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Verizon to Opt Out of Selling Palm Pre?

The long-term success of the Palm Pre could be in jeopardy as Verizon may opt out of offering the smartphone, therefore limiting sales solely to subscribers of the No. 3 carrier Sprint.

Sprint currently holds the exclusive carrier contract for Palm's (NASDAQ: PALM) signature handset, but Verizon Wireless President and CEO Lowell McAdam had told investors during a conference call in May that the carrier would begin selling the smartphone in six months.

Palm has shown some encouraging signs lately, including its efforts to build a thriving ecosystem around its new mobile platform, webOS, marked by the release of the Pixi and progress on the webOS app store. But many analysts have speculated that the company's survival hinges on making the Pre available on multiple networks.

Still, at least one industry observer thinks it's too early to start drafting a eulogy for Palm over the speculation that Verizon could bow out of the Pre.

"This is still a rumor," Gartner analyst Ken Dulaney told InternetNews.com. "The only thing we have as fact is Verizon saying they would carry it, but if true, it's by no means a death knell for Palm. They have other outlets and they don't need every carrier out there. Maybe AT&T will pick it up. Or maybe since the Pixi is out Verizon doesn't want the Pre but some other form factor. Palm will produce more than one."

Spokespeople for Verizon and Palm declined to comment. However, Palm issued a statement on Thursday saying the company "reaffirms its fiscal year 2010 outlook and its planned product and carrier launches in the second half of Palm's fiscal year ending in May 2010."

Also, during the company's earnings call last week, Palm CEO Jon Rubinstein told analysts, "We're making significant progress with Palm's transformation, and our culture of innovation is stronger than ever. We're launching more great Palm webOS products with more carriers, and turning our sights toward growth."

Meanwhile, if reports by TheStreet.com are true, Verizon's change of mind is due to several factors, including tepid sales of the Pre since its launch. Though Palm managed to meet analysts' sales estimates, most Pre purchasers come from the limited pool of existing Sprint (NYSE: S) customers, rather than new subscribers defecting from other carriers.

The handset has yet to hit the benchmark 1 million units sold. Palm has moved about 800,000 Pre devices since the June 6 launch.

Verizon, the No. 1 U.S. carrier, has about 87.7 million subscribers, compared to Sprint's 48.8 million. Rumors have also surfaced that AT&T, in second place with 79.6 customers, may offer the Pre by 2010.

Another reason Verizon may nix the Pre could be its interest in promoting its upcoming VCast App Store on future handsets it sells, which could conflict with Palm's App Catalog. While Verizon has said its app store would be the only application marketplace to ship with its future devices, it has also maintained that owners would be able to install other, device-specific stores after purchase.

This policy doesn't bother BlackBerry maker Research In Motion (NASDAQ: RIMM), which has its own BlackBerry App World. RIM is partnering with Verizon in the launch of VCast and sees the service as complementary.

RIM co-CEO Jim Balsillie has said that the company realizes more download activity on Verizon than on any of its 500 global networks, and views Verizon's app store as another "channel" for delivering BlackBerry apps.

For Palm, however, that might not be the case, as it likely would not want to ship the Pre without its App Catalog loaded on the hardware.

Meanwhile, Verizon is on track to continue its cozy relationship with RIM, and will also want to start focusing on Android handsets from Motorola, which may push the Pre to the-low priority list in terms of portfolio mix, according to The Street.

Verizon sells lots of BlackBerrys, including the latest model the Tour, and is widely expected to offer the Storm 2 next month, which is widely seen as RIM's answer to the iPhone.

On the price wars front, the Pre now sells for $99 at Amazon.com, down from the initial $199 at launch, which means it can compete directly with the older Apple (NASDAQ: AAPL) iPhone 3G at $99.