Nokia's Windows Phone licence costs set to soar as quarterly sales disappoint

Nokia's net costs for adopting Windows Phone as its smartphone operating system platform are set to rocket as Microsoft's "platform support payments" to Nokia start to decline, while Lumia sales have failed to ramp up sufficiently to cover the quarterly licensing payment that Nokia is obliged to pay to Microsoft.

The information is detailed in the company's fourth quarter and full year 2012 financial report.

The high cost of Nokia's Windows Phone licence was exclusively uncovered by Computing in July 2012. Nokia is obliged to pay a flat-fee of about $250m (£160m) per quarter in licensing payments to Microsoft for the right to use the Windows Phone operating system. Six months ago, that equated to a cost of about $60 (£40) per phone.

In return, Nokia receives a similar sum from Microsoft in platform support payments, which covers the aid that Nokia has provided in developing Windows Phone operating system, as well as licensing of Nokia intellectual property.

While the per unit cost of the Windows Phone licence has declined as sales have increased, they still equate to an unsustainable $40 (£26) per phone. And, if Nokia were to dump Windows Phone and adopt Android instead, for example, it would still be obliged to pay Microsoft the quarterly sum until the deal expires.

The per unit cost of the licence makes it challenging for Nokia to produce budget Windows Phone devices to compete against low-cost Android phones. It will also discontinue production of Symbian-based smartphones - the PureView 808, which has a 41 megapixel camera, will be the last Symbian phone produced - as well as the N9, the only phone Nokia produced based on the Meego Linux operating system, which it only sold in emerging markets.

As a result, Nokia lacks genuine smartphone options in emerging markets that loyal buyers of its feature phones can trade up to. Instead, it has a range of Asha phones, based on the ageing S40 operating system (not a Symbian operating system). However, S40 is not a "true" smartphone operating system and is not capable of multi-tasking.

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