Microsoft Paying Nokia 'Billions Of Dollars' For Windows Phone Alliance

Microsoft is paying "billions of dollars" to Nokia to develop and promote Windows Phone 7 handsets under the partnership announced in February, the companies disclosed Thursday.

Microsoft and Nokia issued a statement Thursday saying they had signed a definitive agreement outlining the details of the alliance that's expected to result in volume shipments of Nokia Windows Phone 7 devices in 2012.

Microsoft CEO Steve Ballmer and Nokia president and CEO Stephen Elop announced their strategic alliance with much fanfare on February 11 at a press conference in London. The deal is seen as a critical element of Microsoft's effort to climb back into the competitive mobile device market where it lags far behind rivals Apple and Google.

The two companies at the time of the press conference were still hammering out the details of the partnership. But about a month after the deal was announced reports surfaced that Microsoft was paying Nokia more than $1 billion to cement the alliance.

"In recognition of the unique nature of Nokia's agreement with Microsoft and the contributions that Nokia is providing, Nokia will receive payments measured in the billions of dollars," Thursday's statement from the two companies said of the newly signed contract.

While Nokia is the world's largest mobile handset manufacturer, its market share has been slipping. Industry observers, nevertheless, scratched their heads when the partnership with Microsoft was announced given Microsoft's weak position in the mobile software market. The substantial payments, of which the companies did not disclose additional details, provide a significant incentive for Nokia.

The agreement also "recognizes the value of intellectual property and puts in place mechanisms for exchanging rights to intellectual property," the statement said. "Nokia will receive substantial payments under the agreement."

The cash isn't flowing in just one direction, however. Nokia will pay Microsoft "a running royalty" for the Windows Phone platform, starting when the first Nokia products incorporating the Microsoft mobile OS begin shipping.

"The royalty payments are competitive and reflect the large volumes that Nokia expects to ship, as well as a variety of other considerations related to engineering work to which both companies are committed," the joint statement said, adding that the Windows Phone platform will "enable Nokia to significantly reduce operating expenses."

NEXT: Nokia's Development Role

Financial considerations aside, the Microsoft-Nokia statement said the companies have made "significant progress on the development of the first Nokia products incorporating Windows Phone." The two are "collaborating on a portfolio of new Nokia devices," they said, and Nokia has started porting "key applications and services" to the Windows Phone platform.

The two companies' goal is to begin volume device shipments in 2012, the statement said.

Thursday's statement also spelled out more details of the two companies' roles under the agreement. Nokia, for example, will provide mapping, navigation and other location-based services; contribute its expertise on hardware design and language support; and develop imaging technology that runs on Windows Phone.

Microsoft will provide Bing search services across the Nokia device portfolio, as well as expertise in advertising, gaming, social media and other services.

Nokia will open a Nokia-branded application store that leverages the Windows Marketplace infrastructure where third-party developers can publish and distribute applications based on Windows Phone, as well the company's Symbian and Series 40 devices.

Nokia is also contributing its expertise in operator billing "to ensure participants in the Windows Phone ecosystem can take advantage of Nokia's billing agreements with 112 operators in 36 markets," the statement said.