Comment & Analysis

Is Nokia ready to change its fortunes in the U.S. market? The Finnish company has grown into the world's largest mobile-phone maker by conquering country after country. But in the U.S., Nokia (Xetra: 870737 - news) has steadily lost ground in recent years, watching its market share shrivel to single digits.

Nokia hopes to reverse that trend. On Mar. 30, AT&T (T), the largest wireless carrier in the U.S., plans to announce it will soon carry Nokia's e71x, the thinnest smartphone available in the U.S. The phone is similar to traditional BlackBerry devices in looks, but is a sleeker 0.39 inches thick. It has a Qwerty keyboard, allowing for Web browsing and corporate e-mail access via regular wireless networks and Wi-Fi hotspots at cafes and airports. The device also has a built-in Global Positioning System, a music player, a video camera, and a memory card slot. The Nokia e71x is expected to hit the U.S. market in May and should cost $100 after rebate with a two-year contract.

"We believe this is a great opportunity for Nokia," says Hugo Hernandez, Nokia's head of E-series marketing for North America. "We are bringing in a device with the right [features] and the right price point."

Chasing BlackBerry and iPhone

This is the first time Nokia has offered a smartphone with a Qwerty keyboard through a major U.S. carrier. Wireless carriers including AT&T, T-Mobile USA (DT), and Verizon Wireless have carried a handful of Nokia's cheap and mid-tier devices. But to get Nokia's highest-end phones, U.S. customers had to buy them directly from the company, via its Nokia.com Web site or Nokia retail stores. That meant consumers would have to pay as much as $500 or $600, because the phones wouldn't get the usual subsidy from wireless carriers, rendering them largely unaffordable.

With an eye-catching, feature-rich phone for $100, Nokia could start to compete head to head in the fast-growing U.S. market for smartphones. Nokia may finally have a device to take on Research In Motion (RIMM), Samsung, and Apple (AAPL), whose iPhone starts at twice the e71x's price. "It could be the No. 3 [best-selling] smartphone at AT&T, [following the iPhone and BlackBerry]," says Matt Thornton, an analyst with Avian Securities.

Of course, one phone can only make so much difference. Nokia has long harbored some ambivalence about the American market because of the heavy control that wireless carriers exert in the country and because wireless technology in the U.S. has not been as advanced as in Europe. Some experts believe Nokia let its U.S. market share slide in part because it could reap higher returns in other markets, though Nokia executives say they haven't deliberately neglected the U.S.

Investing more in the U.S. market

To gain back market share and prove it's serious about the U.S. market this time, Nokia needs to follow up the e71x with comparably promising phones. In particular, the company needs to develop more phones with the CDMA wireless technology used by Verizon Wireless and Sprint (S). "It'll be difficult [to increase their market share] due to their [near] lack of CDMA presence," says Hughes De La Vergne, a principal analyst at Gartner (IT).

Nokia executives say they do have a new approach to the U.S. "[Working closely with U.S. wireless carriers] is what it takes in that market," said Kai Oistamo, Nokia executive vice-president in charge of devices, in a February interview with BusinessWeek. "We have realized that. We are already seeing the first fruits." In fact, he said, Nokia is increasing its investment in the U.S. market, even while it's cutting costs elsewhere.

The U.S. market is growing more important in several respects. Apple (NASDAQ: AAPL - news) , with the success of its iPhone, has turned the country into a test lab for reinventing the mobile phone as minicomputer. Apple customers, concentrated in the U.S., have become the early adopters in downloading software to cell phones, with more than 20 applications loaded up on the average iPhone. Nokia wants in on this business, as do RIM, Microsoft (NASDAQ: MSFT - news) (MSFT), and Google (GOOG). Nokia also doesn't have the luxury of overlooking any market these days. The mobile-phone market, long so fast-growing, is expected to shrink by 10% this year, according to Nokia's own forecasts.

Nokia Worked with AT&T to Get Subsidy

Nokia will soon have three research centers in the U.S. It established a new center last year in San Diego, where designers work specifically to adapt Nokia's products for AT&T, and where they're developing new CDMA phones. The company recently placed its third CDMA handset with Verizon Wireless.

With the Nokia e71x, the handset maker worked with AT&T to customize the user interface and link up to the carrier's services, such as its music store and Yellow Pages. In return, AT&T has subsidized a chunk of the device's price, so that it hits the $100 sweet spot for consumers. "If they get into subsidy programs, I don't see why [Nokia] can't be successful," says Robert Laikin, chief executive of the U.S.'s largest cell-phone distributor, Brightpoint (NASDAQ: CELL - news) (CELL). "In the U.S., Nokia's market share is about as low as it's going to get."

Still, other experts think Nokia needs to do more than get U.S. wireless carriers on its side. The company needs to win over consumers. Unlike consumers in most of the world, Americans don't think of Nokia as the cool, go-to company for advanced cell phones. They think of Apple, RIM, and even Samsung. John Jackson, vice-president for research at consultant CCS Insight, says Nokia will need great products, innovation, and marketing to change that attitude. "You should not hold your breath for an extended Nokia presence in this market [until they make bigger changes]," he says. The e71x will get a marketing push from both AT&T and Nokia.