Nokia: Smart phones, few U.S. buyers

The world's largest mobile phone maker has had a tough time selling to American consumers. But that could soon change, writes Business 2.0's Michal Lev-Ram.

By Michal Lev-Ram, Business 2.0 Magazine writer

(Business 2.0 Magazine) -- Life as the world's largest maker of cell phones isn't half bad for Nokia. The Finnish giant sold more than 100 million handhelds worldwide last quarter, leading to near-record profits. Company shares are trading at their highest level in four years.

In India alone, one of the world's fastest-growing mobile markets where an estimated six million people buy their first cell phone every month, Nokia commands a 55 percent market share. In Europe, it's 45 percent.

Nokia's N95 has been a hot seller in Europe. Will American consumers embrace the $750 phone too?

In fact, Nokia (Charts) is No. 1 in nearly every corner of the globe, except one: The United States, where it holds less than 15 percent market share.

"Nokia has definitely struggled in the U.S.," says Avi Greengart, a principal analyst with research firm Current Analysis.

The roots of Nokia's also-ran status here are unique among major wireless players. Part of the problem is technical: The company doesn't make a whole lot of phones that work on U.S. networks -- and those that do use slower technology.

At the same time, wireless carriers haven't been all that eager to stock store shelves with the high-priced phones that Nokia specializes in (and that sell like hot cakes overseas). That's because American consumers haven't been all that willing yet to pay top dollar for phones when, thanks to heavy carrier subsidies, they can basically get them for free.

But Nokia may not be a minority player for much longer.

Stymied by U.S. wireless carriers, Nokia has begun selling "unlocked" phones, which are devices that can work on any wireless network, directly to consumers. All users need to do is remove the SIM card from their old phone, insert it into a new one, and -- voila -- start dialing.

They either pay their existing carrier for service or sign up with a different carrier and pay month-to-month. The point is, consumers are no longer limited in their choice of phones to those offered by carriers.

But American consumers aren't used to buying their phones this way and Nokia hasn't yet been able to get the message across that they can.

"In Europe, people are used to it," says Michael Gartenberg, vice president and research director at Jupiter Research in New York. "But consumers here are not accustomed to purchasing unlocked, unsubsidized phones -- many don't even know they can transfer their SIM cards."

That could soon change. The Federal Communications Commission has just cleared the way for consumers to buy any cell phone they want and then pick a wireless provider.

Without getting bogged down in the details, the FCC announced last week that a portion of the 700MHz spectrum it plans to auction next year will be available for "open access" to devices and services. This means that whoever buys that spectrum has to let any device use it (for a price, of course).

Nokia's biggest push into the U.S. market has been its N95, a huge hit in Europe and available here since April. The phone, which is unlocked, is packed with cool features, including a 5-megapixel camera, GPS service, and a full-fledged music player.

Shailendra Pandey, an analyst with research firm ABI Research, estimates that Nokia sold as many as 450,000 N95s in the United States in the second quarter -- about 30 percent of the phone's worldwide sales during the same period.

That's not a bad start, considering the unsubsidized N95 sells for a whopping $750 and is only available to North American buyers through Nokia and a handful of online and on-the-ground retailers.

But it's only a start. The tech blog reported Thursday that Nokia is planning to release this fall a new version of the N95, which will work on a type of high-speed network, called HSDPA, that is basically available only in the United States.

The faster network should boost sales of the N95, which is seen as one of the biggest competitors to the new Apple iPhone. Indeed, Apple's (Charts, Fortune 500) foray into the mobile phone market could help Nokia as American consumers get used to the idea of paying full price for high-end phones (the iPhone costs $499 or $599, depending on the memory).

"One of the things that Apple has demonstrated is the willingness of consumers to pay upwards of $600 for a phone," says Gartenberg. "Nokia needs to capitalize on the rising tide."

Bill Plummer, vice president of Nokia's multimedia group in North America, says the company is focused on reaching its ideal customers: tech-savvy consumers who are the first to embrace new technologies.

To that end, Nokia last month started a viral marketing campaign featuring videos of jealous laptop computers attacking N95-wielding consumers. The message: Cell phones like the N95 are replacing laptops.

Nokia is well-positioned to seize more U.S. market share, but the company needs to move fast.

Motorola (Charts, Fortune 500), the world's third-largest device maker, has been struggling lately after failing to come up with a popular successor to its blockbuster RAZR clamshell phone.

What's more, while Apple may be helping Nokia convince Americans to buy pricey phones, it's also a serious competitor. Apple CEO Steve Jobs told investors recently that he expects to sell 1 million iPhones this quarter, and rumors abound that the next generation devices are on their way.

Meanwhile, LG is reportedly planning soon to launch its pricey luxury phone, the $800 all-touchscreen Prada phone, in North America.

And let's not forget the Gphone, Google's rumored move into mobile phones. While it's speculated that Google is planning to release a low-cost device that won't compete directly with the iPhone or the N95, the fact that a software company sees opportunity in mobile hardware indicates just how competitive the business is getting.

For Nokia, there's no time to lose. Top of page