MWC: Nokia CEO says Microsoft deal will create dependency on both sides

BARCELONA -- Nokia (NYSE:NOK) CEO Stephen Elop said today in order for a partnership between his company and a smartphone platform maker to succeed both parties need to be mutually dependent on one another. That kind of dependency is readily apparent in its deal with Microsoft (NYSE:MSFT), but wouldn’t have been as strong if Nokia chose to pursue Android with the industry’s new mobile OS king Google (NASDAQ:GOOG).

Elop said that he and Nokia management held good-faith negotiations with both Microsoft and Google, and despite his ties to Microsoft seriously weighed the possibility of pursuing Android as exclusive smartphone OS post Symbian. A deal with Google would have given it a widely recognized and already successful platform on which to build its future smartphone business. Google, realizing the benefits of having the world’s largest handset maker on its side, lobbied Nokia heavily, Elop said.

“If you combine the market share of Android with the market share Nokia deliver to Android you would have a very large number,” Elop said at press conference before the day before the kick off of Mobile World Congress. But he added such a deal effectively would have created a duopoly among smartphones, with Android and Apple (NASDAQ:AAPL) being the two major players. Nokia would have been a very significant OEM in Google’s stable, but it would not have had the influence over the direction of the OS that it will enjoy with the Microsoft deal. By partnering with Microsoft, Nokia becomes a key contributor to the OS it will use, supplying navigation and mapping functions from its Navteq division, online advertising capabilities and even carrier billing integration. Nokia’s expertise will make the relationship very two sided with licensing royalties flowing both ways, Elop said.

But even more significantly, Elop continued, partnering with Microsoft provides the industry with something it sorely needs: an alternative. In his conversation with operators, Elop said he discovered the scenario they dread most is a market dominated by Google and Apple. By creating a third viable platform, Nokia and Microsoft are giving themselves an instant advantage in the market, which he termed Nokia’s “swing factor.” Operators, enterprises and consumers looking for that alternative to Android would welcome Nokia Windows Phone 7 smartphones with open arms, Elop concluded.

The result would be a symbiosis between the companies of hardware and software and of scale and strategy, Elop said. Microsoft needs Nokia’s scale to elevate WP7 out of the bottom of the OS pile, while Nokia needs Microsoft to maintain a cutting edge OS, and they both need each other to establish a viable alternative in the market, he said. “We’re clearly dependent on Microsoft, but they are dependent on us,” he said.

At the event, Elop fielded dozens of reporters and analysts’ question in effort to quash rumors and speculation about Nokia’s surprising and controversial decision to abandon Symbian for WP7 last week. Elop didn’t shy away from any question even the more conspiratorial among them.

“No, I am not a Trojan Horse," Elop said in response to one reporter’s query about whether Microsoft had planted him at Nokia to ease the way for the partnership. He put to rest notions that Nokia would become the exclusive provider of WP3 devices, and while Nokia will seek to differentiate its devices from those of other WP7 licenses it would not overlay any other software such as its QT platform. To do so would only fragment the OS, he said. Elop claimed there have been no discussions with Microsoft about the possibility of the software giant acquiring Nokia. Nokia would continue to develop the MeeGo operating system in collaboration with Intel (NASDAQ:INTC), but had not made any decisions on where it would position the platform, he said. Nokia will also continue Symbian development work for some time in order to transition fluidly between its current smartphone portfolio and the WP7 portfolio of the future, he said.

On that last topic, newly promoted executive vice president of smart devices Jo Harlow said that Nokia will continue to make hardware and software investments in Symbian, producing a smartphone with a 1 GHz processor and overhauling the Series 60 user interface.

“We will make several short-term investments in Symbian so we and our partners can harvest its value,” Harlow said. “These investments give us the confidence that we will ship volumes of Symbian devices in the coming months and years.”

Harlow would give no specific timeline on when its first WP7 smartphone would be ready, though she said Elop has asked that her team to work toward bringing the first device to market by the end of the year.

Elop also addressed the issue of culture at Nokia, which may prove to be one of the biggest obstacles to making the partnership work. Finnish news media have reported that more than 1000 Nokia workers walked out on their jobs on Friday after the Microsoft partnership was announced. Elop said that in general the response among Nokia employees has been positive. Most employees have accepted the deal on an intellectual level, he said—they’ve realized that the company needs to go in a new direction—but Elop acknowledged there is still a big emotional obstacle that staff needs overcome, particularly among those employees that worked directly on Symbian development.