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By Carl Howe

MacDailyNews has a great note on how Nokia wants an Apple-style cut of service revenues from its handsets. While I think that type of deal unlikely on top of Nokia's (NYSE:NOK) existing subsidy stream for many of its handsets (note to Nokia: who do you think pays those subsidies for your handsets? Hint: it's not the carrier), what's more interesting is the color provided by long-time Nokia veteran Mike from Helsinki about a conversation he had two years ago with a Nokia SVP:


I flatly told him that Nokia should considered Apple (NASDAQ:AAPL) to be a very serious threat.

With a straight face, this SVP told me that I was hallucinating.

He proposed that iPod and iTunes was an exception, and would be eclipsed by a Nokia/Microsoft (NASDAQ:MSFT) partnership in short order. Why wouldn't he believe that? The largest maker of consumer devices in the world teamed up with a company that has 95% market share of the computer OS business [seems like a sure thing].

He further pointed out to me that Apple could never match Nokia's legendary and titan logistics chain throughout the world, and that Apple, an MP3 device maker, had no clue as to the complexities of the mobile phone world, how mobile phones should be built, how to deal with operators, etc. Apple, said this SVP, was simply out of their league.

He also pointed out to me that Nokia already had umpteen gazillion MP3 players existing on their phones (never mind that NO ONE used them), and that they had just acquired white label music aggregator Loudeye and would parlay the Nokia/Microsoft/Loudeye team into a competitive offering - be damned their operator customers.

This SVP is a keenly smart, competent, accomplished guy, supremely educated and also a person who I consider a friend. And he was utterly clueless.

That conversation echoes the one that nearly every music player manufacturer on the planet has had to date. And Microsoft's DRM and poor business decisions has managed to undermine the business of every single one of them, especially now that Microsoft's Zune competes with them and yet isn't compatible with Microsoft's own PlaysForSure music software. If Nokia continues to pin its hopes on Microsoft and rights-managed music -- which, by the way, fights the DRM-free trend that Apple, Amazon, and now Wal-Mart have successfully deployed -- there's no limit to the revenue cuts it could negotiate with the carriers. After all, 20% of zero is still zero.

Disclosure: Author is long AAPL.

Source: Is Nokia Looking for Revenue in the Wrong Places?