Nokia is to offer free navigation on its cellphones to boost handset sales and prices, putting more pressure on satnav makers already hit by Google's assault on the market.
Nokia hopes free navigation will bolster its flagging position in the global smartphone market. It still sells more smartphones than any of its rivals, but it has lost ground to Apple and RIM.
It will help us to sell smartphones, Anssi Vanjoki, head of marketing at Nokia, told Reuters in an interview. It will serve as a defense to our product prices.
Google started in late 2009 to offer free navigation on Motorola's Droid model smartphones in the North American market.
By offering free navigation on some 20 million smartphones Nokia is set to hurt key players on the global navigation market, including TomTom and Garmin.
Analysts said the company's move may also cause a new flurry of acquisitions from the likes of Samsung, RIM and Microsoft, as consumers will expect free turn-by-turn navigation to be a standard feature on smartphones.
This has massive consequences for pure software companies. It is, of course, a watershed for the industry, said Michael Halbherr, vice president for location-based services at Nokia, adding he saw navigation as a function masquerading as an industry.
Halbherr said Nokia hoped to partially offset lost sales from free navigation through advertising sales.
Shares in TomTom fell 15 percent on the news and were down 10.4 percent at 1326 GMT, while Garmin shares were expected to open more than 8 percent lower.
Analysts said Nokia's move was bound to hurt the business of smaller navigation software firms such as Telmap or Telenav.
If you are a pure software player, you've got a big problem. Who's going to pay for turn-by-turn navigation now Nokia and Google are giving it away, said analyst Martin Garner from British consultancy CCS Insight.
TomTom sells also navigation software -- it charges $70 for its North American iPhone navigation application -- with 70 percent of sales coming from personal navigation devices.
Sentiment-wise this is a new blow to TomTom, said SNS Securities analyst Martijn Den Drijver said.
Israeli firm Telmap, which sells its software to operators, said it expects to see a strong growth in 2010 as operators search for alternatives to Nokia and Google.
The fight today for service is between direct consumer players such as Nokia, Internet players such as Google and operators, said Telmap Chief Marketing Officer Motti Kushnir.
Now that operators see Nokia and Google trying to eat their lunch we are expecting them to be more aggressive, he said.
Turn-by-turn navigation has been one of the key revenue sources for Nokia's services offering, and the company had said it expected one-third of its targeted 2 billion euros ($2.84 billion) services revenue next year to come from navigation.
The big question is -- can Nokia generate revenue enough to compensate for the revenue streams they kill, said John Strand, chief executive of Danish telecoms consultancy Strand Consult.
The only way to do that short-term is through extra hardware sales and a higher average sales price. It will take time to develop all the new revenue streams -- years, he said.
But one analyst said the move, when looked at alongside the moves of Google, could mean Nokia is readying to write down Navteq goodwill when it reports fourth-quarter results on January 28.
In 2008, at the peak of the market, Nokia bought digital mapping firm Navteq -- a rival to navigation specialist TomTom's Tele Atlas unit -- for $8.1 billion.
Looking at what has happened in the last 12 months... the environment has become more challenging for Nokia and navigation services, said FIM analyst Michael Schroder.
There is a risk that they will make a writedown on Navteq when they report fourth-quarter data next week, but it is impossible to speculate on the size, Schroder said.
Analysts concluded last year after Google's foray into navigation that it was unlikely TomTom, Garmin and Nokia would ever recoup their big recent investments in navigation technology.
Shares in Nokia were 1.2 percent higher, inline with slightly firmer stock markets.
(Reporting by Tarmo Virki and Brett Young in HELSINKI, Sarah Marsh in BERLIN, Tova Cohen in TEL AVIV, Matt Cowan in LONDON and Harro ten Wolde in AMSTERDAM; Editing by Mike Nesbit)