Nokia Challenges Operators with Prepaid Deal for Comes With Music

On 2 September Nokia announced it will launch its first Comes With Music phone in the UK. Carphone Warehouse has secured an exclusive deal to offer the Nokia 5310 XpressMusic phone on a prepaid tariff some time in the fourth quarter.

If I’m honest, I was disappointed when I read Nokia’s press release this morning. Comes With Music is a big event and is being keenly watched, but today’s announcement lacked quite a few details. It seems as if Nokia is trying to build awareness before the formal launch on 2 October.

In terms of hardware, many people were expecting to see a touch-screen device as the first Comes With Music phone, given that Nokia has yet to introduce a touch-screen rival to the iPhone, which has successfully integrated a music player into a phone. Comes With Music was initially positioned as a premium offering that people would have to sign up for. Instead, Nokia’s gone for a 10-month-old mid-tier device that some may argue devalues the Comes With Music offering.

On second thoughts, I think the choice of a midrange prepaid phone makes a lot of sense. When trying to sign up operators to distribute its product, Nokia will be finding it hard to overcome operators’ suspicions that Comes With Music will eat into sales of their own music services. The deal with Carphone Warehouse avoids such difficulties.

In my view, the deal may be a sign that Nokia is prepared to bypass operators, and it may tempt a few of them to reconsider their stance on Comes With Music. By launching a prepaid Comes With Music phone in the UK, where two-thirds of connections are prepaid, Nokia can test the waters before rolling the service out in other markets.

Pricing is still a bit of a mystery. Today, Carphone Warehouse sells the Nokia 5310 XpressMusic for £69.99 on a prepaid tariff. The Comes With Music version will obviously cost more. As a rough comparison, Vodafone’s MusicStation service currently costs £1.99 a week, or about £100 a year (the length of a Comes With Music subscription). Given these figures, I’d expect the first Comes With Music phone to cost upward of £170.

I expect Nokia to bundle the service with more phones, including perhaps a high-end touch-screen device. But it needs to convince mobile network operators to sign up to Comes With Music, as they hold the billing relationship with subscribers. And it will have to agree to share the revenue from the service with operators. Given the likely profit margins involved, I predict some tough negotiating ahead.