REFILE-UPDATE 2-Google loses Verizon, changes Nexus One plans

(Refiles to remove extraneous comment in third paragraph)

* Google Nexus One phone to be sold in Vodafone stores

* Google says Nexus One for Verizon Wireless won’t be sold (Recasts, adds analysts’ comments, Sprint comment, background)

SAN FRANCISCO, April 26 (Reuters) - Google Inc GOOG.O said it no longer plans to offer a version of its Nexus One smartphone for the Verizon Wireless network and will change its distribution plans in Britain, underscoring the challenges facing the Internet search company as it expands into the mobile phone market.

The actions represent a setback for Google’s plans to carve a role for itself in the mobile business and to redefine industry practices in the process, analysts said. They also come less than four months after Google unveiled the Nexus One to great fanfare.

Analysts said the changes would have little near-term financial impact for Google as Nexus One sales are immaterial to the world’s No.1 search engine, which derived 97 percent of its $23.7 billion in revenue last year from advertising.

But some analysts said the fact the phone would not be available on Verizon Wireless, the largest wireless network in the United States, could mean there are tensions between Google and the established mobile companies.

Google “made enemies in the bargain” as it expanded into the smartphone business, said JMP Securities analyst Sameet Sinha.

Google and Verizon Wireless both said the relationship between the two companies remained strong.

The Nexus One, a sleek, touchscreen phone that uses Google's Android software and was developed in partnership with handset maker HTC, is the first consumer electronics device that Google has sold directly to consumers and comes as Google is increasingly in competition with iPhone maker Apple Inc AAPL.O.

By selling its own hardware device, Google appeared to compete with the established handset makers and wireless carriers it initially enlisted as partners to sell phones based on its Android software. The Nexus One launch came shortly after Verizon and Motorola Inc MOT.N had begun a major marketing push of the Android-based Droid phone.

Google also broke with traditional mobile industry business practices by selling the Nexus One exclusively on its website, bypassing the wireless carrier retail stores that serve as a key distribution channel for cell phones.

“One could argue that Google has strained its relationships with telco partners such as Verizon by selling on its Web site,” said BGC Financial analyst Colin Gillis.

Google initially released the Nexus One in a version that uses Deutsche Telekom AG's DTEGn.DE T-Mobile USA wireless network in the United States. It also promised a version in the Spring that would run on the network operated by Verizon Wireless, a joint venture of Verizon Communications and Vodafone.

But on Monday Google said the plans had changed.

“We won’t be selling a Nexus One with Verizon and this is a reflection of the amazing innovation happening across the open Android ecosystem,” Google said in an emailed statement.

Google said Verizon Wireless customers who want an Android phone with the “power” of the Nexus One can get the Droid Incredible by HTC.

Google also said in another statement that the change does not reflect any tension between Google and Verizon Wireless and the partnership continues to be very strong.

Verizon Wireless spokeswoman Brenda Raney said the Nexus One was Google’s phone, “so anything that happens to that phone is Google’s decision.” She added the relationship between the two companies was fine.

In a post on the official Nexus One blog on Monday, Google also said Vodafone Group Plc VOD.L was now accepting pre-orders for the phone in the United Kingdom and would start selling the phones in the company's UK stores, online and over the phone on April 30. The move represents the first time the Nexus One will be available for purchase in places beyond Google's website.

“It does show that they weren’t getting the sort of volume of demand that you get selling handsets through the traditional carrier model,” said Cowen and Company analyst Jim Friedland.

But he said the momentum Google’s Android software has experienced is more significant than sales of the Nexus One phone, which he said was intended to be an experiment to showcase the technological potential of Android software.

Google executives said earlier this month that a dozen partner companies now offer 34 different devices based on Android software and that more than 60,000 Android-based devices are sold and activated every day.

Google also said a total of 38,000 software applications are available for Android devices, a 70 percent increase from the end of the fourth quarter. Apple’s iPhone has the largest selection of apps available, with a catalog of more than 185,000.

According to Friedland’s estimates, Google sold about 150,000 Nexus One devices in the first quarter. By contrast, Apple sold one million iPhones in the first 74 days after releasing the gadget in 2007.

The real revenue opportunity for Google was not sales of Nexus One phones, but mobile advertising.

“The more users that are in the marketplace that have a smartphone device that is able to carry out a mobile search, the more revenue Google will be able to generate over time,” he said.

Sprint said in March it will offer a Nexus One phone, although price and availability would be announced at a future date. A Sprint spokeswoman said on Monday the company had not made any updates since the March announcement.

Google shares finished Monday’s regular trading session down 2.5 percent at $531.64. (Reporting by Alexei Oreskovic with additional reporting by Sinead Carew and Ian Sherr; editing by Andre Grenon)