Report: Microsoft to pay Nokia $1B in Windows Phone 7 deal

Microsoft (NASDAQ:MSFT) will pony up more than $1 billion to Nokia (NYSE:NOK) according to the terms of a broad strategic partnership that positions the software maker's fledgling Windows Phone 7 mobile operating system as Nokia's primary smartphone platform, sources say. Bloomberg reports that Microsoft's payments to Nokia will cover promotion and development costs on Windows Phone 7 devices; although Nokia will pay Microsoft a fee for each WP7-based handset it produces, it will offset those expenses by slashing R&D spending.

"This gives Microsoft scale and allows Nokia to rip out costs," BGC Partners analyst Colin Gillis said. "Microsoft is getting the platform boost that comes from acquiring a Nokia for about a billion dollars." Sources add the Microsoft/Nokia partnership runs for over five years; both companies declined to comment on specifics of the deal.

Per terms of the deal announced last month, Nokia and Microsoft will forge a worldwide mobile ecosystem integrating their respective assets--for example, Microsoft's Bing engine will power search across Nokia devices and services, and Microsoft assets like Bing and AdCenter will incorporate the Nokia Maps solution. Microsoft software tools will enable developers to build apps that run across Nokia devices, leveraging the handset maker's global scale. Nokia also boasts extensive global operator billing partnerships, enabling developers to reach consumers in regions where credit card usage is negligible. Nokia declined to state when it will introduce its first Windows Phone 7 smartphones to retail, but suggested devices will hit the market during 2011.

Speaking in mid-February at the Mobile World Congress 2011 event, Nokia CEO Stephen Elop said the company chose to embrace Windows Phone 7 over Google's (NASDAQ:GOOG) Android because a Nokia/Google partnership would have transformed the mobile industry into a duopoly pitting Android against Apple's (NASDAQ:AAPL) rival iOS: "If we had made the decision to swing in the direction of Android, it would have delivered substantial market share, and would have tilted the mobile ecosystem in that direction," Elop said. "By partnering with Windows Phone 7, we've established a very different dynamic and created an environment where Windows Phone 7 is a challenger. We've created a three-horse race."

For more:
- read this Bloomberg article

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