palm is that Verizon wants to focus its support behind new phones from Research In Motion ( RIMM) and Motorola's ( MOT) Google ( GOOG) Android effort, says one person who is familiar with Verizon's product road map. The thinking is that Verizon isn't eager to tie up its resources to accommodate Palm's WebOS software.

Palm shares fell 80 cents, or 4.7%, to close at $16.16 on Thursday. The stock fell another 26 cents in after-hours trading. Verizon shares rose 27 cents to close at $30.15, and dipped slightly after hours.

-- Written by Scott Moritz in New York.

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