Chicago (IL) - After demoing a prototype of what was meant to be the iPhone-killer, unimpressed carrier execs sent Dell back to the drawing board to rethink their handset with more differentiating features. While Dell still didn't confirm it was building a phone, the Kaufman Bros research firm talked to carriers who reportedly reviewed the device. Believing Dell's phone to be dull, they thought it wouldn't succeed in its current form.

According to a Kaufman Bros "research note", Dell's phone simply fell on deaf ear with carriers who viewed it as dull. "From our conversations with supply chain and industry sources, it appears that it ultimately came down to lack of carrier interest,"  according to analyst Shaw Wu in a note written to Kaufman Bros' clients.

Carriers apparently didn't put large enough subsidies on the table that would allow Dell to pocket profit. "In our view, the last thing Dell needs is to enter another money losing business as it seeks to preserve its operating margins of 5%-6%." Wu said -- comparing Dell's operating margins with HP (11%), Apple (15%) and IBM (15%).

According to the analyst, the cellphone rejection has forced Dell to go "back to the drawing board" and come up with "more differentiation," noting Dell might copy Apple's vertical integration by tying its phone to a software and/or services model. Other watchers think Dell's best bet is to acquire the struggling company Palm to get Pre and webOS. According to Wu, Palm's iPhone rival (slated for June 30 arrival via Verizon network) has already generated "interest from carriers as a viable competitor."

While carriers were busy rejected Dell's phone, at the recent Mobile World Congress, phones being prepped by Taiwan-based Acer, Asustek and Lenovo have captured their eye.

Dell's phone to run Windows Mobile and Android?

Rumors about the Dell-branded iPhone-killer have been flying around since early January, but Dell has never confirmed any of them. The phone was supposed to become the first cellphone capable of running both the Windows Mobile and Android operating systems. While it reportedly features stylish design and a sleek form factor, the fact that carriers sent Dell back to the drawing board highlights just how much power mobile phone carriers exert these days.

While computer vendors like Dell, Microsoft and Apple excel at software, networking, and user interfaces, politics is obviously key to entering the cellphone market these days. Apple is the only outsider who's managed stepped in to the market and re-write the rules without bending to huge carrier concessions. So far, only iPhone has differentiated itself from day one in a big way, thanks to Apple's expertise in gadgets like iPod and flexible OS X that could run desktop features in miniature devices.