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Deeper lines in sand drawn in OS battle

The line in the sand is getting deeper.

On one side sits the world’s No. 2 mobile-phone maker Motorola Inc. and its operating system partner Microsoft Corp., a team hoping to entice Windows fans looking for a familiar environment. On the other side sits the world’s No. 1 mobile-phone maker Nokia Corp. and its operating system partner Symbian, a team hoping to sell a common phone platform the world over and in the process counteract the commoditization of the mobile phone.

It’s a high-stakes game full of twists and turns, and there’s no clear end in sight. Indeed, perhaps the only thing that is clear is the opportunity.

“We expect this year to be one of the busiest ever for our industry in terms of new announcements,” said Jorma Ollila, Nokia’s chairman and chief executive officer, during the 3GSM show in Cannes, France. “We have reached a subscriber base of around 1.3 billion, with the potential to nearly double this over the next few years. Mobile data services will make up an increasingly large share of the mobile market. Accordingly, data is expected to account for close to 30 percent of the mobile services market in 2007, compared with just over 10 percent in 2003, clearly showing the trend of mobility being integrated to all aspects of everyday life.”

The Cannes show was the scene of several notable new twists in the smart-phone market, with Nokia, Motorola, Symbian, LG Electronics Co. Ltd. and others making waves.

On the Symbian side, the company managed several major wins. First, Panasonic Mobile Communications Co. Ltd. released its first Symbian device, and Nokia released its new 9500 Symbian Communicator with Wi-Fi support. Also, Taiwanese electronics manufacturer Arima licensed the Symbian OS with the UIQ user interface, while Chinese handset manufacturer Legend Holdings Ltd. licensed the Symbian platform with the Nokia Series 60 user interface. But most importantly, the world’s No. 5 handset maker LG Electronics Co. Ltd. announced plans to set up shop in the Symbian camp.

Interestingly, Motorola also released its latest Symbian-based device, the A1000 W-CDMA phone. However, the company last year sold its stake in Symbian, and many in the industry see its support for the platform waning.

Concurrently, Symbian announced $28 million in revenues in the fourth quarter and $40.9 million in cash on hand. The company said it sold 2.8 million units in the fourth quarter for a total of 6.7 million for the full year. Symbian also announced a new version of its operating system and a new user interface. Symbian’s new UIQ user interface version 3.0 will feature a one-handed configuration, which will compete with Nokia’s one-handed Series 60 user interface.

Although Symbian scored several successes, there appears to be some unrest among the company’s stakeholders. A Reuters report claimed Symbian’s backers plan to use their pre-emption rights to counteract Nokia’s attempts to gain greater control over the company. For example, Ericsson could use its pre-emption rights to boost its share in Symbian from 17.5 percent to 25 percent. If the rest of Symbian’s shareholders also used their pre-emption rights to the maximum amount, Nokia would only be able to bump up its share in Symbian from 32 percent to about 46 percent. Nokia earlier this month announced plans to buy out Psion plc’s stake in Symbian, a move that would bump up its ownership to about 63 percent.

A Sony Ericsson spokesman said the company was considering using its pre-emption rights, but had not yet made a decision. Symbian’s other stakeholders, including Ericsson and Samsung Electronics Co. Ltd., did not immediately return requests for comment on the issue. As for Nokia, the company said it would be open to other Symbian stakeholders using their pre-emption rights and scoring a greater share of the company, according to reports.

It’s unclear whether such an event will come to pass. Matt Lewis, senior analyst with research and consulting firm ARCchart, said Symbian’s shareholders would be obligated to fund Symbian’s operations at a proportionally higher level if they chose to use their pre-emption rights-a potentially costly move.

Nokia is walking a fine line when it comes to Symbian, Lewis said. The company needs to assure Symbian’s long-term health by upping its ownership in the company, but at the same time it needs to guarantee Symbian’s independence in order to counteract Microsoft’s moves into the market.

There is one more twist in the story. Symbian’s business structure was designed to give control to members representing more than 70 percent of the company’s stakeholders. Therefore, if Nokia scored Psion’s entire stake and increased its ownership to 63 percent, it would still not gain official control over the company.

On the other side of the line stand Motorola and Microsoft. Although Microsoft in the past has been forced to team with small Asian manufacturers to sell its products, the company seems to have finally found a major supporter in Motorola. During the Cannes show, Motorola showed off two new Microsoft-based devices, including an advanced clamshell-style device that supports Wi-Fi connections. Motorola said the devices fall under its new MOTOPro series of handsets, aimed squarely at the business user. Motorola made waves late last year with the introduction of its MPx200 Microsoft phone through AT&T Wireless Services Inc. and others.

“Motorola really is not committed to the Symbian platform,” said ARCchart’s Lewis. “Certainly it looks like most of Motorola’s smart-phone lineup is supporting Microsoft.”

As Nokia and Motorola square off in the smart-phone market, it appears the rest of the market’s players are hedging their bets. Samsung and Siemens make phones using both Symbian and Microsoft platforms, and Lewis expects LG will probably do the same. And PalmSource Inc. and Linux could still emerge as winning alternatives.

Nonetheless, analysts continue to predict that the smart-phone market will be huge. ARCchart forecasts that smart-phone handsets will constitute 40 percent of the total handset market by 2008, thanks in large part to declining component costs.

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