Citing sources close to the project, the report said that the new device, code-named 'Pink', would be a full multimedia phone based on Windows Mobile.
The project is being run within Microsoft by a team called the Premium Mobile Experiences Group, the paper claims. The group uses experience from Danger Inc, which Microsoft bought last year, which specialises in mobile devices.
Microsoft was unable to comment at the time of going to press, but has reportedly said that it remains focused on its mobile software business and is talking to a variety of manufacturers.
The deal would make sense for Verizon, which is looking for a product to compete with AT&T's sales contract with Apple for the iPhone. AT&T is currently trying to extend its exclusive deal with Apple for the handset.
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