Microsoft to slash prices of Nokia Lumia smartphones as it targets India as one of the main growth markets

 Microsoft Corp's dramatic acquisition of Nokia's global cellphone business will result in a reduction in prices of Lumia handsets in most markets, including India, next year, possibly altering the dynamics of the country's fast-growing smartphone segment, say analysts.

Microsoft early Tuesday morning (India time) said it would buy Finland-based Nokia's phone business and license its patents for over $7 billion, in a last-ditch attempt to compete in the mobile handset market dominated globally by Apple and Samsung.

The deal will make Microsoft a hardware-software-services player and better position it to take on its aggressive global and local rivals, say analysts and industry executives. They add that India, where only about 10% of the 870 million mobile phone users own smartphones, could be a key growth market for the Redmond-headquartered company.

But, some also feel that Microsoft may focus exclusively on smartphones, and exit the feature phone segment, which accounts for more than 90% of India's handsets.Rajiv Kaul, a former managing director at Microsoft India, told ET that the deal would imply that goodquality devices would flow in at lower prices into the Indian market. Device costs could go down by $30-40 (approx Rs 2,040-2,720) a handset, he said. "Much like Google Nexus phones of comparable specifications are cheaper by $30-40 and in some cases even $100 (Rs 6,800) than rivals."

Nick Spencer, senior practice director, ABI Research, a New Yorkbased market research firm, said prices of the entry-level Nokia Lumia 520 could almost halve to less than $100 in some months from the time the deal closes in the first quarter of 2014.

If this plays out, some say domestic players such as Micromax, Karbonn and Lava, and even South Korea's Samsung, which have left Nokia way behind in the smartphone sweepstakes in India, could get pulled into a price war in the segment. Nokia 520 costs about Rs 9,200 in India while domestic handset makers such as Micromax, Karbonn and Lava sell phones with similar specifications starting at around at Rs 3,500. Samsung prices its entrylevel smartphone at around Rs 5,000.

A significant reduction in the price of Nokia devices could stir up the market and force its competitors to retaliate. BlackBerry, which doesn't have any phone in the sub-Rs 6,000 range, too could be hurt by a potential price churn at the lower end of the smartphone segment.

A BlackBerry executive declined comment. "A preloaded software on a device, economies of scale, greater investment in product development that clearly wasn't happening in Nokia's case, and consolidated distribution channel together will help drive handset costs down," said Prashant Singhal of Ernst & Young. Analysts broadly concur that Microsoft would likely reduce prices only to the extent arising out of operational efficiencies. But, one can't rule out heavy price cuts if the company decides to get aggressive in customer acquisitions, especially in emerging markets like India.

Lava co-founder Hari Om Rai, however, said a price war was unlikely. "Microsoft phones will be cheaper than the current models they (Nokia) have, but only marginally, as the cost of hardware is almost same for all players." Marketers say given Nokia's laggard image, it might be a challenge for Lumia phones to give their rivals a run for their money.