Nokia Takes On Apple In Music and Cell Phone

Nokia , the world's top mobile phone maker, launched its free music package on Thursday, issuing a challenge to Apple's dominance of the digital music market.

The Finnish firm also launched its first touchscreen phone 5800 XpressMusic to rival Apple's popular iPhone.

Nokia said at an analyst and media event in London it would start selling the phone shortly, pricing it at the equivalent of $395 excluding subsidies and taxes, which it said was roughly half the price of the other main touchscreen phones on the market.

The price means consumers on many large markets will get the phone for free from operators when signing up for contract.

"The price and positioning of the product may result in substantial demand and will undoubtedly put some pressure on Apple," said Ben Wood, research head at CCS Insight.

Nokia said all major music labels and most independent labels will offer their tracks as part of Nokia's "free" music bundle "Comes with Music."

"Comes with Music" and similar products from other hardware vendors could help the music industry make up for falling CD sales and cut illegal downloads.

Nokia will launch the package in Britain, the world's third largest music market. Carphone Warehouse, the exclusive United Kingdom retailer for the range, will start to sell the first model, Nokia 5310, starting Oct. 16. It is not known when the music service will be available in the United States.

The battle for mobile music is increasingly crowded. Sony Ericsson launched its music package this month in Sweden, and South Korea's LG Electronics plans a service similar to Nokia's.

Could change music industry, some say

Nokia's package will differ from others on the market since users can keep all the music they have downloaded during a 12-month subscription period. Nokia said it will also offer 18-month package together with operators on some markets.

There are no charges for tracks downloaded as the cost is bundled to the phone price.

Analysts and music industry players said Nokia's offering could bring free music to millions of consumers and change the music industry significantly.

"Apple's days of dominant digital music retailer outside the United States are numbered, if they don't do anything radical," said Rob Wells, head of Universal's digital music business.

Apple controls slightly more than half of global digital music sales through its iTunes store.

"In a market where price and selection are so much more important than brand to consumers, Apple cannot count on retaining users when competing with an offering which seems free to the end user," Strategy Analytics' David MacQueen said in a research report.

The music download package is Nokia's first major push into the services business. Last year the company unveiled a revamp of its whole organization, aiming to build a new business from Internet services to combat slowing growth in sales of handsets.

Nokia has acknowledged the impact Apple has made on the industry with its iPhone over the past year, saying the computer and consumer electronics company had done the mobile phone industry "a big favor."

"We have a new, credible competitor in this business," Nokia Chief Executive Olli-Pekka Kallasvuo told the Churchill Club on Wednesday, a speakers' forum for Silicon Valley civic leaders.

"Of course we need to be able to respond to any competitor and we will."Analysts said the choice of a relatively cheap model was a clear indication Nokia was trying to win over consumers who often are not paying for music but getting it through file-sharing sites on the Internet.

"If you have access to everything, what's the need for pirated music?" said Universal's Rob Wells.

(Additional reporting by David Lawsky in San Francisco and Eric Auchard in Santa Clara; Editing by John Stonestreet and Quentin Bryar)

Copyright 2008 Reuters.

© 2008 CNBC.com