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$700 for Nokia's new phone. Are they nuts?

Nokia's new N97 has hit U.S. shores with a whopping $700 price tag, making it a highly unlikely competitor to any of the latest smartphones launched in the U.S.

Correction 5 p.m. PDT: The Nokia N97 is not yet being sold in Europe, and AT&T sells the E71x with a two-year contract. The E71 is an unlocked version of the phone. The article has been changed to reflect this.

Clarification 5 p.m. PDT: See below for more information about data plans that can be used with the N97 through AT&T.

For a company that has said it wants to be a player in the U.S. market, it doesn't look like Nokia is trying very hard.

On Tuesday the mobile phone giant said its flagship smartphone, the N97, which was announced in December, has gone on sale in the U.S. at the whopping price tag of $699. This price isn't that shocking considering the phone will also be offered in Europe for a comparable price. But in the U.S. where consumers are accustomed to paying $200 for a smartphone, it seems a bit ridiculous.


The reason the price of the N97 is still so high is that Nokia is not selling it through any particular carrier. Instead it will be sold to U.S. customers in Nokia flagship stores in New York and Chicago as well as online.

Nokia has made other phones for the U.S. market and has also sold them without carrier backing. The N95, the previous generation N-series Nokia phone sold in the U.S., retails for about $369 to $468, according to Nokia. In April of 2007, when the phone was first introduced, it sold for about $750 to $800. But a phone priced at $700 in the U.S. market is likely to be too high for U.S. consumers, especially when most devices sell here for $200.

Nokia also couldn't have picked a worse time to debut the N97 in the U.S. market, which happens to be just days after two of the most anticipated smartphones of the year have been launched. On Monday, Apple announced its latest phone, the iPhone 3G S, which will go on sale next week. And on Saturday, Palm started selling the much-hyped Pre.

Each of these devices can be bought for far less than the Nokia N97. The 16GB iPhone 3G S will sell for $199. And the 32GB model, which has the same amount of built-in memory as the N97, will cost $299 when the phones go on sale next week. Apple has also cut the price of its 8GB iPhone 3G, introduced last year, to only $99. The Pre, which also has a slide-out QWERTY keypad and a touch screen like the N97, is $199 with a $100 mail-in rebate.

But there is a catch; these low-priced smartphones come with strings. Consumers must sign a two-year contract to get the discounted prices. And in the case of the iPhone and the Palm these phones are exclusive to one carrier. Subscribers are also charged an early cancellation fee if they terminate their contract before it ends.

By contrast, the N97 is not bound by any contract and the quad-band (GSM 850/900/1800/1900) device can be used on almost any HSDPA network throughout the world.

But even with early termination fees, the iPhone and Pre are still less expensive than the N97. For example, a new AT&T subscriber buying the 32GB iPhone 3G S will pay $300 for the device. If this subscriber cancels his service before the two-year contract ends, he will pay at most $175. Adding the early termination fee to the cost of the phone, the iPhone subscriber will still only pay $475 for the device. This is about $225 less than what he'd pay for the Nokia N97.

That said, the Nokia N97 is an impressive phone. And it offers several advanced features that are not available on other phones, such as a 5-megapixel camera. It also offers more memory than any of these other phones. It comes loaded with 32GB of internal storage on the device with the option of adding up to another 16GB of storage through a microSD card.

The N97 also supports Flash video, something that Apple's Safari browser doesn't support. And Nokia has built-in easy access to a number of social-networking sites. The N97 also introduces something Nokia calls "social location," which uses the capabilities of the integrated A-GPS sensors and electronic compass to automatically update users' social networks, or let them share their location via photos or videos with friends.

There is no question that the N97 is a feature-rich, advanced smartphone that could easily take on any of the top smartphones in the U.S. But without a U.S. carrier to subsidize it, Nokia doesn't have much of a chance to make a splash here. Just look at Sony Ericsson's Xperia X1, which went on sale last year in the U.S. with a price tag of $800. The phone has largely been a flop in the U.S.

Nokia must realize that it can't really compete in the U.S. smartphone market without a carrier subsidy. And it's difficult to understand why the company would not be able to strike deals with U.S. carriers. After all, it is the largest cell phone maker in the world.

Nokia has talked about getting more aggressive in the U.S. market for two years. It opened a development facility in California. And it has been manufacturing phones specifically for the North American market. But most of the phones it is able to sell through carriers are low-end ones. The only exception is the new could still maintain a market share position in the 30 percent to 40 percent range by selling devices throughout the world. But the U.S. market represents an untapped opportunity that could prove very lucrative for Nokia. And the longer it takes Nokia to bring an affordable hit phone to the U.S., the harder it will be for the company to get its fair share of the pie.

Clarification: Several readers have commented on this story saying that people with unlocked phones can get unlimited data plans for $15 a month. With a $20 unlimited texting plan, the fee for unlimited data drops to $10 a month. In total a user could get unlimited data and texting for $30 a month.

According to AT&T's terms of service for its data service, the $15 data rate is for unlocked feature-phones. They are not supposed to be used with smartphones, whose owners typically use a lot more data. Here is an excerpt from AT&T's terms of service: "Service is only provided for prescribed purposes and pricing for Data Services is device dependent and based on the transmit and receive capacity of each device. A pricing plan designated for one type of device may not be used with another device. If AT&T determines that you are not subscribed to the required plan(s), AT&T reserves the right to switch you to the required plan or plans and bill you the appropriate monthly fee."

A customer support representative did tell me that there is no way for AT&T to tell when you sign up for the service if you are using your AT&T SIM card for an unlocked feature-phone or for an unlocked smartphone, but based on usage patterns the company could determine that "you are not subscribed to the required plans."

So the bottom line is this: if you follow the rules, service for an unlocked Nokia N97 or any other smartphone will cost you as much as service for any subsidized smartphone, BlackBerry or iPhone that AT&T sells. These plans cost $30 a month for unlimited data and if you want a texting plan you can choose from plans that range in price from $5 a month to $20 a month for unlimited texting.