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Will Nokia's Unlocked Phones Open Wallets?

Nokia phones
Nokia's Nseries N85 phone.
Source: Nokia

Nokia, the Finnish mobile phone leader, is banking that by turning the traditional economics of mobile phones on its head, it's going to reap the benefits while offering more choice and features to buyers.

But with the move ensuring that customers will initially pay far higher prices for their devices, will buyers bite?

The handset maker this week launched three new models in its Nseries line of phones, all of which arrive "unlocked" -- without being tied to a mobile carrier. But that also means that carriers aren't picking up part of the devices' price tag, raising the retail cost for consumers.

While the maneuver means consumers could pay between $400 to $900 for the new N96, N85 and N79 devices, Nokia (NYSE: NOK) paints the move as representative of its efforts to provide consumers with greater options.

"It's not about having just one feature or aspect, it's about tying everything all together to have a device that improves a user's life, a device that can do whatever they need," Ira Frimere, Nokia's Nseries product manager for North America, told InternetNews.com.

There's also a key marketing factor at work. As handset vendors and carriers wrestle for share in the competitive mobile smartphone market, offering devices that are unlocked from the onset is emerging as a significant differentiator.

Mobile phones have traditionally been launched tied to a specific carrier, such as the exclusive contract AT&T has in the U.S. with Apple's iPhone. Such partnerships typically provide for lower, more attractive prices for buyers, since carriers subsidize the cost of the device in hopes of recouping their losses through a long-term rate plan commitment. Locking a device to a network for the term of their contract essentially ensures that a customer doesn't stray.

But that approach appears to be changing. Nokia released only one other unlocked device in the past year -- its N75 smartphone, in mid-2007. Between then and the latest launch, Nokia released 10 more Nseries products, all of which were locked.

Nokia's not alone in rethinking how they go to market with their marquee products. Just last week, competitor Palm introduced its latest Treo, the Pro, as an unlocked device, claiming that the approach "allows users to structure their life around their priorities without sacrificing work productivity."

Similarly, Nokia takes the view that unlocked devices provide users with more choices among carriers -- and thus, more choice in services and rate plans.

At the same time, Frimere said Nokia also believes the tactic allows it to get new products into the market more quickly -- without having to take the time to line up new carrier partners.

The price factor

But without carriers to pick up much of the retail cost of locked phones, the trend toward unlocking ensures that consumers face higher prices for the devices.

Not surprisingly, phones unlocked from the start are being targeted at buyers with deeper pockets who demand something extra from their devices.

The three-year-old Nseries of devices, which this week grew to encompass 30 models, aren't described as phones by Nokia: Instead, they're "multimedia computers". [cob:Special_Report]

The series' three new devices, the N96, N85 and N79 are aimed at what Frimere called "tech leaders" -- early adopters who always want the newest gadget -- and device "stylists" -- who want to be seen with the latest and greatest device.

All three offer a five-megapixel camera and advancements in streaming media use, as well as some emerging new features.

The N96, the most high-end of the three, supports high-speed 3G networks. It's also geared toward heavy users of mobile video, with a 2.8-inch screen, 16 gigabytes (GB) of internal memory and expandable memory card slot that allows up to 40 hours of video content storage. A stand on the N96 enables users to watch video with the device in the landscape position.

It also includes three free months of navigation service for Nokia's route mapping application, and another application for "geotagging" photos -- automatically noting the location where they were shot, based on GPS coordinates.

Meanwhile, the N85 is built on a dual-slider design, includes 8GB onboard memory, and GPS and geotagging features. The N79, which Nokia calls "style-friendly," comes with several interchangeable color cases and interface themes. It also offers the geotagging application and 4GB of memory. The form factor features a sliding lens cover to protect the display lens when not in use.

"In talking to our customers, they want phones that do what they need, and that could be GPS or MP3 capabilities or high-speed Internet surfing," Frimere said. "All three have a very similar feel but are high-end, multimedia smartphones offering unique aspects."

Those unique aspects don't come cheap: prices for the devices range up to $900. Yet Nokia is not concerned price point will stall adoption.

"The price boils down to the value proposition to the consumer and they're paying for the freedom to choose any carrier," Frimere said, noting all three GMS products are also 3G network capable.

"All have undergone extensive testing to provide high quality," Frimere said in response to whether Nokia was concerned about current 3G network glitches with Apple's iPhone device in the US.