LONDON, UK: Nokia, the world's top mobile phone maker, launched its free music package on Thursday, issuing a challenge to Apple Inc's dominance of the digital music market.

The Finnish company also launched its first touch-screen phone 5800 Xpressmusic to rival Apple's popular iPhone.

Nokia said at an analyst and media event in London it would start selling the phone shortly, pricing it at 279 euros ($395) excluding subsidies and taxes, which it said was roughly half the price of the other main touch-screen phones on the market.

"The price and positioning of the product may result in substantial demand and will undoubtedly put some pressure on Apple," said Ben Wood, research head at CCS Insight.

The price means consumers in large markets will get the phone for free from operators when agreeing to sign a contract. The company also will be able to make a dent in emerging markets.

"We expect it to be listed with most of the (mobile phone) operators," Jo Harlow, head of music phones, told Reuters in an interview.

Nokia said all major music labels and most independent labels will offer their tracks as part of Nokia's 'free' music bundle "Comes with Music," raising the total number of tracks to around 5 million.

"Apple's days of dominant digital music retailer outside the United States are numbered, if they don't do anything radical," said Rob Wells, head of Universal's digital music business.

Apple controls slightly more than half of global digital music sales through its iTunes store.

Nokia said it aims to offer the music service next year on Apple's home ground in the United States, the world's largest music market.

"In a market where price and selection are so much more important than brand to consumers, Apple cannot count on retaining users when competing with an offering which seems free to the end user," said Strategy Analytics' David MacQueen.

"Comes with Music" and similar products from other hardware vendors could help the music industry make up for falling CD sales and cut illegal downloads.

The battle for mobile music is increasingly crowded. Sony Ericsson launched its music package this month in Sweden, and South Korea's LG Electronics plans a service similar to Nokia's.

Nokia's package will differ from others on the market since users can keep all the music they have downloaded during the subscription period of 12 or 18 months. There are no charges for tracks downloaded as the cost is bundled to the phone price.

Analysts and music industry players said Nokia's offering could bring free music to millions of consumers and change the music industry significantly.

"The introduction of mobile handsets featuring unlimited music downloads out-of-the-box will bring about a fundamental change in the way the mass-market consumes digital music," said Rob Lewis, chief executive officer of British digital music firm Omnifone.

PUSH INTO SERVICES

The music download package is Nokia's first major push into the services business. Last year the company unveiled a revamp of its whole organization, aiming to build a new business from Internet services to combat slowing growth in sales of handsets.

Nokia has acknowledged the impact Apple has made on the industry with its iPhone over the past year, saying the Cupertino, California-based computer and consumer electronics company had done the mobile phone industry "a big favor."

"We have a new, credible competitor in this business," Nokia Chief Executive Olli-Pekka Kallasvuo told the Churchill Club on Wednesday, a speakers' forum for Silicon Valley civic leaders.

"Of course we need to be able to respond to any competitor and we will."

Nokia will launch the package in Britain, the world's third largest music market. UK retailer, Carphone Warehouse, will start selling the products on Oct 16. Nokia 5310 will sell for 130 pounds, while the price for a version of Nokia's sophisticated N95 smartphone with eight gigabytes of memory was not revealed.

Analysts said the choice of a relatively cheap model was a clear indication Nokia was trying to win over consumers who often are not paying for music but getting it through file-sharing sites on the Internet.

"If you have access to everything, what's the need for pirated music?" said Universal's Rob Wells.