Pax Nokia ... Shattered

For more than 200 years, the Roman Empire imposed a Pax Romana across the Mediterranean. Under Rome's benevolent dictatorship, commerce thrived, and subject nations were (relatively) content. Then one fine day, the Empire split in two …

Today, a similar situation is playing itself out on the cell-phone scene. It's been nearly four years since I last penned a column on Symbian, the company responsible for the software on which so many of the world's cell phones run. Four years in which Finnish telecom Nokia (NYSE: NOK  ) imposed a "Pax Nokia" among its partners in the British handset software specialist:

Partners

Ownership in Symbian

Nokia

47.9%

Ericsson (Nasdaq: ERIC  )

15.6%

Sony (NYSE: SNE  ) Ericsson

13.1%

Panasonic

10.5%

Samsung

4.5%

Siemens

8.4%

No more
On Tuesday, Nokia announced a coup of sorts -- or perhaps the rise and simultaneous fall of an empire. Instead of working in conjunction with its partners, as it has for so many years, Nokia is buying them out. All of them.

According to Nokia, every one of its partners, save Samsung, has already tendered "irrevocable undertakings" to sell its stakes to Nokia for about $5.67 per share -- $410 million in all. And Nokia expects that Samsung will also bow to the inevitable. The result, in Nokia's estimation, will be the establishment of a new Nokian Empire, dubbed the Symbian Foundation, announced today by Nokia, together with AT&T (NYSE: T  ) , LG Electronics, Motorola (NYSE: MOT  ) , NTT DoCoMo, Samsung, Sony Ericsson, STMicroelectronics, Texas Instruments (NYSE: TXN  ) , and Vodafone. Said foundation will develop "the most widely used software platform on the planet" -- and Nokia will be the company licensing it.

Pax Nokia ... shattered
Why Nokia? Why now? The answer may lie in history. Four years ago, Nokia made a similar play to acquire Symbian, offering to buy out Psion's stake as it exited the alliance. Nokia's partners bucked at the prospect of owning only part of a company dominated by Nokia, however. And whether this was Nokia's plan all along, or just a happy change in circumstance, the Finns managed to persuade their partners to up their stakes in Symbian substantially, and make additional investments in the company to boot.

This time around, it seems the partners decided to go the other route. They're cashing in their chips and letting Nokia walk away with the game. But just like last time, Nokia's latest Symbian gambit may have unintended consequences.

Rise of the Androids?
I'm speaking, of course, of Google's (Nasdaq: GOOG  ) oft-ridiculed Android cell-phone operating system. A looming rival to Symbian before, the breaking of the Pax Nokia may be the catalyst that sparks outright rebellion across the globe. Companies that balk at the idea of buying their operating systems from a cell-phone-making rival might well clamber aboard Google's bandwagon instead. Peering down the imperial highway, I'm beginning to see glimpses of a future in which Nokia-Symbian faces a rising threat as Android becomes the best alternative to Nokia's dominance in the cell-phone software sphere.

Right now, if Nokia's got its Symbian client list correct, there aren't a whole lot of cell-phone makers left out in the cold. But as today's news shows, things can change in an instant in this industry.

Peer further still
Let me close with one final thought, just to get this on record before it happens. In recent months, we've seen Nokia capture a major player in GPS mapping data. We know that the company intends (because the EU told it to intend) to sell GPS mapping data to its "rivals" after the Navteq deal goes through. Now we know that Nokia intends to become a major force in another key element of mobile devices -- its software operating systems.

Seems the company is positioning itself to evolve from a maker of cell phones to a provider of high-margin cell-phone "innards" made by others. That might be a big leap for most companies, but this one used to make rubber boots, for heaven's sake. So don't jump to conclusions.

Whether Nokia has finally agreed that cell phones are a commodity and is preparing to exit the manufacturing biz entirely, or it's just keeping its options open, I cannot yet say. But to my Foolish eye, the company seems to be spinning itself a chrysalis, preparing to evolve further.

Fool contributor Rich Smith owns no shares in any company mentioned in this article, although he has owned shares of Nokia in the past. Google is a Motley Fool Rule Breakers pick. The Fool has a disclosure policy.


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  • Report this Comment On June 25, 2008, at 4:41 PM, planoguitarist wrote:

    Nokia is open sourcing Symbian, so there isn't the concern that the other players must license it. It will basically give Symbian phone developers what Android does with a more established platform.

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