Nokia Microsoft Windows Phone contract is for 5 years, in force until 2016. But is it WP exclusive?

Now that the deal to sell Nokia to Microsoft fell through, the Finnish company may start considering its other options. And one of them is to add Android smartphones to their product line-up.

But Android option has one problem- the contract Nokia signed with Microsoft, when it went Windows Phone exclusive. And which includes $250 million a quarter platform support payments from Microsoft, of which Nokia already received $1.5 billion.

Helsingin Sanomat, Finnish biggest daily paper, reports that the duration of Nokia Microsoft contract is 5 years. Which means that Nokia’s options to separate itself from Windows Phone until 2016, are limited.

The big question is – how limited?

It is obvious that there should be some penalties there, if Nokia decides to abandon Windows Phone and switch to another smartphone OS. And we already know that Nokia has made some firm commitments on the amount of Windows Phone licenses it must buy from Microsoft each year, no matter what.

But is there some exclusivity clause there, that would prevent Nokia to adopt some other, third party smartphone OS, if it continues to promote Windows Phone too, and meets its minimum royalty requirements?

It is possible, but I really doubt that such clause exists.

The decision to go Windows Phone exclusive was purely Nokia’s, and was based on high hopes for Microsoft OS, way too inflated confidence in its own sales force, and belief in ability to “flip a switch” and cram almost anything down consumer throats. After all, back then, even disastrous phones like Nokia N97 sold in millions. And, in late 2010, they managed to ship 5 million smartphones running the flawed Symbian^3 OS, within 3 months after its launch. Why not repeat the feat with Windows Phone next year?

But adding the clause that forbids Nokia to even try some other, third party OS? That would be going too far, and may have some serious issues with European competition/anti-trust authorities.

Remember how things looked from both companies perspective back when they negotiated this deal? They didn’t go into partnership, expecting it to fail. In early 2011 Nokia was still the biggest smartphone and mobile phone maker in the world. And expected to remain the biggest OEM indefinitely, gradually phasing out Symbian smartphones and replacing them with Windows Phones.

Now imagine if the optimistic assumptions of Nokia Microsoft partnership came to pass. Nokia would still be the biggest smartphone maker in the world, Windows Phone would already be bigger than iOS, probably even Android. All Nokia competitors – Google, Apple, Samsung – will be looking for any opening to take Nokia down a notch.

European anti-trust authorities already hate Microsoft from the days of Wintel PC monopoly. Heck, they have opened an anti-trust investigation against Microsoft for Internet Explorer/Windows bundling less than a year ago. And threaten them with $7 billion fine, long after Windows PC monopoly stopped to matter.

Imagine what would have happened if, by now, Windows Phone would have got as big as Microsoft and Nokia expected it to be? And then, after some competitor complaints, EU opened an investigation into their partnership agreement and found a clause in the contract preventing Nokia to even try anything else, but Windows Phone? Whatever Stephen Elop and Steve Ballmer have agreed in private, would they risk putting that in writing?

Somehow, I don’t think so.

Furthermore – in 2011 Nokia was negotiating with Microsoft from the position of strength. Stephen Elop had many options – Android, continuing Meego devlopment, doing WP and Meego, or WP and Android simultaneously, etc;. Microsoft didn’t have any. The first version of its mobile OS has already failed, and if Nokia went Android, Windows Phone would have been as good as dead. So going Windows Phone exclusive for a while , getting several billion for it and exclusive rights to influence Windows Phone codebase, should have seemed as a good option for Nokia. Indefinitely (well, until 2016, but that’s the same thing in smartphone years) and exclusively tying itself to Microsoft, certainly wasn’t. Even if you subscribe to “Elop is a trojan horse” conspiracy theories, Nokia’s board wouldn’t have approved such exclusivity clause.

So even if Nokia Microsoft marriage contract is in force until 2016, as far as penalties for sleeping with other people go, from Nokia POV they are most likely limited to those minimum WP royalty commitments.

And now that they are not selling themselves to Microsoft outright, there’s nothing, except of Nokia’s own limited resources and dwindling cash reserves, to prevent them from making an Android phone.

Contract duration info: Helsingin Sanomat via WMExperts

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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  • peter sellers

    Good article, better than most of the regurgitation I read.

    I do subscribe to the “Elop is a trojan”. This is probably one of the most lopsided, worst business deals I have seen ever.

    Microsoft gets to use Nokia’s patents, their mapping technology, and Nokia will exclusively make phones for Microsoft’s OS. What does Nokia get? Payments received that are actually offset by licensing payments to Microsoft? So nothing?

    “The decision to go Windows Phone exclusive was purely Nokia’s, and was based on high hopes for Microsoft OS, way too inflated confidence in its own sales force, and belief in ability to “flip a switch” and cram almost anything down consumer throats.” Yeah that sounds about right.

    The deal is of course secret because its soooo ridiculous! Aren’t you a little bit surprised as to why we don’t know if the deal is exclusive only? I would bet my left ear that Nokia does have to exclusively make Microsoft phone and not make an Android phone for 5 years. “How would the board let this happen” you ask? Because they’re clueless, I think that is pretty damn obvious by now.

    You can’t make profit selling Windows Phone exclusively. Nokia makes all their money from Feature Phones and NSN, look it up. Of course Elop/Microsoft have destroyed Nokia, duh, just make an Android phone already Nokia.

  • AS147

    There is no good reason for either company for MS buying Nokia from a Windows phone perspective. From patents and keeping SN in Nokia yes but windows phone, no.
    The poster stating Nokia should make Android, seems to ignore the fact that Nokia has limited resources and would likely loose money on Android at a far higher rate like almost all Android OEMs.

    It would also dilute the Windows Lumia devices as Nokia would need to reuse the same design/devices. This would also hurt any prospective Android purchases.

    No, Nokia have mad a good bet and all that is needed is patience as they have a big fight and anyone who thinks this won’t take at least 5 years (maybe more) is not being realistic.

    Let’s face it this is going to take guts and determination and the only reason this has come up is investor pressure from folk interested in short term gain (to bolster their pockets at the expense of ling term viability). So this is why you also see the prospect of SN being sold, again long term bad for Nokia good for initial cash flow.
    I hope thus doesn’t happen.

  • Stoli89

    Nokia also gets a growing ecosystem that has much greater breadth than if it had to build one by itself. It also gets to license assets (Here, various IP) into the Windows ecosystem that it would not have been able to do with another platform. Nokia also improved speed to market by at least 40% under the new strategy. So, IMO, Nokia is getting much more than simply positive cash flow benefit in the early years of the agreement.

  • sncirui

    “Let’s face it this is going to take guts and determination”

    And money.