Pricey Nokia Phone Faces Tough Competition

IDG News Service — "The hottest release of the summer," according to Nokia, is not the new iPhone 3G S or the Palm Pre. It's the N97, Nokia's newest high-end phone and one that few people in the U.S. mass market have probably heard of.

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The phone goes on sale on Tuesday in the U.S., but the lines that have characterized the launches of the other high profile phones are unlikely, despite Nokia's characterization of it as the hottest phone of the season. That's partly due to the price tag: the N97 retails for US$699. The phone works on T-Mobile's or AT&T's networks, but neither operator is subsidizing it, so customers don't have the option to buy the phone for a lower cost in exchange for signing a service contract.

The introduction of the N97 comes just a day after Apple announced the latest version of its popular iPhone and just three days after Palm began selling its long-awaited Pre.

The price of the N97 compares to the Pre's $199 price tag, after rebate, and the 16GB iPhone 3G S's $199. The original iPhone 3G now sells for $99. Those prices are only good for customers who sign up for multiyear service contracts. The Palm Pre costs $550 without a contract and the 16GB iPhone 3G S costs $599 without a contract.

The N97 will also be hard to find. Customers can buy one from Nokia's flagship stores in New York and Chicago or from "various independent retailers and e-tailers," according to the company. Amazon is selling it for $604, but won't ship until June 30. Other online retailers marketing the phone are unknown enough that shoppers might be wary of buying from them.

The launch of the N97 points to an ongoing struggle at Nokia to break into the North American market. While Nokia is the number one handset maker in the world, its market share in North America is around 8 percent. Despite talk over the last couple of years about investments made to improve its fortunes here, Nokia has little to show for it.

"Part of it is that Nokia has a low-end image among U.S. consumers," said Bill Hughes, an independent analyst who follows the mobile market.

That's a very different image than the one Nokia has in Europe. "Nokia is a premium brand there," noted Carl Howe, an analyst with the Yankee Group.

Nokia may be trying to reposition its image in the U.S. as a higher end phone maker. "I think they're trying to maintain some price discipline," Howe said. "The high end should be expensive. They're trying not to make it cheap and that's part of a premium brand strategy."

The challenges involved with executing such a strategy could explain Nokia's struggles in North America over the past years. "When you go down market, it's very hard to claw back up," said Howe. Nokia once had a much larger market share in the U.S., when it sold a phone that was tied to the very popular AT&T One Rate plan in the 1990s. But that phone was perceived as a utilitarian phone for the masses, not a premium phone.

Howe doesn't expect the N97 to do much better in North America than its predecessor, the N96, which didn't appear to improve Nokia's market share in the region.