Nokia: Not Smart Enough This Time

Why its newest smartphone is unlikely to dethrone the BlackBerry in the U.S.

By Stephen H. Wildstrom

In most of the world, Nokia (NOK) is synonymous with mobile phones. Whether it's building cheap handsets for emerging markets or selling sophisticated smartphones in Europe, Nokia is a dominant player, with more than 36% of global volume, according to market analyst Gartner Group (IT). Yet in the U.S., the Finnish giant is an also-ran.

"We are the incumbent in the world at large," says Nokia CEO Olli-Pekka Kallasvuo. "In the U.S., we are the underdog." Yet despite the challenges of a market chock-full of interesting smartphones from the likes of Apple (AAPL), Palm (PALM), and Research In Motion (RIMM), Nokia, which has made several previous efforts to be a top-tier handset supplier in the U.S., is making one more try to expand its toehold in the market by bringing in some high-end products. "The only possibility," says Kallasvuo, "is to push something that is good, strong, and appealing enough."

Judging from its initial efforts, Nokia should be prepared for an uphill slog. Until recently the company was represented at major U.S. carriers by only a smattering of middling phones, all but indistinguishable in the sea of Motorolas (MOT), Samsungs, and LGs that could be had for $50, or even free with a service contract.

Together with AT&T (T), Nokia has launched a flagship U.S. smartphone, the E71x, at the attractive price of $100 with a two-year contract. For a phone with a slightly cramped but usable QWERTY keyboard, the E71x is small and thin—just a tad bigger than a BlackBerry Pearl. It's built on the Symbian operating system, which is the same basic software used for a broad range of high-end Nokia phones available in Europe and Asia.

The E71x is a perfectly good product, with all the features a smartphone user has come to expect: 3G and Wi-Fi networking for fast data; good e-mail, including support for corporate systems using Microsoft Exchange; a decent Web browser based on the same WebKit software used by the iPhone; solid music and video players; and a 3.2-megapixel video-capable camera.

The problem is that it will be difficult to make a dent in such a crowded field with a product that lacks truly distinctive features. Making matters worse, the E71x comes up short in downloadable software applications, which have played at least as big a role in the iPhone's success as any feature of the device itself. Nokia is gathering the thousands of apps available for its phones into its Ovi store, but AT&T is not making the store accessible to E71x users "at this time," a company spokesman says without elaborating. That leaves customers with the lame offerings of AT&T's MEdia Mall—mostly ringtones, wallpaper, and a few games.

Things look even worse for Nokia's other high-end offerings. The N97 is a would-be iPhone challenger with a big 3.5-inch touchscreen. So far, at least, no U.S. carrier offers it. The N97 is available in Britain free of charge from Vodafone (VOD) with a two-year contract, but is being sold unlocked in the U.S. for an eye-popping $700. And Nokia has just introduced the E75, similar to the E71 but with a bigger slide-out keyboard. It, too, has no carrier support, and Nokia is unlikely to sell many at $440.

Despite Nokia's dominance in the GSM technology used by most wireless carriers, the Finnish company historically has been weak in CDMA, the technology used by Verizon Wireless and Sprint. Nokia has only three low-end handsets at Verizon and none at Sprint. "We are investing in CDMA," says Kallasvuo. "It is our ambition to come out with a smartphone in CDMA." For now, however, more than half of the U.S. market is off-limits to Nokia's top-of-the-line products.

For all of these reasons, Nokia's assault on the U.S. market is likely to be ineffectual. And that's a shame for consumers, because the company makes some of the world's most interesting, not to mention popular, handsets.

Wildstrom is Technology & You columnist for BusinessWeek. You can contact him at techandyou@businessweek.com or follow his posts on Twitter @swildstrom.

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