HELSINKI, FINLAND: Nokia's bid to challenge the dominance of Apple's iPhone and Google's Android has failed to convince telecom operators in Europe, depriving it of powerful allies in its fight to regain the top spot in the mobile market.
Four major telecom operators in Europe, where the phones have been on sale since before Christmas, told Reuters the new Nokia Lumia smartphones were not good enough to compete with Apple's iPhone or Samsung's Galaxy phones.
Nokia now faces a battle for the key U.S. market, where its former dominance has shrivelled to 1 percent of the smartphone market. AT&T has been selling the Lumia 900 for two weeks and it says early demand has been strong.
Skeptics among operators say the sleek, neon-colored phones are overpriced for what is not an innovative product, cite a lack of marketing dollars put behind the phones, and image problems caused by glitches in the battery and software of the early models.
Nokia's big bet made a year ago to put Microsoft's Windows Phone software in its smartphones looks far from certain to pay off, operators said.
"No one comes into the store and asks for a Windows phone," said an executive in charge of mobile devices at a European operator, which has sold the Lumia 800 and 710 since December.
Nokia is trying to catch up after earlier smartphones were unsuccessful and hurt its image at the higher end of the market.
"Nokia have given themselves a double challenge: to restore their credibility in terms of making hardware smartphones and succeed with the Microsoft Windows operating system, which lags in the market," the executive said.
He said Microsoft's software worked nicely with PCs and allowed you "to do tons of cool things" but few customers knew this. "If the Lumia with the same hardware came with Android in it and not Windows, it would be much easier to sell," he said.
Moody's cut its credit rating on Nokia to one notch above junk on Monday after the company said it would post losses for the first and second quarters. Standard & Poor's announced a similar downgrade in March.
Nokia insists the Lumia is not a failure. It says it has successfully launched its Windows Phones range on 42 markets, including China and United States, the two biggest.
"We are seeing positive momentum in our Lumia range," said Niklas Savander, chief of Nokia's Markets unit. "Our flagship Lumia 900 is off to a strong start and is exceeding expectations with AT&T in the U.S. We continue to work closely with, and receive the support of our operator partners."
A Nokia spokesman said the Lumia was now being sold by 80 mobile operators across Europe, all of which had committed to market the phones with promotional campaigns.
Stacy Drake, Director of Marketing at Microsoft's Windows Phone Division said: "In just one year, Nokia and Microsoft have delivered award-winning products and established a third ecosystem. We're off to a strong start and this is only the beginning."
Nokia's shares were at 3.08 euros on Tuesday, up 2.9 percent, at 1630 GMT.
Without strong support from phone operators, its future is cloudy. Telecom operators subsidise the majority of mobiles in the United States and Europe before putting them in the hands of consumers, so they have an outsized influence on the market.
Operators want a viable alternative to Apple and Android, not only to offer customers more choice but to give them a stronger bargaining position with phone manufacturers.
U.S. operators buy about 90 percent of mobiles while their European peers buy 50-70 percent, according to market researcher Gartner and Bernstein Research. Operators then sell them at a discount and recoup the money through 1-2 year contracts.
"It's good for operators if we can reduce the dominance of Apple," said a spokesman for a second telecoms carrier, who asked not to be named because of the sensitivity of relations with mobile phone makers.
Nokia is trying to capitalize on its closer ties with the operators and to exploit their irritation with Apple's dominance and Google's bandwidth-hungry services like YouTube in the hope they will push their phones on the market.
However, at a France Telecom store in Paris, Lumia models were not prominently displayed and a sales clerk was quick to offer one shopper an iPhone first. She then presented a range of Android smartphones made by Samsung and HTC.
Reviews of the Lumia on tech blogs have been mixed with some liking the smart look and Windows-inspired design, and others pointing out the poor quality of the screen and battery life. Few reviewers have suggested users should dump their iPhone or Android to buy a new Nokia.
Getting customers to switch phones is even trickier in the "app economy" as users buy games, publications and videos on their phones and do not want to lose them by switching system.
Issuing a profit warning last week, Nokia fell short of analysts' estimates by saying it had sold over 2 million Lumia smartphones in the quarter ending March, up from 1 million in November to January. Analysts had expected sales of 3 million.