Microsoft To Pay Nokia Billions For Windows Phone 7 Switch

Nokia CEO Stephen Elop implied Sunday that his company would receive billions of dollars in incentives from Microsoft for agreeing to make Windows Phone 7 the primary operating system for its smartphones.

Speaking at the World Mobile Congress in Barcelona, Elop said the deal's value to Nokia is "in Bs not in Ms." The comment sparked speculation that Microsoft is, in effect, paying Nokia—the world's biggest cell phone manufacturer in terms of market share—to carry Windows Phone 7 on its smartphones.

Nokia and Microsoft have declined to elaborate on the comment, or disclose other financial details of their arrangement.

Under a partnership announced Friday, Nokia will adopt Microsoft's Windows Phone 7 operating system as the primary OS for its smartphone lineup—effectively ditching, at least for the higher-end of its roster, the open source Symbian that for years provided the backbone of its offerings. Nokia will also delay its next-generation MeeGo phone.

The companies cautioned that they have yet to hammer out a definitive agreement.

Nokia shares have taken a beating in the wake of the announcement, having fallen about 20% since Thursday. Some investors are concerned that the deal means Nokia has waved the white flag in the smartphone wars with Apple and Google.

But there are upsides for Nokia. The move gives it access to a state-of-the art smartphone OS and frees it from having to spend billions of dollars of its own money to keep pace with its cash-rich rivals. Among other things, Windows Phone 7 features Smart Tiles that push e-mails, IMs, and social network updates to the forefront of the user interface, and it ties directly into Microsoft Office and Exchange.

As for Microsoft, the deal gives it instant access to the world's largest installed base of smartphones and Nokia's global distribution and billing network. Microsoft had become an also-ran in the phone market, domestically and abroad, despite the launch of Windows Phone 7 last November. Canalys analyst Pete Cunningham called the pact "a huge win for Microsoft."

The company is clearly hoping the tie-up with Nokia will change its sagging fortunes in the phone market.