Nokia will follow Google, offering free maps on its cellphones, in a move to boost handset sales and prices, but one that will hit other satnav players.
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.
Nokia offering free navigation on some 20 million smartphones is set to hurt key players on the global navigation market, including TomTom and Garmin.
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.
Shares in TomTom fell 13 percent on the news, and analysts said Nokia''s move was bound to hurt business of smaller navigation software firms like Telmap or Telenav.
If you are a pure software player - you''ve got a big problem. Who''s going to pay for turn by 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.
Sentimentwise this is a new blow to TomTom, said SNS Securities analyst Martijn Den Drijver 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 (1.74 billion pounds) 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 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 a whopping $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.
Shares in Nokia were 0.8 percent higher at 1102 GMT, inline with slightly firmer stock markets.