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2nd UPDATE: Vodafone Opens Door to Nokia's Ovi Web Portal

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STOCKHOLM -(Dow Jones)- Nokia Wednesday received strong backing for its Internet strategy, with global operator Vodafone Group throwing its support behind the handset maker's "Ovi" music and Web-services platform.

Vodafone, the world's largest mobile operator by revenue, has agreed to work with the Finnish handset giant to integrate a number of Internet services, including Nokia's Music Store, on to devices that will begin selling early next year.

Until now, some analysts had believed that Nokia faced a backlash from mobile phone operators, fearful that the world's largest mobile phone maker would cannibalize their revenue streams.

"It's a huge endorsement. Having someone with the caliber of Vodafone on board is a very good sign," Nokia spokesman Steven Knuff said. "We're in discussions with a lot of operators, and things are looking well. I know more are coming."

Vodafone, which is increasingly trying to offset declining voice call prices by launching new Internet-based services, will combine its own software services, with Nokia's Ovi portal and will launch a number of exclusive "premium" Nokia handsets in 2008, the company said.

"This is a huge deal. It is a watershed endorsement for Nokia and its Ovi strategy," said Ben Wood, an analyst at telecommunications research company CCS Insight.

"The popular opinion has been that there's a huge operator backlash to Ovi, but this is a huge tier one global operator, following on from Telefonica the other week, endorsing the service. It's gaining significant momentum," he added.

Nokia and Vodafone said the agreement will give customers a better choice of Internet services, content and browsing tools.

The news comes on the heels of an earlier pact between Nokia and Spain's Telefonica, aimed at providing users with access to the Internet services of both companies.

Vodafone - which was conspicuously missing from Google's open handset alliance earlier this week - has been guarded about its Web-browsing service in the past. The first version of its Vodafone Live! mobile portal took a "walled garden," where all content was kept locked within its own mobile Internet portal.

However, this changed following a strategic turnaround by Vodafone Chief Executive Arun Sarin in May 2006, where the company said it would look to target an additional 10% of group revenue, or about GBP3 billion (about $6 billion), from new services, including broadband, mobile advertising and Internet services by 2010.

Since then, Vodafone has signed deals with eBay, Google, Yahoo!, Microsoft, MySpace and YouTube to put their Internet applications on Vodafone's mobile Internet browser.

"In supporting Ovi, Vodafone is effectively admitting that its efforts to create user loyalty through branded services have failed," said Nomura analyst Richard Windsor, who added that mobile operators have struggled to create there own Internet services.

However, as a result, Vodafone now stands to make some money from its branded Internet services, Windsor said.

"Vodafone is likely to see more success with Ovi than if it goes it alone and could even cut costs to boot," he said.

Frank Rovekamp, Vodafone Group's global chief marketing officer, said the deal was likely to drive greater usage of mobile Internet services, as it would make it easier for people to access and use services. Billing systems would also be better integrated, he said.

Rovekamp told Dow Jones Newswires that Nokia and Vodafone would share revenue on maps and computer games used by customers. However, their two music services would remain separate with the current sharing agreement in place.

"I see this as revenue enhancing. I don't believe it will push up customer acquisition costs," he said.

-By Adam Ewing, Dow Jones Newswires; +46 8 545 130 95; adam.ewing@dowjones.com

(END) Dow Jones Newswires

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