Nokia just shut its coolest phone out of more than half the U.S. market.
The Finnish handset manufacturer's decision to strike an exclusivity agreement with AT&T for its flagship Lumia 920 means much of its hopes of breaking into the U.S. market rides on just the one carrier, which isn't the smartest decision when said carrier has a huge wave of other smartphones coming out this holiday.
While exclusivity deals were in vogue a few years ago, they've grown increasingly passé as heavy hitters such as Apple and Samsung Electronics have opted to debut on multiple carriers, getting their phones into as many hands as possible.
"If you want to win market share in this business, as an original equipment manufacturer, you have to be able to forge multiple deals with multiple carriers for the same device," says Julian Blin, an analyst at Infonetics. "That's precisely what Apple and Samsung have done and that's why it worked so well."
Exclusivity deals are attractive for handset makers such as Nokia because they essentially guarantee a large marketing push from the carrier. That's helpful to Nokia because it doesn't have the strongest brand in the U.S.
Motorola Mobility, for instance, rose from its virtual grave after Verizon Wireless pushed its original Droid as an exclusive three years ago. AT&T will indeed be giving the Lumia 920 a prominent push and placement in stores, CNET has learned.
"Clearly it's a good idea to be on as many carriers as possible, but if you are going to pick one, as long as it's Verizon or AT&T you're going to have a broad customer base to appeal to," said Gartner analyst Michael Gartenberg.
AT&T promised to provide a lot of marketing support, and Nokia likewise said it was pleased with the deal.
"Today, we are excited by AT&T's announcement to bring the latest Lumia devices to the U.S. -- an important market for us," the company said in a statement e-mailed to CNET.
But here's the problem. AT&T and Nokia already tried this play before, and it didn't work out so well. Go back just a few months and AT&T was boasting about its biggest launch with the exclusive Lumia 900, a phone the two proudly showed off at the Consumer Electronics Show, where the phone won a best of show award from CNET.
Despite a strong campaign from AT&T and Nokia, and AT&T training its staff to specifically carry and sell the phone, the Lumia 900 did marginally well, but didn't wow anyone.
Its best performance came when the phone stood relatively unopposed, with most of its rivals' flagship phones still months away from launch. How exactly is it supposed to do the same when every other big smartphone has launched?
Set aside what other carriers are doing and just look at AT&T, where the competition is fierce. The wireless company has just finished a marathon of phone announcements for the holidays, with a number of high-profile phones including HTC's quad-core-equipped One X+, LG's latest flagship, the Optimus G, and James Bond's Sony Xperia TL.
"It is just hard to compete at AT&T where you have 31 million iPhone users and have to compete against a free iPhone and other devices like the Galaxy S2 and Galaxy S3," Blin said.
Windows Phone 8 will get a lift from Microsoft, which is planning a massive campaign to promote the mobile operating system alongside its Windows 8 PC and tablet operating system.
The only thing is, Microsoft has already anointed a flagship Windows Phone 8 device, and the Lumia 920 isn't it. Instead, HTC's Windows Phone 8X will get the big push from the software giant. Guess what? It will also be available at AT&T this holiday.
It's almost a reversal of roles for HTC and Nokia from earlier this year, when HTC's Titan II was virtually ignored in favor of the Lumia 900.
The exclusivity deal also doesn't factor in how the other carriers are going to promote future and current Lumia phones. If Verizon Wireless isn't selling Nokia's best product, how enthusiastically is it going to promote the mass-market second-tier one? And how willing is it to strike big a deal with Nokia in the future?
T-Mobile, meanwhile, has been a strong partner to Nokia, but its smaller customer base isn't going to be as much help to the company.
Nokia has a lot riding on this holiday season. The company continues to post losses, with some questioning its ability to survive through the next year. There remain significant concerns about its financial well-being amid speculation that Nokia might be forced to sell its headquarters or even cut its dividend.
The U.S. represents one of Nokia's key markets for mounting its turnaround. It hasn't had much of a presence here over the last few years, so the opportunity is immense.
Unfortunately, as evidenced by its earlier attempts this year, the challenges are even larger. Several other handset manufacturers are tying their hopes into their own flagship phones this holiday season, with Research in Motion to come with a new BlackBerry early next year.
So Nokia is clearly desperate for a breakout hit. Only problem is, so is everyone else.
Updated at 11:06 a.m. PT: to include a comment from AT&T.