Retail News Update

The battle to become the Windows of the mobile phone has taken a major twist, one that analysts warned could hurt Microsoft and fatally derail Google’s efforts to muscle in on the fast-growing market.

Nokia, the world’s biggest handset maker, is buying out its fellow shareholders in Symbian, the UK-based handset software company. At the same time, the Finnish giant is throwing Symbian’s mobile phone operating system open for royalty-free use.

Symbian’s operating system software, originally developed by UK company Psion, is today used to operate two-thirds of smartphones – handsets with computer-like capabilities – and 6pc of all mobile phones.

However, it is facing new threats to its dominance, from Google’s Android and Apple’s iPhone, adding to existing rivalry from Microsoft, with Windows Mobile, and BlackBerry maker RIM.

Nokia was quick yesterday to dismiss the idea that its moves were simply a reaction to its rivals. “This is a market-making move and looking at it as a response to anything would not do justice to what we are doing,” said Kai Oistamo, executive vice-president of Nokia.

But analysts were in little doubt. “This move’s a shrewd response to growing threats from other providers of mobile phone software,” said Geoff Blaber of industry watchers CCS Insight.

advertisementMr Blaber made particular reference to the “open-source” LiMo Foundation as well as Google’s Android, which also promises to offer handset makers an operating system at virtually zero cost.

Nokia is launching the non-profit Symbian Foundation, which will unite the Symbian’s operating system with three user interfaces – Nokia’s S60, Motorola/Sony Ericsson’s UIQ, and NTT DoCoMo’s MOAP – to create one open mobile-software platform.

Nokia said the whole system will be open source – which means that developers can access its software code free of charge.

“It offers us an opportunity to innovate faster on a bigger, united, more widely accepted platform,” Mr Oistamo said. “It also enables us to deliver new products, we believe, faster to the market. I’m convinced we will sell more products.”

The news is likely to please departing Vodafone chief executive Arun Sarin, who has consistently told the industry to streamline the number of mobile handset operating systems so as to encourage the development of new software applications.

Vodafone has emerged as one of the members of the new Symbian Foundation, which includes mobile networks AT&T and NTT DoCoMo and chip makers Texas Instruments and STMicroelectronics.

Symbian’s closest rival is Microsoft’s Windows Mobile operating system, which has just 13pc of the market.

Microsoft charges handset makers $8 to $15 per phone, according to research firm Strategy Analytics, while Symbian charges on average $4.10. Under Nokia’s ownership, Symbian will come free.

“This puts a lot of pressure on Microsoft right at a time when they are trying to really push into the consumer space,” said Gartner analyst Carolina Milanesi.

“Lower price points are what operators and the market need to push smartphone adoption and dropping royalty is going to help that. For operators this offers a good alternative to Android.”

Google is hoping that Android will allow it to generate more revenue from internet advertising as more people access the web on their phones.

Last year, Google announced an alliance of 30 partners who would co-operate on a handset designed to allow owners much greater control over the device.

However, it emerged this week that the so-called “Gphone” – a new handset powered by the search giant’s software – is unlikely to appear until the end of the year.

“By creating an open-source software platform, Nokia has taken the fight to Google and will leverage its existing clout in the market to isolate Google,” said Emeka Obiodu, telecoms analyst at Global Insight.

“Given the combination of delays, uncertainties about evolutionary path, and Nokia’s latest initiative, Google’s game plan is fatally derailed and will struggle to gain traction in the market.”

Nokia, which makes 40pc of all phones sold globally, will pay €264m (£209m) to buy the remaining 52pc of Symbian shares it does not own.

Sony Ericsson, Ericsson, Panasonic and Siemens have accepted the offer, and Nokia said it also expects Samsung Electronics to accept.

As Nokia’s market share is much larger than 48pc among all Symbian phones sold, it has been paying more to its partners in Symbian in royalties on the phones it makes than it has been getting from the company.

Nokia said it expects the deal to be completed by the end of this year, and to weigh on earnings in 2009. Nokia expects the acquisition to reach break even in 2010, and boost earnings in 2011.