Nokia's Windows Phone push meets its market test

Two phones are expected to be launched on Wednesday

The moment of truth has come for Nokia: the company is expected to launch its first phones based on Microsoft's Windows Phone OS Wednesday at Nokia World in London. CEO Stephen Elop will have to convince consumers, operators, developers and retailers that the products can compete with the likes of Apple's iPhone 4S and Samsung's Android-based Galaxy family.

In the eight months since Nokia announced its decision to go with Microsoft's Windows Phone, Nokia has seen its smartphone market share erode while the sales of Windows Phone have remained low.

"Stephen Elop has made it very clear that Nokia World will be the unveiling of the first products, and it will set the tone for what Nokia hopes is the beginning of its recovery in the high-end smartphone market," said Geoff Blaber, analyst at CCS Insight.

Under Elop's leadership, Nokia has already addressed some of the company's problems in low-end mobile phones, according to Carolina Milanesi, research vice president at Gartner. But Windows Phone is the most important part of Nokia's new strategy.

"For me, Nokia World is about Nokia showing that it is on the right path. But I don't expect that any product launched this week will be a magic cure," said Milanesi.

Nokia's first Windows Phone-based products are also very important for Microsoft and operators, according to Blaber.

"Operators desperately need a counter to Android. They need Nokia to come back and be competitive. Given the fact Nokia hasn't been its most competitive in the last few months, [operators] have become increasingly dependent on Android, and that has certainly not been to their advantage," said Blaber.

Nokia is also a big bet for Microsoft.

"It was a major coup for Microsoft to get Nokia onboard. Nokia's brand may have taken a hammering, and its market share has come under strain in a lot of markets globally. But you can't dismiss the fact that Nokia still has unsurpassed scale and a huge level of distribution across a host of markets globally," he said.

That makes Nokia the best vehicle to drive Windows Phone far and wide, and really start ramping up sales volumes, according to Blaber.

"If Microsoft can get Nokia onboard, and start to grow the installed base, then Windows Phone becomes more attractive for other licensees, as well," said Blaber.

Sources with knowledge of the Wednesday launch say that Nokia is expected to launch two phones, one high-end model and one mid-market phone, which is what HTC has done with the Radar and the Titan. The latter comes with a 4.7-inch screen, but Nokia is apparently sticking with smaller sizes on both models.

Back in June, a video surfaced in which Elop demonstrated a Windows Phone-based smartphone code-named Sea Ray, which had an 8-megapixel camera and screen protected by Gorilla glass.

Elop also said that the industrial design of the MeeGo-based N9 would live on, and that Nokia was working on other Windows-based phones.

Subsequent leaks and rumors have hinted at a number of different product names, including Sun and Nokia 800, and specifications including 3.7-inch screens.

Nokia has said its Windows-based smartphones will stand out from other products based on Microsoft's OS, as well as Apple's iPhone and devices based on Android. But the company hasn't had much time to work on how it will do that.

"I don't expect much differentiation on the look and feel ... but we will probably hear something about maps because that is probably the biggest asset Nokia has compared to the other licensees," said Milanesi, who thinks that Nokia will have more to say on what will set its products apart by the time of the Mobile World Congress in Barcelona in February.

Pricing is also important, and it shouldn't be higher than €400 (US$550) before subsidies, according to Milanesi.

Nokia will use Windows Phone 7.5, also known as Mango. While the upgrade represents significant improvements for Microsoft's OS, the platform still lacks features that are becoming increasingly common in high-end phones based on Android, including LTE (Long Term Evolution) and support for dual-core processors, which the iPhone 4S also has.

"The bigger issue of the two is the lack of LTE, not so much in European markets, but Nokia needs Windows Phone to drive sales in the U.S. market, but without LTE that will be very, very difficult," said Blaber, who expects both LTE and dual-core processors to be added to Windows Phone next year.

However, even if Nokia could put LTE on its phones, trying to take on the U.S. market from the start, where Nokia has been struggling for a long time, would be a mistake, according to Milanesi.

"I think it would be suicidal, to be honest. That's because the U.S. market is very crowded, and during the holidays everyone wants a product on the shelves. Also, the operators are calling the shots even more so than during other times of the year," said Milanesi.

Nokia has said it will sell Windows Phone-based smartphones to consumers in select countries later this quarter and will then increase the number of countries and launch partners during the next calendar year.

The selected markets should be countries where the brand is still strong and it can sell phones because they come from Nokia, and then Nokia can build on that, according to Milanesi.

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